The Economy Isn’t Crashing. Here’s How to Prepare for What’s Coming
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Panic broke out on the stock market on Monday in response to a weak jobs report and increased fears of a US recession. With news of the unemployment rate rising from 4.1% in June to 4.3% in July, the highest level since October 2021, global markets were confronted with a major sell-off.
Just last week, the Federal Reserve voted to leave interest rates unchanged, with Fed Chairman Jerome Powell strong labor marketWith data showing the economy is slowing more than expected, many are pressuring the Fed to deliver a deep rate cut in September or even an emergency rate cut before its next meeting.
Aaron Sherman, certified financial planner and president of Odyssey Group Wealth Advisors, says the latest jobs report suggests interest rates should come down. But he cautions against jumping to conclusions. Market activity, driven by investor expectations, is often volatile.
“We are now seeing the emotional side of the market,” Sherman said. “Market psychology [is] abruptly from ‘it’s all good’ to ‘the sky is falling’ without much justification. Yes, there are signs that the economy is slowing, but it’s not falling off a cliff.”
Here’s what experts say about the market panic and what you can do now.
Worried About a Recession? Here’s What Experts Suggest
Last week’s jobs report showed a rise in the unemployment rate and an increase in temporary layoffs, fueling fears of a recession. “The report was weak across the board, in contrast to previous months,” said Robert Frychief economist of Robert Fry Economics.
The economy is slowing, but Sherman doesn’t believe we’ve seen enough consistent signals that we’re entering a recession.
Whether we’re officially in a recession or not, American households are being hit hard by inflation, high borrowing costs and an unstable economy.
As job losses accelerate, it’s important to plan ahead and focus on what you can control. Even if the Fed cuts rates next month, the economy ebbs and flows and circumstances never change overnight. Keeping an eye on the market and taking steps to protect your finances is something you can directly control.
Build an emergency fund
Bola Sokunbi, founder of Smart Girl Financerecommends building an emergency fund. An emergency fund gives you a cushion to draw from if you unexpectedly lose your job or if an unexpected bill pops up.
If you’re already struggling to make ends meet, building an emergency fund can be slow and difficult. Start by looking at your budget to see if there are any expenses you can eliminate or reduce, even temporarily. Then focus on moving the money you free up into a high-yield savings account.
“Setting up automatic deposits into your savings account can help you save consistently. Even small, regular deposits add up over time,” Sokunbi said. For example, if you can free up $50 a month by canceling a streaming subscription and then transfer an additional $100 from every biweekly paycheck to a savings account every month, you could save more than $3,000 in a year.
Compound interest from high-yield savings accounts or CDs can make your savings grow even more. A CD with a longer term can help you lock in a solid annual percentage yield, giving you higher returns and making it less tempting to spend.
Keep your resume up to date
If you’re worried about losing your job, Shang Saavedra, founder of Save my penniessuggests keeping your resume up to date and your network fresh. Include your last job, skills and responsibilities, and include any references, awards and certifications. That way, your resume is ready in case you need to look for work.
“I network by regularly catching up with colleagues and friends in my industry,” Saavedra says. You can also try to expand your network and make new connections to stand out when the time comes.
Pay off high-interest debts
If you’ve been struggling to pay off high-interest debt, such as credit card debt, Jason Steele, an expert review board member and personal finance expert, recommends contacting your credit card issuer to discuss your options. They may be able to put you on a repayment plan, temporarily lower your interest rate, or put you in credit card deferment. You can also look into 0% balance transfer offers or a debt consolidation loan to give you a reprieve from interest charges.
Gerri Detweileran author and credit card expert, said you shouldn’t wait for interest rate cuts to find relief if you’re struggling to make your credit card payments. Detweiler also recommends talking to a professional, such as a certified debt settlement expert.
We recommend the National Foundation for Credit Guidance and the Financial Counseling Association of AmericaThe Ministry of Justice website also contains a list of approved credit brokerage services in every state.
Choose a long-term approach to investing
When stock prices are down, it might seem like the perfect time to change your portfolio. But it can be a slippery slope for investments you already have, and experts say it’s better to focus on long-term diversification rather than knee-jerk reactions.
“If stock prices go down, you’re going to be poorer, which is bad,” Fry said. However, he pointed out that if the positive and negative effects are balanced, your asset allocation is fine. Take the time to assess your risk tolerance and examine your investment goals.