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5 Steps to Prepare Your Personal Household for an Economic Downturn

By Marjorie L. Rand, CPA, CFP®, RICP®

If you have been following the news at all lately, you’ve heard that some of the world’s top economic minds think a recession is looming. The U.S. GDP has shrunk for two quarters in a row, which is the textbook definition of a technical recession, but the National Bureau of Economic Research has yet to make the final call. 

No matter what you make of the scary headlines, there’s no reason to not protect yourself if this economic uncertainty begins to severely affect you and your family’s financial health. Whether you have to deal with inflation or layoffs, here are 5 tips to consider to make sure you protect your household in case of a downturn.

1. Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund to cover at least 6 months of necessary living expenses. This includes mortgage or rent, utilities, groceries, transportation, etc. 

With all the uncertainty and expected layoffs, many experts have suggested maintaining a larger emergency fund, closer to 6-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so that you don’t lose out on potential growth.

2. Track Your Expenses and Build a Budget

Many people don’t realize just how much they are spending until they are tasked with writing it down. Once you have a good idea of where you currently spend money, you can begin to build a budget around where you want your money to go. Some expenses will be non-negotiable (like utility bills), while others may have some room for cuts (eating out). 

When it comes to outstanding debt (think credit cards or other loans), pay down as much as possible to reduce your monthly expenses and minimize accruing interest. Paying off credit card balances on time each month could also help you build and maintain good credit scores. 

Over time, your budget can be modified as needed so that you’re better prepared to withstand potential fluctuations in income.

3. Review Your Risk Management Strategy

Risk management is a great way to safeguard what you’ve already built. Unmanaged risk can mean the difference between maintaining an ample emergency fund or not having enough when you need it the most. 

As part of my comprehensive financial planning approach, I review insurance policies and make sure to bring them up to adequate coverage levels, so that if a storm comes, even in the midst of a recession, my clients are prepared. This should include life, health, auto, and homeowners insurance at a minimum, but disability and long-term care coverage should be considered as well. 

These risks are often overlooked and can be devastating to your household finances. Making sure you are adequately covered now will save you time, money, and energy in the future.

4.  Review Your Financial Plan

It’s crucial that you maintain a level head and don’t get caught up in emotional investing, especially in times of economic uncertainty. Proper asset allocation and diversification are key factors that will help you along the way along with a dynamic, focused investment strategy that responds to current economic and market conditions.

I tell my clients that when times are uncertain or they feel overwhelmed, to review the plan we’ve created. The investment portfolio that we put in place is designed to weather most economic situations, so they can rest assured that we planned for moments like these.  Reviewing the plan brings comfort and assurance and helps clients stay the course.

5. Rely on a Professional

In times of uncertainty, I encourage my clients to reach out if they are concerned so we can walk through their concerns together.  Economic downturns are inevitable, but financial stress and uncertainty don’t have to be. 

If you are not already a client and are in need of guidance to create a comprehensive financial plan, please contact me and I’d be happy to help.  As an independent advisor, the guidance I offer is objective and unbiased. This means I can analyze your complete financial picture, gain an understanding of your life circumstances, dreams, and concerns, and recommend financial strategies that fit you. You can count on me as a fiduciary advisor to develop financial plans that are tailor-made to fit your needs. I will work with you to assess your needs and take a proactive approach to preparing for the future. Together, we can create growth from uncertainty. Schedule a 20-minute introductory call or reach out to me at 908-895-2406 or marge@randfinancialplanning.com to see if I’m the right fit to help you on your financial journey.

About Marge

Marjorie Rand is founder and financial advisor at Rand Financial Planning, a comprehensive, fee-only, fiduciary financial planning firm. Marge specializes in helping her clients plan for a secure retirement and navigate life’s many transitions through customized, tax-efficient retirement planning. She is passionate about empowering her clients to make the best financial decisions for their life and being by their side no matter what life throws at them. Marjorie spent many years as a CPA before founding Rand Financial Planning so she could be a go-to source for all her clients’ financial needs and help them avoid costly mistakes. She has a bachelor’s degree in accounting from Rutgers University and a Master of Science in Taxation from Fairleigh Dickinson University, along with the Retirement Income Certified Professional® (RICP®) and CERTIFIED FINANCIAL PLANNER™ certifications. When she’s not working, Marge enjoys boating, horseback riding, traveling, and hiking with her husband and her dog, Rangeley. To learn more about Marjorie, connect with her on LinkedIn.
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