Financial tips to help you prepare for a recession

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Why are people more afraid of flying than driving, even though car wrecks are far more frequent? As one academic suggests, “in a car, at least I know when to brake. In a plane, I have no control.”

A similar mentality finds its way into the minds of investors, as well. There is a desire to want to hit the brakes if you fear a recession is nearing. The word recession is an economic term that refers to a period of declining economic performance across an entire economy. Typically, this is measured by two consecutive quarters of declining gross domestic product (GDP) and other monthly economic indicators.

We have no control over when the next downturn may surface or how markets are impacted when it does. Also, most of us understand from an evidence-based perspective it is best to ride the wave of market turbulence. But when market volatility hits, it is very hard to do nothing in response.

Rather than falling victim to emotional investing based on the uncertainty of when or if a recession will hit, here are 15 actions you can take that can add real value to your financial well-being. As the late financial economist Peter L. Bernstein once said, “It’s not your wealth today, but it’s your future that you’re really managing.”

Preserve

1. Reduce debt: Pay off credit card balances and other high-interest loans.

2. Cut unnecessary costs: Find ways to cut back on expenses, such as canceling subscriptions or services you haven’t used in months (magazines, streaming services, club memberships, credit cards, etc.).

3. Negotiate on the rest: Manage insurance and other ongoing costs by seeking periodic competitive bids. Where possible, negotiate with vendors to reduce “fee creep.”

Protect

4. Freeze your credit: Shut out identity thieves with a freeze on your credit reports. It’s now free to freeze and temporarily unfreeze your credit reports when needed.

5. Freeze your kids’ credit: Unfortunately, kids are prime targets for identity thieves. Create and lock down their Social Security numbers and credit reports before anyone else does.

6. Keep an eye on things: Order and review your free annual credit and Social Security reports.

7. Establish a trusted contact person (TCP). Name a TCP as an extra line of defense for your investment accounts. If your account custodian feels you are being financially exploited, they then have a backup person they can talk to about some of their concerns.

Prepare

8. Establish or increase your retirement plan contributions: The more you invest in retirement (or similar goals), the better you can employ compound interest and market returns to accelerate your efforts — especially if your employer matches your contributions.

9. Set up or beef up your emergency/rainy day fund: It’s great to be investing in tomorrow. But in an emergency, you may need cash today. Be sure to set enough aside so you won’t need to take costly loans or sell holdings at inopportune times.

10. Revisit your estate plans: Even if you’ve already established your estate plans, it is wise to refresh your memory every two to four years to make sure what you desired when the documents were written is still consistent with your current goals. If you do not have an estate plan, you should consider moving forward with getting the proper documents in order.

Simplify

11. Declutter your portfolio management: Over time, most families end up with a confusing array of investment accounts across multiple custodians. Where possible, organize or consolidate your accounts across fewer platforms to keep account management less overwhelming.

12. Unsubscribe from something: You may also have accumulated hordes of e-newsletters through the years. Some may be useful, but many others may merely distract. Take a deeper look at the source your financial e-newsletters are coming from. Pick a few you never read anyway and unsubscribe.

Learn

13. Advance your financial literacy: There are many free or modestly priced books, podcasts and classroom options that can help you build general financial knowledge or provide guidance in areas of interest. Do beware of mass-mailed sales pitches, posing as “educational” forums. Always consider the source of the information first.

14. Educate your kids: Instill good financial basics like budgeting, goal setting and spending wisely with your kids early on to strengthen their future financial independence, as well as your own.

15. Talk to your aging parents or adult children. A few simple conversations can enhance your understanding of one another’s goals and values and potentially reduce unnecessary expenses and stress when making multigenerational financial decisions.

There are always steps you can take to put yourself and your family on more solid financial ground. The actions suggested above are smart moves you can make regardless of the markets or the economy.

Also keep in mind your personal goals and seek opportunities to delegate or capitalize on the resources you already have at your disposal wherever possible. While none of the suggestions listed above are terribly time consuming when completed one at a time, they can feel overwhelming if you try to complete the whole list at once.

Talk with your financial adviser to alleviate your concerns and prioritize your financial goals.

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