Welcome to this edition of Money Matters with FSA, where we help you navigate key financial decisions with confidence. I’m Mike Zarrelli, CFP®, EA, and today we’re answering a timely question: How do smart people prepare for a recession?
No one knows when the next recession will hit, but it’s always a good idea to make your finances recession-resilient. Here are five smart steps to take:
Build Up a Cash Reserve
We’re not saying to sell your investments, but if you have extra cash flow, start padding your emergency fund. Cash helps cover unexpected job loss, avoid panic-driven investment decisions, and gives you buying power when assets go on sale.
How much is enough? That depends on your income sources, family situation, lifestyle, and your comfort with risk. A good starting point is at least three to six months of expenses. We often recommend more, especially when life gets unpredictable.
Understand Your Cash Flow
Know where your money goes. In tough times, you want to spot opportunities to reduce spending quickly without going into debt or selling investments.
Budgeting apps can help by tracking and categorizing your spending. Knowing your true monthly expenses lets you pause or adjust things like vacations, renovations, or big-ticket purchases if needed.
Reassess Your Risk Before Markets Drop
Every year brings its own headlines: wars, elections, rate changes. The worst time to rethink your portfolio is in the middle of a downturn. That’s why we recommend reviewing your risk now, while things are calm.
Look at your current asset mix: stocks, bonds, cash, alternatives. Ask yourself, can I really stick with this when markets dip? Talking to a financial advisor can help clarify whether you’re positioned correctly.
Have a Plan for Market Opportunities
Smart investors know that recessions often bring opportunities. If you’re sitting on cash and markets dip, do you know what you’ll do?
Will you dollar-cost average into index funds? Buy individual stocks? Max out your Roth IRA during a market downturn?
Having a pre-set plan increases the odds you’ll follow through when headlines are scary but valuations are attractive.
Invest in Yourself
Recessions are tough on job markets. Upskilling, networking, or pursuing certifications could set you apart if layoffs hit or you need to pivot industries. Your knowledge, experience, and effort are long-term assets and they compound too.
Bringing It All Together
A wedding today may mark the start of something new, but legacy planning is what ensures that meaning lasts.
At FSA Wealth Partners, we help families create estate strategies that reflect their goals and prepare the next generation to succeed. When your personal goals and financial plan are aligned, you can move forward with greater clarity, control, and confidence.
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