The Next Recession: How to Save Your Money and Your Family

Whether a downturn happens in the next year or not, it’s important to be prepared.

It seems hard to believe a decade has gone by since the bleak autumn of 2008.

After a seemingly bulletproof housing market finally fell off the cliff, it was a steady trickle of depressing news: the federal takeover of Fannie and Freddie, the sudden demise of Lehman Brothers, the 11th-hour rescue of AIG.

As the business reporter at a small Midwestern newspaper, it was my job to chronicle the local impact. Day after day, I’d write about how this or that employer had slashed its staff. A couple months later, it was me – along with more than half of our newsroom – on the chopping block. Somehow it was still so jarring.

Suddenly, there I was, a young journalist with a mortgage to pay and a year-old baby to help support. Like most victims of the Great Recession, I landed on my feet, though not before months of anxiety and self-doubt.

After a nine-year expansion, the economy looks like it could finally be heading for another slump. According to a recent survey by Duke University, nearly half of CFOs think a recession will arrive before 2019 comes to a close; 80 percent believe it’ll be here by the end of 2020.  

The fact is, economies are cyclical. And whether a downturn happens next year or not, it’s important to be prepared. The last recession snuck up on a lot of us who thought the good times – and rising home prices – would never end.

These days, we know better. Here’s how to stay on solid footing, even if the recent stock market retreat gives way to a broader economic downturn.  

Build your Emergency Fund

By now, you probably know to save up enough cash to cover anywhere from three to six months’ worth of expenses. And yet research suggests relatively few of us are doing it. Only 29 percent of Americans have enough liquid savings to cover their needs for a full six months, according to a Bankrate survey from earlier this year. And 23 percent have no emergency fund at all.  

The troubling economic news – a flatter bond yield curve, for example – may not indicate an imminent recession. But it should be a wake-up call to start building your reserves.

The money you put aside should be stored in checking or savings accounts, money market funds, or, in some cases, certificates of deposits (CDs). All of these are liquid, accessible, and generally principal protected. A bit annoying, but anything outside of these criteria won’t work. This money needs to be there when you need it and a boringly low yield is the result.

Rethink Big Purchases

The end of the holiday shopping season might not be the ideal time to say it, but a fragile economy should make you scrutinize your big-ticket items just a little more. That’s especially true if you’re in debt or falling short of your savings goals.

After a little more thought, perhaps you realize that your old set of wheels is in good enough shape to serve you another year. You may even accept that your not-so-smart 55 inch TV will last you through playoff season. Should your employment picture sour, you’ll be happy you laid off those pricey expenditures.  

Don’t Time the Market

It’s hard not to get emotional when you’re watching your nest egg slowly dwindle. From time to time, you may even hear an inner voice telling you to stock up on cash, before stocks take another hit.

If there’s anything history has told us, it’s that most of us simply aren’t very good at predicting where the market will go. The robo-advisory SigFig analyzed the brief market dip in October 2014 and found that the investors who got truly rattled – that is, sold off the most stocks – lost the most money over the subsequent 12-month period.

Regardless of how the market is doing, Arlington, Virginia-based financial planner Paul Collinson says it’s important to stick with your long-term financial strategy. “What’s going to cause working-age adults to stumble is fear,” he says. “A written plan is the circuit-breaker.”

Become a Star at Work

When companies go through lean times, management often has to make tough calls about who stays and who goes. Should that moment arrive, you’re on safer ground if you bring something to the table that your co-workers don’t. Now might be a good time to develop skills that will give you a leg up or volunteer for assignments that show how motivated you are.

Here’s the thing: Increasing your value at work is always a plus, even if you never have to worry about getting a pink slip. An analysis by the online learning forum Coursera found that 72 percent of users achieved other benefits, like getting promoted or earning a raise.

Prepare For Your Next Job While You Still Have One

Let’s take a worst-case scenario. The economy heads into a tailspin, and your boss calls you in to politely inform you that your job has just been erased. That isn’t the moment to start thinking about how you’re going to get your next job.

A better time is right now. Absolutely, there’s some troubling financial news at the moment, from trade tensions to lower growth projections. So start updating your resume now, just in case. And by all means, get the networking thing going. Scroll through your contact list and start meeting up with people for lunch or a coffee. Should you temporarily find yourself without a source of income, at least you’ll hit the ground running.

Here’s hoping we don’t have to face another economic meltdown any time soon. If we do, we’ll be ready this time.