How to recession-proof your life


With all the rumblings about a possible recession on the horizon, it pays to be prepared.

There have already been warning signals coming from the bond market. On Friday, the 10-year Treasury bond broke below the 2-year rate multiple times throughout the session after President Donald Trump ordered U.S. manufactures to leave China. The same thing happened in the bond market on Thursday and two other times, all in less than two weeks. That’s called an inverted yield curve, and it is a phenomenon that often has been a reliable, yet early, indicator of economic recessions.

The news also hit the stock market, which plunged on Friday.

While experts may disagree on whether a recession is inevitable or not, there are steps you can take ahead of time to recession-proof your life.

“Now is the time to boost your emergency savings, pay down debt, and create breathing room in your monthly budget by identifying expenses that can be cut either now, or later in the event of a job loss,” said Greg McBride, chief financial analyst at personal finance website

“But do not — do not — mess around with your retirement account based on the volatility of markets.”

Here are for tips to help you get prepared.

1. Focus on what you can control

You’ve heard it before, but it’s true: Don’t panic. Breathe.

Take a hard look you should look at your saving, spending and investments. However, the first step is looking at the money you have coming, like your employment income.

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That means you should assess at your job security. If a recession hits, you don’t want to start a job search along with a bunch of other people who’ve just been laid off.

If you don’t feel your job is secure, then make sure your resume is up to date, said certified financial planner Diahann Lassus, co-founder, president and chief investment officer of wealth-management firm Lassus Wherley, a subsidiary of Peapack-Gladstone Bank.

“If you’re great and your job is in good shape that is fabulous but it still pays to think about those things and plan ahead,” she recently told CNBC.

2. Shore up your finances

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The conventional rule of thumb of many financial experts is to have three to six months of living expenses in your emergency fund.

However, if there is an economic downturn and you sre unemployed, you may be out of work for a year or more. After the Great Recession, the average length of unemployment nationally was 29 weeks, and for workers between the ages of 55 to 64, it was one year.

Yet, the reality is that 40% of Americans would struggle to come up with $400 for an unexpected expense, according to the Federal Reserve.

If you don’t have an emergency fund, start one. However, what you really need to do is put your savings strategy on overdrive.

Strive to build cash reserves to last six to 12 months.

“You want to make sure you have the cash you need so you don’t have to sell things at the worst possible time,” like after your stocks, mutual funds or 401(k) have already lost a lot of value, said Lassus, a member of the CNBC Digital Financial Advisor Council.

If necessary, consider tapping into savings you may normal steer clear of in order to get more cash in hand.

“Nobody wants to reduce their savings to retirement or their kids’ college savings, but sometimes redirecting those savings towards greater amounts of cash or liquidity can do wonders for helping you navigate volatile markets, as well as recessions,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council.

You can also put funds into a high-yield online bank savings account, and consider opening a home equity line of credit.

DepositAccounts and are good resources to look for the best rates on savings and money market accounts.

3. Get cautious with your spending

To help build up that savings, you’ll have to take a look at your spending and see what you can cut back on.

For some, that may mean eating out less or holding off planning a winter vacation. You may also want to consider delaying big purchases like a car or even a home.

You should also make a diligent effort to stop buying on credit unless you pay your balance in full every month. Instead, pay in cash or with a debit card.

In addition, pay down your credit card and other debt.

4. Protect your portfolio

While you can’t control the financial markets, you can control where you put your money.

Some financial advisors say now may be a good time to consider converting traditional pre-tax 401(k) or IRA money into a Roth IRA. Another option is just switching your future 401(k) contributions from a traditional 401(k) to a Roth 401(k), if your company offers one.

Money in Roth accounts grows tax-free. Therefore, having more money in a Roth IRA accounts gives you a great deal of flexibility in retirement since there are no required minimum distributions.

However, no matter what the economic condition, you should not have money invested in the markets if it is money that you will need in the next five years.

That should be the case whether the market is soaring or we are in a recession.

CHECK OUT: Top 10 metro areas where millennials earn the biggest paychecks via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.


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