Are You Recession Ready? Planning Your Finances For An Uncertain Future

Sep 5, 2019

Economists are starting to warn that the United States may slide into recession sometime in 2020 or 2021. Few got through the 2008 recession unscathed — so as politicians and economists start to ramp up speculation about what the next recession might look like, where's the line between smart planning and panic?

"There's a lot that we can do as regular folks when we're thinking about recession," said Liz Scharf, director of community economic development at Capstone Community Action. Scharf shared practical advice with Vermont Edition about getting yourself in order for an uncertain financial future.

"Be mindful that we are not in a recession right this very minute," Scharf said, "so now's a really good time for us to be looking at our personal finances."

A Few Financial Tips:

Here are a few suggestions that Scharf shared on Vermont Edition (listen to the whole conversation above):

-Pay down unsecured debt and prioritize that credit card debt with the highest interest rate. Scharf suggested PowerPay.org as a resource to consult regarding your debt repayment efforts.

-Increase accessible savings for an emergency: "Even having a month's worth of savings to be able to go towards your mortgage, to prioritize those really important bills that you kind of need to pay first, like your house and your transporation so you can get to work," Scarf said. "Having that money set aside is important when you're thinking about the possibility of a job loss or, you know, a cutback in your hours or even a cutback in pay which is what some people see during recessions."

-Look at your retirement portfolio periodically, Scharf said, and if you don't understand it seek out a representative who can help explain it for you and reassess risk. Scharf also said you should not stop making contributions to your retirement account.

-Still explore home buying — but be cautious: "Right now we're still having historically low interest rates for borrowing on homes, and now is like a great time to borrow for a home ... but that being said, you don't necessarily want to borrow exactly what the bank says you can borrow," Scharf said.

"As a financial counselor, I generally advise people to not borrow more than around 31%, 32% of their gross income  — so their income before taxes — to go towards all of your housing costs, which is your mortgage, your taxes and your insurance." Borrowing an amount beyond that, Scharf said, could pose issues should a job loss happen and you're unable to pay the mortgage.

As far as taking the economic forecast into account before adding a new member to your family to fill that house? "There's never a great time to have a baby, right? It's like, if you want to have a baby, have your kid," Scharf said.

Broadcast live Wednesday, Sept. 4, 2019 at noon; rebroadcast at 7 p.m.