Enjoy the last ten days of summer.
When you get back to your desk in September, start prepping your finances for a possible recession. Thirty-four percent of economists in a poll released earlier this month by the National Association for Business Economics predict that a slowing economy will veer into recession in 2021, up from 25% in February. What’s more, another 38% expect it to occur in 2020.
The New York Federal Reserve puts the probability of a recession within a year above 30%. The Cleveland Federal Reserve puts it even higher, above 40%. Morgan Stanley’s chief U.S. economist, Ellen Zentner, is more hopeful, but recently said: “For now, the path to the bear case of a U.S. recession is still narrow, but not unrealistic.” And that was before the turmoil on the Dow Jones Industrial Index (.DJI) and S&P 500 (.SPX) over the last few weeks.
Here are 10 things you can do right now:
1. Sell down the amount of company stock in your 401(k)
You’re taking a big risk if you invest a lot of your company 401(k) plan in your employer’s own stock. If the economy weakens and it hurts your company, it could make you a two-time loser: You could lose your money and your income.
“If you lose your job because the company is in trouble, you don’t want to lose a big chunk of your retirement savings as well,” notes financial planner Linda Erickson in Greensboro, N.C.
2. Take advantage of that company health plan while you’ve still got it
Recessions mean sudden layoffs. If you’ve got expensive medical treatments you’ve been putting off, this may be a good time to check them out. “If you’ve met your health-insurance deductible and you have a procedure you need to do, do it now, while you’re employed,” says financial planner Andrea Blackwelder in Denver, Colo.
3. Use up other company perks while you still can as well
Gym reimbursement? Education and training assistance? Company discounts on things you want to buy? There may be all sorts of benefits and perks lurking on your organization’s human resources portal. Use them before you lose them. Just don’t overspend in order to take advantage of these discounts. You may, for instance, be better off holding off on those restaurant vouchers and eating at home instead.
4. Stress test your investment portfolio
Yes, it’s great during a bull market. Every month stocks go up. You get richer and richer, and you feel smarter and smarter. Alas, we’ve seen this movie before. In the last two recessions, “smart” investors suddenly felt really dumb when their stocks halved in value. Rebalance now. Make sure you aren’t betting too many chips on the next spin of Wall Street’s wheel. If needed, move some into bonds or dividend stocks, says Erickson.
5. Review your biggest assets, especially real estate
If you were planning to down-size your family home in the next few years, or sell that house by the lake, you might want to do it sooner rather than later. And it’s not just because you’ll be grateful for the money. Big ticket items sell a lot more easily when times are good than in a slump. In a recession, property experts say, real estate markets don’t just slump – they vanish.
6. Line up more credit while you’re still drawing a salary
Whether it’s a home equity line of credit or a new credit card, you’ll find it a lot easier to attract the bank while you’re in a job. And it may be a lifeline in an economic slump. “You should get a line of credit in place while employed,” says financial adviser Elliot Herman in Quincy, Mass. This will help you if that emergency fund runs out or keep you afloat if you are between jobs.
7. Slash your interest bill
If you’re carrying a big balance on credit cards with high interest rates, this would be a good time to move the debt to a card with a lower rate. Many cards offer very low introductory rates on transferred balances. Even better is paying off the debt altogether, say planners. But at the very least cut the interest rates while you can.
8. Stop hemorrhaging money
Do you really need Hulu, Netflix and Amazon Prime? Do you really need to pay the monthly fee for that spinning class you never attend? Treat talk of a possible recession as an opportunity. “This is the best time to take a deep look at your finances and thinks of ways to cut on unnecessary expenditures,” says planner Alex Caswell in San Francisco. Directly funnel the savings into your bank account, he says.
9. Shore up your emergency fund
Financial planners say you should have up to six months of living expenses set aside for a rainy day. The problem: That’s going to be a huge drag on your long-term investments and your hopes of retirement. If your investment portfolio is balanced and liquid, and you can cash out some of it quickly in an emergency, you may be better off tapping that in a long drought. If you do have access to extra cash, however, save it.
10. Freshen up that network
That former colleague who moved to Seattle? The company that reached out to you on LinkedIn? That former college classmate who got back in touch last year? If you’ve been neglecting your social and professional network, get back in touch — when you don’t need a favor. “Staying ahead of the curve by keeping networks fresh will avoid the potentially awkward or uncomfortable step of reaching out at a moment of heightened stress,” Herman says.