The economy is cyclical in nature, which means it's bound to have its ups and downs. It's the latter, of course, that tends to get people worried. In fact, nothing sparks fear like the word "recession," particularly among those who lived through the horrendous one that pretty much defined 2008.
But is our next recession right around the corner? A large number of U.S. adults think so. In a recent GOBankingRates survey of Americans aged 25 and older, 44% said they expect a recession to hit within the next six to 12 months.
Not surprisingly, those affected by the 2008 recession are already taking steps to prepare. Among them, almost 47% are cutting back on spending to gear up for a downturn, while nearly 40% are staying away from additional loans and debt.
Both moves are smart ones on the road to being recession-ready. And here are a few more it pays to make.
1. Pad your emergency savings
When a recession hits, jobs can be lost and investment values can nosedive. One of the best ways to protect yourself from financial distress or extra debt is to boost your emergency savings. That way, you'll have cash reserves to tap if unplanned bills strike or your earnings take a hit. Ideally, you should have at least three months' worth of essential living expenses socked away in the bank. But if you want to better prepare for a recession, aim to save up six months' worth.
2. Diversify your portfolio
Surprisingly, less than 10% of respondents surveyed by GOBankingRates said they're making moves to protect their investment portfolios. A better idea? Check up on your investments and make sure you're well diversified. This means having a healthy, appropriate mix of stocks and bonds given your age -- the older you are, the more bond-heavy your portfolio should be, and the younger you are, the more comfortable you should be loading up on stocks, since you have ample time to ride out a recession and come out ahead. Within each class, however, make sure you're putting your money into various sectors. For example, your portfolio shouldn't be 90% retail stocks; rather, you should divvy your money up among different market segments like energy, biotech, and telecommunications.
3. Boost your job prospects
Job security can, unfortunately, go out the window when a recession hits hard. To protect yourself from a drastic loss of income, get yourself a side hustle on top of your main job. Doing so will serve two key purposes -- it'll help you boost your emergency fund, and it'll be a backup income stream in the event you're laid off from your main job.
At the same time, work on growing your skills so you're less likely to get laid off if cuts become necessary at your primary place of work. You can focus on the skills that pertain specifically to your job, but it also pays to improve your soft skills -- those that could apply to any job, like time management, communication, and attention to detail.
Whether a recession will actually hit within the next 12 months is yet to be determined -- but we're bound to have one eventually. It could be lengthy; it could be quick. But the more prepared you are, the less likely you are to suffer a long-term financial hit in its aftermath.