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Tips for preparing for a recession in the coming months

A number of forces are currently putting pressure on the economy and Wall Street is betting on a recession within the next 12-18 months.

Consumer prices are at a 40-year high, the global health crisis continues to disrupt supply chains, and Russia’s invasion of Ukraine threatens to create a global food crisis.

The war has also helped push gasoline prices to record highs, further straining household budgets.

Add to that a tight labor market and a volatile stock market and those recession warning signs start flashing yellow.

The Federal Reserve responded by raising interest rates to fight stubbornly high inflation. The Fed is making it more expensive for businesses and consumers to borrow money in hopes of reducing consumer demand and lowering prices.

But the Fed is walking a tightrope. He wants to slow the economy just enough to bring inflation down, but not so much as to tip the economy into a recession.

The classic definition of a recession is a significant decline in economic growth that lasts for months or even years. During a recession, a country’s overall economic output declines, the unemployment rate rises, retail sales fall, businesses cut spending, and manufacturers produce fewer goods.

There is a self-fulfilling aspect to recessionary psychology. If everyone believes a recession is coming, then consumers and businesses will drastically cut spending, sending the economy into a tailspin.

Economists say the best way to prepare for a recession is not to retreat, but rather to build resilience to protect your finances from an economic shock.

You can do this by ensuring a steady stream of income. Lock in a new job or apply for that raise now. With unemployment at its lowest level in nearly half a century, it’s a market for job seekers. A recession could quickly change all that.

Build your cash cushion. Try to have at least six months of living expenses covered in case you lose your job or for unforeseen emergencies or anticipated expenses like tuition.

This may mean changing your shopping habits and spending more on the things you “need” than on the things you “want”.

If you invest in the stock market, now may be the time to rebalance your portfolio. If you need your money over the next three years, you might want to consider moving some of your investments into cash or the relative safety of the bond market, a money market fund, or equity-paying stocks. dividends.

If your time horizon is three years or more and you have a diversified portfolio, experts agree that the best thing to do is get out of it.

They say the most effective way to achieve your long-term financial goals is to stay invested, stay disciplined, and not let your emotions get the better of you.

If there’s a silver lining, it’s that recessions don’t last forever and are usually followed by a period of strong growth. The so-called Great Recession, which was triggered by the housing crash in 2007, lasted 18 months. It was followed by the longest economic expansion in US history.

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