Recession-proof your finances: Tips to prepare

By Personal FinanceFOXBusiness

'Good chance' of recession by 2020: Martin Feldstein

Harvard University Economics Professor Martin Feldstein on the outlook for the U.S. economy.

While consumer sentiment has remained strong for most of the year despite some political head winds, recent stock and bond market jitters have ignited fresh concerns that a recession could be in the cards for the U.S.

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Stocks fell across the board on Tuesday with all three of the major U.S. averages falling 3 percent, which equated to a 799 point decline for the Dow Jones Industrial Average. Bond yields also weakened, with the 10-year benchmark yield falling to 2.91 percent, a sign the economy could be slowing.

JPMorgan Chase recently found the U.S. economy has a greater than 50-50 chance of tipping into a recession in the next two years, with the odds climbing to higher than 80 percent over the next three years.

Whether you believe a recession is looming or not, many financial experts warn you should always “recession proof” your finances just in case.

Have Multiple Income Streams 

Scott Henderson, accredited financial counselor and founder of Simplifinances, says when it comes to income, the biggest risk you can take is having one source.

“Having multiple sources of income will help you stay recession-proof,” Henderson tells FOX Business.

His second tip, which he says is one of the most effective long-term and stress-free strategies for investing your money, is dollar-cost-averaging.

Prudent Spending & Investing 

“Be intentional with your spending when the economy is good. Increase your savings rate by simplifying your life and building up a reserve fund,” he adds. Dollar cost averaging comes in as investors stay the course. Steady investing allows more assets to be purchased when prices are low and less when prices are rising.

Save & Pay Down Debt

Mark Hamrick, senior economic analyst at Bankrate.com, says recessions are little likes “illnesses.”

“Some arrive, make their presence known and are resolved fairly quickly. Others, such as the Great Recession following the financial crisis a decade ago, are near-death experiences that require a prolonged period of convalescence and healing. We don’t know the level of severity of the next one.”

With that being said, two of the most important things people can do to prepare for an economic slowdown is to build savings and pay down debt.

“Savings is necessary to help ride out the financial storm, including the prospect of disrupting and costly unemployment. Paying down, or ideally paying off debt, helps us to reduce future financial obligations,” he adds.

Always Network 

And for those who are currently working, his advice is to always maintain a network of professional contacts for when the time comes to seek employment. By keeping your network active, you’ll be in a better position to reach out to your contacts—if or when—a recession hits and you become a victim of layoffs.