How to Get Yourself Ready for a Double Dip Recession
- Author: Bryan Miller
- Posted: 2024-09-17
The stock market has been detached from the real economy for the past few months as the S&P 500 trades at record highs even though unemployment is still above 10%. Many economists are forecasting a double dip recession, saying that we are not out of the woods yet from the pandemic. Right now, we seem to be right in the middle of the w-shape that you see in a double dip recession. There are steps that you can take to prepare your personal finances for the possibility of a recession. Here is what you can do in anticipation of a double dip recession.
Pay Down Debt
Your credit card debt will not go away in the event of another leg of the recession. Instead, your debt can still stress you out financially. The high interest payments will hurt your budget badly when you are straining to deal with the effects of the recession.
If you have some excess cash now above and beyond your emergency fund, you should try to reduce your credit card debt in order to bring down your interest payments. Debt payments can be a drag on your budget when you are trying to make ends meet or are in a position where you need to draw on your savings.
Rebalance Your Portfolio
If you are preparing for a double dip recession, this may be a good time to start taking money off the table when it comes to your portfolio. This is even more true if you were one of the savvy investors who put money into the market at the stock market bottom in November.
If your portfolio consists of more risky stocks, shift into more defensive stocks that perform better during a recession. It may even help to increase your holdings of cash so you have the ability to buy if the stock market drops again. While you may not get another opportunity like you had in March, there is nothing that says that you cannot be opportunistic again in the future. However, your powder needs to be dry, and you need to have some arrows in your quiver to take advantage of the second dip down.
Increase Your Liquidity
When there is a double dip recession, your job may still be in danger even if you were able to survive the first leg down. Your employer may have been able to keep you employed thanks to the money that they received from the government.
However, you may need to have a few months of living expenses saved up in case you need it. With the market at an all-time high, you can slightly cut back on your stock holdings in order to raise some liquidity. There is nothing to say that you need to exit the stock market entirely, but it does help to raise your liquidity when asset prices are high.
Delay Major Purchases
While your financial situation may be recovering as the economy has improved for now, in a double dip recession, things will get worse. This means that prices on large-ticket items will go lower in the near future. If you are thinking of buying something like a car, it is better to wait it out a little bit because the cost will go down.
Right now, people are dipping their toes back into the market and beginning to spend money on major purchases. However, you may want to wait some time to see how the economy does in the future. If the economy has another leg down, dealers and sellers will be putting things on sale as we approach the end of the calendar year.
Get Credit Now
Banks are continuing to lend, in part because government funding has encouraged them to keep lending to consumers. This is a good time to get a mortgage or take out another type of loan that you need. The credit is available at a low interest rate if you need it.
If there is another leg in the recession, banks may cut back on their lending and credit will not be available. The best time to get a loan is when the economy is looking better. During the depths of the 2008-2009 recession, banks had stopped lending. This has not happened yet during the pandemic, but it can always happen in the future if the recession rears its head again.
