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Personal Finance

6 money moves to make when you’re worried about a recession

It's never a bad time to set yourself up to be in the strongest financial position possible.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

Talks about a looming recession have been circulating headlines for months, with no clear answer as to what Americans can expect. While some economists don't see a global recession happening anytime soon, other top finance execs have predicted everything from a recession by the end of this year to a 50-50 chance of a recession next year to a "mild" recession come 2024. JPMorgan Chase CEO Jamie Dimon sparked a cause for alarm last week when he warned of an economic "hurricane."

One thing we know for certain is that today's record-high inflationary environment — and, in turn, the Federal Reserve's swift tightening — is a key factor contributing to a potential economic downturn. Historically, recessions have typically followed the Fed raising interest rates to combat high inflation.

Though there are a number of other recession indicators to consider in the bigger picture, such as rising unemployment, it's no doubt that recession fears are leaving many Americans feeling uncertain about their financial futures. In fact, a recent CNBC All-America Workforce Survey found that 83% of employed adults are worried about a recession, making it the biggest near-term concern and beating out worry over wages (74%), Covid (62%), pay cuts (46%) and layoffs (44%).

Since a recession is technically defined as two consecutive quarters of declining gross domestic product, or GDP, we won't know for sure until the numbers are reported in July — keep in mind, however, economic flows such as this are inevitable.

In the meantime, experts advise that it's never a bad idea to check in with your money habits to set yourself up to be in the most secure financial position possible. You can stress less about what happens with the economy knowing that you have built the most stable foundation you could.

"I've always maintained the stance that people spend way too much time trying to predict the market, interest rates and where the economy is going and way too little time managing their money," says Clark Kendall, certified financial planner, president and CEO at wealth management firm Kendall Capital.

Here are six smart financial steps to take right now.

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1. Make your dollars go further

As the cost of money gets more expensive, consumers are put in the position to figure out how to best spend their limited dollars.

In this vein, Dan Varroney, founder of consulting firm Potomac Core and expert on economic performance, speaks directly to rising gas prices. With the national average, at the time of writing, being close to $5 per gallon, he advises that whenever possible, people should utilize mass transportation, carpooling or walking. Otherwise, "make every driving trip count," he says. This could entail combining trips with multiple stops and shopping locally to save on gas and time in the long run.

Apps such as GasBuddy can help you hunt down the cheapest gas prices near you. GasBuddy also has a rewards card that connects to your bank account and offers up to 25 cents off a gallon — it's not a credit card and won't affect your credit score.

If gas is a big spending category for you, try to use a gas rewards credit card that'll reward you for your purchases. With the Citi Custom Cash℠ Card, cardholders get 5% cash back on their highest eligible spend category for each billing cycle — which can include gas — on up to $500 worth of purchases in that category. This means big gas spenders can earn up to $25 back per billing cycle.

2. Take another look at your spending

If you're feeling cash-strapped right now, it's worth seeing where you can eliminate any discretionary costs — in other words, expenses outside the necessities of things such as rent, food and utilities.

Howard Dvorkin of Debt.com recommends looking at recurring charges such as unused gym memberships or subscriptions. He cites a 2021 Chase survey that found that two-thirds of consumers have forgotten about at least one recurring payment within the last year and more than 70% of consumers estimate wasting over $50 each month on recurring payments for things they no longer need.

"I can't tell you how many people I've counseled who have gym memberships they never use and streaming services they forgot they subscribed to," Dvorkin says. "You can't save money until you know how much you're spending."

Luckily, these days there's plenty of technology to make managing your finances easier than ever.

The Truebill app can help you cancel unwanted subscriptions by linking to your bank accounts and analyzing your transactions for recurring payments. Once Truebill finds your current subscriptions, you can choose which ones you want to keep and which ones you want to cancel. The app also helps you negotiate your bills and alerts you when you're close to your set spending limits.

3. Get rid of high-interest credit card debt

With prices rising significantly on everything from groceries to gas and travel, many consumers are turning to their credit cards to get by.

While credit cards can help you in a pinch, not paying off the balance entirely by the end of your billing cycle can add up quickly. Credit cards already have notoriously high interest rates, but as the Federal Reserve continues to raise rates, carrying a balance will become even more costly.

"I see smart people panicking over the rising price of gas — when they have no idea how much they spend on bigger items," Dvorkin says. "For instance, you probably know the cost of a gallon of gas in your neighborhood. Do you know what the interest rate is on your credit card? If you carry a balance, do you know how much that's costing you annually?"

Put a stop to interest accruing by signing up for a balance transfer credit card that gives you time to pay off your balance interest-free. The Citi® Diamond Preferred® Card, Citi Simplicity® Card and Wells Fargo Reflect℠ Card each offers a long introductory interest-free period for qualifying balance transfers of up to 21 months from date of first transfer (Citi cards) and from account opening (Wells Fargo card) (after, 14.49% to 24.49%, 15.49% to 25.49% and 13.74% to 25.74% (see rates and fees) variable APR, respectively). All transfers must be completed in the first four months for both the Citi Diamond Preferred Card and the Citi Simplicity Card and within 120 days from account opening to qualify for the intro rate and fee for the Wells Fargo Reflect Card. If you are worried about a pending recession, eliminating your high-interest debt now means one less financial obligation you'll have to account for if money gets tighter.

If you find you need to rely on credit to make it through the high cost of living right now, a 0% APR credit card can help you finance new purchases while giving you ample time to pay off your balance before interest kicks in. The American Express Cash Magnet® Card offers no interest for the first 15 months on purchases from the date of account opening (after, 15.49% to 25.49% variable APR; see rates and fees). Cardholders can also score unlimited 1.5% cash back on all purchases. While the zero-interest period gives you some breathing room, just make sure you have a plan in place to eventually pay off your balance before the 15-month introductory period ends.

4. Extra cash? Boost your emergency fund while you can

If you're feeling grateful to be sitting on any extra cash — maybe that tax refund you haven't spent yet — add it to your emergency fund.

While it's advised to have a cash cushion no matter the circumstance, if we do enter a downturn, backup savings can come in handy to help handle any unexpected and sudden events such as job layoffs. Varroney warns that companies often reduce headcounts during a recession and that following one, they're more likely to bring back additional workers last.

This doesn't mean to raise fear that job losses are coming, it's just advice to help set you up for a worst-case scenario situation. With some banks finally increasing deposit rates in response to the Fed's benchmark rate rise, now's the time to see if your savings could be earning a better return. Look to online high-yield savings accounts rather than those at your traditional brick-and-mortar bank since the former offers yields that are often 10X higher than the national average.

Marcus by Goldman Sachs High Yield Online Savings, for example, offers an 0.85% annual percentage yield, or APY, at the time of this writing, with no monthly fees and no minimum deposits. This is compared to the 0.07% national average APY on savings accounts.

5. Stay the course with your investments and think long term

While market movements can certainly be exciting and, on the other hand, unsettling, it's crucial to remember that investing is a long game where you benefit most from sticking it out over the bumps.

If anything, a market downturn is a good time to buy stocks cheaply. For those who want to take advantage but have low risk, Kendall recommends a dollar-cost averaging strategy, which essentially entails investing small amounts at regular intervals rather than investing one lump sum. This helps to reduce the impact of volatility on an investment, he explains.

Kendall also suggests that investors take "government subsidies" by realizing their losses. In other words, those who choose to sell an underperforming investment that's losing money can then use that loss to reduce their taxable capital gains. "I like to put this simply by saying if you own Coke and it is not performing well, consider selling and buying Pepsi," Kendall says.

6. Consider rolling over to a Roth IRA

If you don't already have a tax-advantaged Roth IRA, now may be the time to start the process of rolling over your money to one.

A Roth IRA is different from a traditional IRA in that you'll pay taxes now, ideally at a lower rate, and withdraw funds tax-free in retirement when you're in a higher tax bracket. Since your IRA contributions are invested in the market, you can take advantage of a downturn. "Rolling over to a pre-taxed Roth IRA will cost 20% less if your retirement account is down 20%," Kendall says.

You can find the best Roth IRAs for growing your money tax-free at big-name brokerages such as Charles Schwab and Fidelity, as well as robo-advisors such as Wealthfront and Betterment.

Bottom line

While nobody can really predict what economic events will unfold in the coming months and years — the ongoing pandemic is a prime example of this — the above money moves are easy ways to set yourself up for financial success no matter what the future brings. Choose which ones work best for your personal financial situation and start putting them to use today to stay ahead.

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Information about the American Express Cash Magnet® Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

For rates and fees of the American Express Cash Magnet® Card, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.