How to recession-proof your life

Sponsored: Good advice for tough times, even if the worst never happens.

(AdobeStock | Consumer Affairs, sponsored) How to Recession-Proof Your Life.

Are we in a recession? The National Bureau of Economic Research points to continued job growth and record-low unemployment as signs that we are not.

“When you are creating almost 400,000 jobs a month, that is not a recession,” said Treasury Secretary Janet Yellen in a White House statement in July.

Rising food prices and climbing interest rates have many Americans feeling like we could be in a recession soon, however, and the recent standoff in Congress over the debt ceiling has the potential to impact both the U.S. and global economies in ways that experts can’t predict yet.

If you are concerned about a recession, here’s what you can do to prepare.

1. Save up a financial safety net

The rule of thumb to prepare for emergencies is to save enough money to cover living expenses for three to six months. Be sure to keep these funds in an easily accessible account.

“It’s important to have a solid emergency fund in place to cover expenses in case of job loss,” says Dennis Shirshikov, a professor at the City University of New York who teaches finance, economics and accounting.

If you don’t have an emergency fund, start saving money now. This may mean cutting expenses, increasing earnings or both. You may want to cancel a planned vacation, keep your current vehicle rather than trading in for a new one and put off expensive home projects if they are not necessary.

2. Lower your housing costs

The largest expense for most Americans is housing, which takes up to 30% of the average household budget, according to a survey of renters by the U.S. Census Bureau. To save more money, it may be necessary to reduce your housing costs.

“For homeowners, there are several options to consider,” says Shirshikov. “One is to refinance their mortgage at a lower interest rate, which can help to lower their monthly payments. Another is to take out equity from their home, which can provide a source of cash in case of an emergency.”

If you are not a homeowner, consider other ways to lower your monthly rent. One way is to get a roommate. Senior home-sharing programs, like Golden Girls Network, match senior homeowners over 50 with renters who are looking for a place to live. But do keep in mind Utah state regulations.

“While home sharing is an option, it may be limited, especially for couples looking to share their homes,” said Stephan Baldwin, founder of Assisted Living, a senior living agency in Salt Lake City. “According to state regulations, no more than three nonrelatives can cohabit a rented property.”

Seniors on a fixed income may also find housing resources at the Salt Lake City Housing Liaison.

3. Consider a home warranty

If you own your home, a home warranty can be a good investment to protect yourself against major housing repair costs.

“It can provide peace of mind and protect against unexpected repairs,” says Shirshikov.

For example, if your home has plumbing that was put in decades ago or an aging roof, having a home warranty in place can cover emergency repairs that could put a dent in your savings or cause you to go into debt.

Home warranties can also cover the cost to repair or replace essential appliances, including your refrigerator and stove. Be sure to keep your costs low by seeing what’s covered under each plan you’re considering and not paying for coverage you don’t need.

4. Keep your car in good repair

As with all goods and services, car prices are also subject to inflation. Though prices for a new car are down from early pandemic highs, they still remain high, thanks to an ongoing chip shortage and higher material costs. If your car is fairly new and roadworthy, it may make sense to keep it rather than trade it in for a new one.

“Be mindful of the cost of repairs,” says Shirshikov. “Consider whether it is financially feasible to keep your current vehicle or if it’s better to purchase a newer and more fuel-efficient one.”

If your old car is no longer reliable, buy a used car rather than a new one. According to research from JP Morgan, new car prices are expected to decline by 2.5% to 5% this year, but used car prices will decline 10% to 20%.

If your current vehicle is roadworthy but is no longer under warranty, consider purchasing an auto warranty. It could be a wise investment if you need repairs down the line.

5. Pay off credit card debt

Many financial experts say paying off high-interest debt is one of the best things you can do to prepare for an economic downturn. This usually means credit card debt, which increased 19% last year, according to data from Transunion. The credit reporting agency is expecting high delinquency rates this year, on a scale not seen since 2010.

“Focus on paying down high-interest debt,” said Shirshikov. “This can help to improve your credit score, so you’ll get better terms if you need to apply for loans or lines of credit in the future.”

He added that “it’s a good idea to boost savings and avoid taking on new debt,” however.

If you’re unable to pay off your credit card debts, consider a debt consolidation loan. These loans let you take out a lump sum to pay off your credit cards, consolidating your debt into one loan with a lower interest rate than credit cards.

Getting your finances in order may have upsides you didn’t even expect. Though many people experience hardship during a recession, if you have low debt, good savings and remain employed, you may be able to not only ride it out but also benefit.

For one thing, interest rates tend to drop during a recession, which might be good news if you’ve been saving up to buy a home. In addition, financial advisors say the best time to invest in stocks is in a downturn.

To shore up your personal finances, get a full picture of where you stand right now. By law, every consumer has a right to a free credit report every 12 months. Request yours, and focus on paying off creditors that are charging the highest interest.

6. Shore up your job networking

While we’re in the strongest job market in decades right now, that could change if rising costs or a stock market downturn affects businesses and industry.

It’s always wise to network, said Jill Griffin, executive coach and host of the Career Refresh podcast, but do it in a strategic way. Networking is not a numbers game.

“Be intentional and conscious,” she said. “Make a list of the quality of people you want around you, your own ‘board of directors.’ If you need a strong, inspiring public speaker to advise you, find that person. A thought leader, subject matter expert, HR coach… fill those needs with actual people.”

Maybe they’re already in your network, or maybe you have to find them.

“Reach out to have a virtual cup of coffee, or a real one,” said Griffin. “But the key is to have a genuine conversation. Please don’t say, ‘I want to pick your brain,’” she said.

And make sure the help goes both ways. “Always end with ‘what can I do for you?’’ Griffin recommends.