Meanwhile, the MassMutual survey found that a majority of Americans — 80% — are already concerned about how the recession will affect their daily finances. The survey was conducted in August and included 1,000 adults.
However, many participants indicated that they remain optimistic about their finances in the long term, according to Amanda Wallace, head of insurance operations at MassMutual.
There are steps you can take now to stave off any negative impact an economic downturn can have on your money.
It all comes down to creating and writing a solid plan, according to Wallace.
“It’s very easy to get swayed by major news and market dips when you’re not clear about what you’re working towards,” Wallace said.
1. Eliminate unnecessary expenses
Start by assessing your discretionary unnecessary spending and determine where you can cut back.
This may include cutting subscriptions to TV broadcasting services or print magazines. Perhaps you can cut back on ordering food delivery or activities that your kids no longer enjoy.
Really take a look at what’s surplus and where you can save in order to find more money to throw away in an emergency fund, Wallace said.
2. Create an emergency fund
If the economy plunges into a recession, it is uncertain what that could bring. In the worst case scenario, this could include job loss or unexpected medical expenses at the worst possible time.
Wallace said setting aside cash in the event of an emergency can help you overcome these doubts.
“As a general rule, you should have at least three to six months of living expenses that you can easily access,” Wallace said.
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This money should be kept off the market and in an account where you can access the funds quickly, such as in a money market or high-yield savings account.
“It can help weather the storm without having to tap into retirement assets or use credit cards or loans with high interest rates,” Wallace said.
3. Pay off debts
Once you create your emergency fund and go over your budget, Wallace said, it’s time to take your extra money and pay balances like high-interest credit cards.
Wallace said that payment by credit card generally comes after the creation of an emergency fund, due to the additional cash relief that could lead to a recession. However, it is important to remember that each person’s situation is different and may require different priorities.
An ongoing interest rate increase by the Federal Reserve will increase the cost of unpaid balances. As such, it might be time to look for a 0% interest rate transfer card if you have good credit, or perhaps a low interest personal loan if you don’t, Matt Schulze, senior credit analyst at LendingTree, previously told CNBC.com. . Even asking your current credit card company for a lower interest rate may work.
“Any of these moves could lower your rates significantly more than the amount the Fed is raising on a monthly basis, so it could be something really important,” Schulze said.
4. Reconsider your investment allocations
Even as economic concerns may drive markets crazy, Wallace said, it’s important to stay on track when it comes to your investment plans.
“You shouldn’t stop investing in your 401(k) or any other type of investment plan that helps you prepare for retirement,” Wallace said.
Also take a look at your portfolio investments and 401(k) contributions to make sure you don’t take on more risk than you realize, she said. With that said, it’s a good idea to sit down with your partner to make sure your investment strategies are aligned for retirement if you’re investing in separate plans.
“You should consult a financial expert if you want to evaluate different scenarios and market options and get some advice that is truly tailored to you, your family and your situation,” Wallace said.
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