Face it. The odds of a recession have grown. What should you do to prepare?
Assess your job situation. In a recession, no one is immune from layoffs. Today, anyone in housing, real estate or finance is especially vulnerable. If you're worried about your job, consider investigating or training for a new career.
Build an emergency fund. You should have at least three to six months of living expenses in a safe place such as a money market fund or savings account. If you don't, here are some ways to build an emergency fund:
● Pare spending on non-essentials such as cable TV, restaurants and entertainment.
● Increase your income by working more hours or getting a second job.
● Continue contributing enough to your retirement plan to get the full employer match, but put any extra savings in your emergency fund until it is sufficient.
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● Contribute any check you might get from Uncle Sam to your emergency fund.
Pay off credit cards. It's sad to say, but many people "use their credit cards as a rainy-day fund," said Kit Yarrow, a marketing and psychology professor at Golden Gate University. If you pay off your balance now, when you can, you will be able to borrow more if times get tough. Paying down debt will help improve your credit score.
Consider a home equity line of credit. If you have enough equity in your home, think about opening a line of credit while you still have a job. As long as you don't borrow against it, you won't incur interest charges and there's usually no fee. If you do lose your job, you can use it for emergency funds. You generally can't open a line of credit when you don't have a job.
Don't spend to relieve anxiety. "When people become anxious around job loss, ironically, they will spend more. Shopping is one of the most psychologically soothing activities we have," Yarrow says.
Investigate health care options. If you lose your job, you usually can remain in your former employer's group health care plan for 18 to 36 months, but you generally pay the full cost plus an administrative fee. There may be cheaper options, such as adding yourself to a spouse or domestic partner's plan.
Housing problems. If you will have problems paying your mortgage, talk to a reputable credit-counseling agency or — if your situation is serious — a bankruptcy attorney.
To find a counseling agency sponsored by the U.S. Department of Housing and Urban Development, call 1-800-569-4287.