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How to Prepare Your Finances and Retirement Savings for a Recession

Don’t make sudden moves…

These days, you can’t even take a trip to Costco without being faced with a number of worrying costs. If you stop to fill up, you end up with astronomical prices for a gallon of gas. If you turn on the radio while driving, you’ll probably hear the latest pundit speculating about a coming recession. And when you finally get to the checkout with all your groceries, you’re bound to see your grocery bill go higher and higher than what you’re used to.

With all the uncertainty right now, it’s natural to worry about your future. But before you pull all your money out of the bank and put it under your mattress for safekeeping, you might want to take a deep breath and keep an eye on the big picture.

At least that’s the advice given by Pattie Ehsaei, otherwise known as “the duchess of decorum.” In addition to being the TikTok queen of etiquette and financial advice, Ehsaei has spent the past 20 years building a multi-faceted career as a lawyer and manager in financial services. We spoke to Ehsaei to answer all the questions keeping you up at night about inflation, recession fears, and what you should be doing with your savings during this tumultuous time.

There is so much financial uncertainty these days, between inflation and fears of a possible recession. What do you think is really worth worrying about?

I think one thing consumers really need to worry about in general is inflation, because it’s going to cost more to buy. You also have to worry about the risk of losing your job or having your hours reduced. Unfortunately, people between the ages of 40 and 65 are at a higher risk of losing their jobs. Young people tend to have lower paying jobs, and companies can afford to keep them, compared to middle-aged people – this is often when you have a higher salary, which is why companies may not be able to keep you. . This would be the differentiator between when you are older and when you are younger. And when you’re older, you probably have more debt, because you might have a house, a car, or credit cards that you need to pay off. So you usually have a lot more expenses when you’re older than when you’re younger.

Is there a scenario where someone would have to pull their money out of the stock market during or just before a recession?

It really depends on when you need your money. If you need your money immediately, now is a good time to withdraw. But that’s the only time you pull out of the stock market during a recession. If you can hang on for three or four years, then don’t touch that money, because the rule is that it always bounces back and goes up more than it was before.

You also want to consider really diversifying your investments in general. You never want to put all your eggs in one basket. Suppose you are in the stock market, you can spread your investments over several sectors, such as consumer goods or health technologies. You can also consider mutual funds and index funds. These are two great ways to diversify. You can also choose to invest in real estate, or even in a small business. This way you are not always dependent on the stock market itself.

Do you have any other tips on how people can prepare for volatile times like this?

Yes. First, you need to start paying off your debt as much as possible, because you want that extra money to go into your emergency fund. If you have debt, you pay off the highest interest first, because that puts the most money in your pocket.

Another tip is that this is the perfect time to indulge. You can drive for Uber, deliver errands, start tutoring, freelance online…anything that puts extra money in your pocket is very, very useful during these times.

You might also think about maybe finding a recession-proof job. For example, a job in healthcare or in a pharmacy, or any kind of government job like a firefighter, policeman, or sanitation worker. Basically, any job that is essential to people’s survival is recession proof.

And the last thing I would say is don’t panic. Recessions come and go. We’ve had 10 recessions since 1945, and most of us have survived. So don’t panic. This too should pass.

Which is more important: pay off the debt or build an emergency fund first?

I say you should save first because you have to pay yourself first. It is the rule. If you can save up and pay the minimum monthly amount and those other credit cards, that’s fine, but make sure you’re building up your savings first.

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