Meanwhile, a majority of Americans—80%—already worry about how a recession will impact their day-to-day finances, according to the MassMutual poll. The survey was conducted in August and included 1,000 adults.
Still, many respondents indicated that they are still optimistic about their long-term finances, according to Amanda Wallace, head of insurance operations at MassMutual.
There are steps you can take now to avoid any negative impact of a recession on your finances.
It all comes down to making a solid plan and writing it down, Wallace said.
“It’s very easy to get caught up in front-page news and market declines if you don’t clearly know what you’re working towards,” Wallace said.
1. Eliminate unnecessary expenses
Start by evaluating your non-essential discretionary spending and deciding where to cut corners.
This could mean canceling subscriptions to streaming TV services or print magazines. You may be able to cut back on having food or activities delivered that your kids no longer enjoy.
Really look at what deductible is and where you can save to find more money to put into an emergency fund, Wallace said.
2. Set up an emergency fund
If the economy does end up in a recession, it is uncertain what that could bring. In the worst case scenario, that could mean a job loss or unexpected medical costs at the worst possible time.
Putting cash aside in an emergency can help you weather those insecurities, Wallace said.
“As a general rule of thumb, you should have at least three to six months of livelihood that you can easily access,” Wallace said.
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These funds should be kept off-market and kept in an account where you can quickly access the funds, such as in a money market or high-yield savings account.
“This can help weather the storm without using retirement assets or using credit cards or high-interest loans,” Wallace said.
3. Pay off debt
Once your emergency fund is established and you’ve gone through your budget, it’s time to take your extra cash and pay off balances like high-interest credit cards, Wallace said.
Paying off credit cards generally comes after setting up an emergency fund, because of the relief that extra cash can cause a downturn, Wallace said. However, it is important to remember that everyone’s situation is different and may require different priorities.
The Federal Reserve’s ongoing rate hikes will drive the cost of unpaid balances even higher. As such, it may be time to look for a 0% interest transfer card if you have good credit, or possibly a low-interest personal loan if you don’t, Matt Schulz, chief credit analyst at LendingTree, previously told CNBC. com. Even asking your current credit card company for a lower interest rate can work.
“Each of those moves could lower your rates significantly more than the amount the Fed raises them monthly, so it could be something very significant,” Schulz said.
4. Review your investment allocations
Even if economic fears can drive markets into a frenzy, it’s important to stay on track when it comes to your investment plans, Wallace said.
“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, review your portfolio investments and 401(k) contributions to make sure you’re not taking on more risk than you think, she said. That’s why it’s a good idea to sit down with your partner to make sure your retirement investment strategies are aligned if you invest in separate plans.
“You should consult a financial professional if you want to weigh different scenarios and market options and get real advice tailored to you, your family and your situation,” Wallace said.
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