Safeguard Your Money: How to recession-proof your savings.

Numbers and trends indicate the U.S. economy is currently in good shape: unemployment is low, the dollar is strong, inflation is down, the stock market is up, and the Federal Reserve just announced its intention to lower interest rates. Despite all of the recent good news, many Americans remain genuinely concerned about the state of the economy and where it is headed, still smarting from higher prices that now seem permanent, whether you’re in the market for housing or sliced ham. Valid or not, this kind of concern can lead to a sense of economic uncertainty, even anxiety. As a result, in times like these safeguarding our financial health can also improve our mental and emotional health; preparing for potential economic downturns is not just about securing savings, but also about ensuring long-term financial stability. Read on for some practical steps to help you fortify your finances, in case there is a recession or an event that negatively impacts the economy.

1. Understanding Recession Risks

A recession can affect multiple aspects of the economy, including employment rates, stock market stability, and overall financial security. Because there are multiple risks in an economic downturn, it’s essential to understand how your personal finances could be impacted. This means evaluating your accounts, loans, obligations and benefits to ensure they align with your need for financial security.

2. Building an Emergency Fund

The single best way to recession-proof your finances is to establish a robust emergency fund. Ideally, this should cover at least 3-6 months of living expenses, and if possible, aim for a year. Start by setting up a separate, high-yield savings account to get higher interest rates and often lower fees. Regularly deposit a portion of your income into this fund to build it up over time.

3. Diversifying Income Sources

Relying solely on one income source can be risky during economic downturns. Consider diversifying your income through opportunities like freelance work, consulting, or investing in real estate. At Lafayette Federal, we offer resources and workshops on financial literacy that can help you to explore these options.

4. Smart Budgeting

Adopting a stringent budgeting regime is more crucial than ever during economic uncertainties. Use tools and apps to track and manage your spending. Focus on cutting non-essential expenses and prioritizing necessities. Regular financial check-ups with an advisor can also help you stay on track.

5. Safeguarding Investments

It’s a smart move to review and possibly adjust your investment strategy based on your risk tolerance and the economic climate. Consider conservative investment options available like share certificates/certificates of deposit (CDs) or government bonds, which typically offer safer returns during volatile market conditions.

6. Managing Debt

Make it a top priority to reduce your high-interest debt as quickly as possible. Explore options for debt consolidation or refinancing to secure lower interest rates. This can significantly reduce your monthly financial burden and increase your resilience against economic fluctuations.

7. Planning for the Long Term

Even during a recession, it’s vital to keep long-term financial goals in view. Whether it’s planning for retirement or saving for a child’s education, continue to take advantage of services like financial planning and investment advice to tailor your strategies to meet your goals.

8. Staying Informed

Stay abreast of the latest economic trends and financial advice. Attend workshops and seminars to enhance your understanding and preparedness for financial challenges.