The U.S. economy is officially in a recession, bringing the longest expansion on record to an end, according to the academic committee that serves as the sole arbiter of declaring when downturns start and conclude.
The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee announced Monday that the U.S. economic expansion peaked in February, meaning the first recession in more than a decade began in March after a record 128 months of expansion. The panel bases its call on significant declines in economic activity through production, employment, and other indicators.
The announcement confirms what many Americans may already know — with more than 43 million applying for unemployment benefits since the start of the outbreak as joblessness rose to its highest level since the Great Depression. In a matter of weeks, confirmed cases of the deadly, contagious pathogen skyrocketed across the globe, forcing states to impose stay-at-home restrictions that have caused businesses to shutter.
“This is so unprecedented in its sudden-stop nature,” says Nick Bunker, economic research director at the Indeed Hiring Lab. “It’s directly impacting industries that are not usually the front line of recessions.”
As many Americans grapple with what could be the worst downturn in generations, the looming question now is, how long will the recession last? Here are seven tips to help make sure your finances are recession-proof, as recommended by experts.
1. Pay down debt
It’s crucial that you pay down any outstanding debt — more specifically, high-cost debt, such as your credit card balance — to create some breathing room in your budget.
As the coronavirus has demonstrated, economic downturns can often lead to job loss. If you’re worried about job security, paying off your obligations might bring you more peace of mind.
Prioritize credit card debt, then turn to other types of loans, such as mortgages or auto loans. Student loans, however, have more favorable provisions, which makes paying them off less of an urgency, says Greg McBride, CFA, Bankrate chief financial analyst.
Even if you’re not worried about losing your job in a downturn, it’s still good financial practice. A March 2019 Bankrate survey found that 13 percent of Americans aren’t saving more because of the amount of debt that they owe.
“Regardless of where we are in a market cycle, prioritize eliminating high-interest rate debt no matter what,” says Lauren Anastasio, CFP, a wealth adviser at SoFi, a personal finance company. “Being in a position where you’ve eliminated those types of high-cost obligations allows you to better prepare for other things financially. The more you’re able to put aside for saving and the less debt you have, it’s going to be available to you in case of an emergency.”
Use Bankrate’s tools to calculate a debt-payoff plan or take advantage of balance-transfer credit cards with zero percent intro APRs. These offers disappeared in 2008, Anastasio says, so they’re likely not going to be around when the next downturn comes.
2. Boost emergency savings
Job loss can also make it difficult for Americans to pay their day-to-day expenses.
Beefing up your emergency fund — that is, the pool of cash that you reserve specifically for events like downturns — can make it possible for you to still afford your necessities while you search for a new position.
Even if you’re paying down debt, it’s important that you prioritize saving. Focus first on loading up your emergency fund with one month’s worth of living expenses. After that, pay off your debt, and then focus on building up a reserve of three-to-six months worth of funds, Anastasio says.
“Everyone needs to have a cash cushion, even while they’re attempting to pay off high-interest rate debt,” Anastasio says. “It’s imperative because, if an emergency arises and you’re putting every dollar toward eliminating debt, you have no choice but to go back to credit cards to cover the expense.”
A high-yield savings account can help you earn more on the money you stash away. Shop around for the best account that suits your needs and lifestyle.