CWG Insight Series: Preparing For A Potential Recession

If you turn on the news, you’ll hear one “expert” warning of a coming recession and you’ll hear another saying we’ve hit the bottom and are on the way to recovery. The reality is the FED has indicated they will continue raising rates as they look to bring inflation down from its current 9% rate to the target 2% rate. Regardless of what you feel will happen, you need to prepare for the potential of a recession. Those that do will have less anxiety, less risk to their future goals and will come out on top. Here at Crown Wealth Group, we are coaching our clients to do 4 things:
 

1. Reduce Expenses

Review last month’s bank and credit card statements to look for expenses that can be cut, either immediately, or quickly, if you face an income crunch. Subscriptions, dining out, shopping and travel are areas that are nice to have, but are not necessary. These can quickly be reduced, eliminated, or replaced with lower cost options.

With wages and income up over the past couple of years, and now costs being higher due to inflation, you may have increased your lifestyle more than you thought. Now’s a good time to double check what you’re actually spending.
 

2. Bulk Up Your Safety Net Savings

Any client that has worked through our planning process has a cash safety net in place that would cover 3 to 6 months of living and lifestyle expenses. These safety nets are held outside of their primary bank, in interest bearing high yield savings accounts. They are there to protect other assets, that are assigned to long term goals, in the event there is an emergency or job loss. After reviewing your expenses, you may be underfunded based on your current monthly spending. Now would be a good time to look at your bank accounts and if you have extra cash, push it into your safety nets; it can’t hurt to have more in the rainy-day fund.
 

3. Pay Down Debt

Americans loaded an extra $46 billion on their credit cards during the second quarter of 2022 and their balances saw the sharpest increase in more than 20 years, according to the Federal Reserve Bank of New York. Credit card debts grew 5.5% from the first to second quarter and 13% year-over- year. The annualized increase was the sharpest cumulative increase in more than two decades, New York Fed researchers said.

The national average credit card rate rose above 17% for the first time in more than two years due to the Fed’s most recent increase, according to CreditCards.com. The central bank expects to continue to raise rates for the rest of the year. If you’re carrying any credit card debt, your focus should be on getting rid of it. You’re already paying too much in interest, it’s getting worse and if you lose your job, that debt can spiral.
 

4. Stay Invested

We are long-term, goal-based investors and we know we will encounter bear markets. By staying invested, we ensure we’ll be participating when the recovery starts. In fact, if your safety nets are fully funded, you should be looking to buy more stock while the market is down and on discount. Historically, we know that staying disciplined will result in good outcomes. Here are 3 articles we previously wrote that can help calm your minds on this point:

Worried about stocks? Why long-term investing is crucial
Goals-based investing brings comfort and focus in volatile times
Bulls and bears, tame them with knowledge


Nick Kolbenschlag
Chief Executive Officer & Co-Founder