Looking back over the past two decades of the subprime mortgage crisis and the COVID pandemic, we are reminded that good times do not last forever. In each of these circumstances, we learned that the best way to protect yourself during hard times is to plan and prepare for a potential downturn while the economy is still booming. Following are four critical strategies you should consider now, if you haven’t already, to help you protect your personal finances during a potential recession.
Build an Emergency Fund
One of the best ways to prepare for an economic downturn is to have an emergency fund saved up to cover at least six months of your living expenses, including, but not limited to, mortgage or rent payments, utilities, health and property insurance, required loan payments, and costs for groceries, gas, child care and medical care. These funds can also go a long way to help you cover all of life’s unpredictable expenses, including costly home repairs, appliance replacements and bills for medical care. You can set a savings goal by working backward and adding up all your required monthly expenses.
Keep emergency funds liquid and separate them from your other savings accounts so you can access them quickly without the risk of incurring any tax liabilities. As part of your plan, consider how you will replenish your savings to protect yourself and your finances from an unexpected emergency.
Reassess Investment Portfolio Performance, Goals and Risks
As times change, so too do your needs and goals. No matter your age or where you are in life, it is important to regularly review your investment portfolio against your long-term goals, current risk tolerance and time horizon. It may make sense to adjust your asset allocations to better manage your exposure to ongoing market fluctuations rather than being forced to sell equities at depressed values during an extended bear market. Remember, falling stock prices can be an excellent buying opportunity with the potential for a significant upside.
Pay Down High-Interest Debt
Having outstanding debt through a financial crisis can be crippling, especially in today’s high interest-rate environment. Try to pay off or pay down any balances on credit cards or other accounts to reduce your bills and minimize your payment obligations through a recession. Lenders generally are willing to work with borrowers to establish more accommodative repayment terms. However, the only way to receive this relief is to reach out and ask for it.
Review and Adjust Budgets and Estate Plans
During times of uncertainty, it is especially difficult to accurately project the impact on your long-term financial picture. In this environment, it makes sense to review your current sources of income and compare them to your monthly bills and spending costs to determine if there are opportunities to cut back on unnecessary expenses. It is also important to regularly review your estate plan to ensure it continues to meet your needs and goals and address any potential changes in your family and your financial circumstances.
About the Author: Kathleen Marteney, CRPC®, is a financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with PWA Securities, LLC (PWAS). She can be reached at (800) 737-8804 or via email at info@provwealth.com.
Provenance Wealth Advisors, 200 E. Las Olas Blvd., Nineteenth Floor, Ft. Lauderdale, FL 33301Â (954) 712-8888.
Kathleen Marteney is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation
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Updated June 26, 2024