Money Management

It’s important to be recession-ready at all times. Read on to see how you can gear up for one. [[{“value”:”

When the Federal Reserve raised its benchmark interest rate numerous times in 2022 and 2023 to fight inflation, the fear was that higher loan and credit card borrowing rates would lead to a decline in consumer spending and cause a recession.

But that hasn’t happened so far. The economy has remained resilient despite the Fed’s rate hikes. Plus, the Fed has already started cutting its rate in response to a slowdown in inflation. So you’d think we’d be in the clear as far as a recession goes.

In spite of that, the Federal Reserve puts the probability of a recession in the next 12 months at 57%. And while that doesn’t guarantee that things will take a turn for the worse in the coming year, it’s still something everyone should prepare for. Here’s how you can get yourself recession-ready — and minimize your stress if economic conditions do, in fact, decline.

1. Boost your savings

Economic recessions aren’t always painful and drawn-out. But they can lead to an increase in job loss. To prepare for that, aim to boost your savings so you have enough money to cover at least three full months of essential expenses. That way, if you were to lose your job, you’d have a way to pay your bills without having to resort to expensive credit card debt.

The good news is that savings accounts are still paying pretty generously these days, so you can earn a nice return on the money you’re keeping around for emergency fund purposes. Click here for a list of the best savings account rates available today.

2. Grow your job skills

Losing your job can be a scary thing. But the more professional skills you have, the easier it becomes to find a new role.

If you’re concerned about job loss, first decide if you want to stay in your current industry. If you do, consider some of the skills you’re missing that could help you get hired elsewhere in a similar position.

If your job tends to require presentation skills but you’re not good at that, you might consider taking a course in public speaking. If you have an IT job and there’s a popular programming language you’re unfamiliar with, learn it.

At the same time, don’t underestimate the value of networking your way into a new job. Often, getting hired boils down to having the right connections. So take the time in the coming weeks to check in with former bosses and colleagues. That way, if you end up needing to call in a favor, it won’t be out of the blue.

3. Reduce expensive debt

The less debt you have, the easier a layoff situation becomes. You won’t strain your emergency fund as much if you’re able to reduce your debt payments now, so take a look at what those are and figure out how you’ll whittle them down.

Generally speaking, it’s best to focus on paying off variable-interest debt like credit card balances first. Credit cards are notorious for charging high amounts of interest, so if you can reduce your balances, you’ll gain some peace of mind while saving yourself money.

One option for paying off credit cards is to consolidate them into a personal loan. The benefit is that the interest rate you pay on a personal loan will likely be much lower than what your credit cards charge you. And your loan payments will be fixed, which may make them easier to work into your budget. Click here for a list of the best personal loan lenders.

Another option for reducing credit card debt is to do a balance transfer, where you move your existing balances onto a single card — and, ideally, one with a 0% introductory interest rate. Getting a break from accruing interest could make it easier to pay off your debt. But do know that once your introductory period comes to an end, the interest rate on your credit card might soar.

So shop around for a longer introductory period. Some credit cards give you a break on interest for more than a year. Click here for a roundup of the top balance transfer credit cards.

The idea of a coming recession may be scary, and understandably so. The good news is that there’s no guarantee the economy will decline in the coming year, despite the Fed’s projections. But it’s always best to play it safe and prepare for a recession by taking these key steps.

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Online banks are as safe as traditional ones — and charge fewer fees while paying higher APYs. Learn how to keep your money secure in online bank accounts. [[{“value”:”

Financial technology just keeps getting better. We no longer have to visit a bank in person to move money around — you can access your cash via smartphone, and even deposit checks by taking a photo of them (this blew my mind the first time I saw someone do it).

If you want to move your banking into the future, you might be considering joining an online-only bank (or perhaps you already have). Online banks have fewer overhead costs than traditional ones, so they’re more likely to pay a high APY on your savings account and let you maintain a high-quality checking account with no pesky maintenance fees.

Read on for a few great tips to keep your money safe in cyberspace.

1. Check for FDIC insurance

This is absolutely crucial, because without FDIC insurance, your money isn’t safe from bank failure. This is a rare occurrence, but certainly possible — in spring 2023, three major banks in the U.S. went under in a matter of a few days. You can check your bank’s website to see whether it’s a member of the FDIC, or use the agency’s BankFind Suite tool.

Thankfully, high-profile online banks are covered by the same FDIC insurance as your neighborhood bank or the big bank that has a branch in your city. The Federal Deposit Insurance Corporation covers $250,000 per depositor, per insured bank, per ownership category. If for some reason you have more money than this at a given bank, consider splitting up your money among multiple banks to protect all of it.

2. Log in regularly

It’s a good idea to check in on your online bank accounts frequently. Aim to log in a few times a week and make sure that any bills you’ve paid have been debited out of the account, and that you’ve received any direct deposits you expected.

Check for suspicious transactions you didn’t make, and alert your bank about possible fraud. Ensure your balance is where it needs to be, based on how much money you leave in the accounts.

And speaking of your balance, if you have a linked checking and savings account with an online bank, be careful about leaving your checking overfunded. Even if it earns interest, that APY likely pales in comparison to the APY on your online savings account. Why miss out on the passive income a savings account can give you?

I’ve earned over $2,000 in interest on my savings account this year — what about you? Check out our list of the best high-yield savings accounts and watch your money grow.

I opt to keep a pretty low cushion of just $500 in my main checking account at any given time because I want to earn as much interest on my money as possible. This may be less money in checking than you’re comfortable with, but I urge you to decide on a target and make sure your money is working for you as much as possible — it is a tool, after all.

3. Enable multi-factor authentication

You might be able to enable multi-factor authentication for logging into your online bank, and I also recommend taking advantage of this. Multi-factor authentication will have you providing your online account name and password, and then also perhaps entering a numeric code that is texted or emailed to you.

This helps keep your money and data safe — it’s an extra layer of protection to ensure that it’s you who has access to your information, not some shady scammer.

4. Opt in for alerts of all kinds

Online banks go hard on technology, and you’ll likely be given the option to set up alerts for different issues, like having a low balance, receiving a direct deposit, or suspicious transactions (such as those made outside your usual geographic area).

Definitely opt in for these (you’ll likely find them on the bank’s website and mobile app). If something goes wrong with your money or your paycheck is early in a given week (hooray!), don’t you want to know about it when it happens?

Online banks are pretty great — my online high-yield savings account is easily the best bank account I’ve ever used. If you’ve yet to hop on board the online banking train, now is a perfect time. Just follow these tips to keep your cash safe.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Three investment blunders nearly wrecked my portfolio. Check out these hard-earned lessons before you dive into the market with your pants down. [[{“value”:”

Three is how many jaw-droppingly poor investment decisions a 20-something can make, given the money to experiment. Penny stocks, leveraged investments, and early 401(k) withdrawals formed the unholy trifecta, back when I barely knew a bank teller from a brokerage account.

Congrats! You’re already three steps ahead of me, considering you’re reading before leaping. I hope the following tales of woe paint a bloody picture of precisely what investment decisions to avoid (and how to survive when you make them anyway).

1. Bought a penny stock on a family recommendation

“So, my friend is running a company, and I’m investing. I have a good feeling about it.” John looked at me, a knowing twinkle in his eye. What did he know that I didn’t? It seemed risky, yeah, but this was different. He knew the founder. That had to count for something. I was in.

Months later, John returned. “Have you seen the stock?” I opened my investing app. Wow! I’d already earned returns, assuming I withdrew. But John was doubling down, so I did, too. Again — what did he know that I didn’t? The answer soon became apparent: nothing.

The stock’s value tanked, as the vast majority of penny stocks do. I lost most of my investment. Worst of all, I realized I had zero insight into the company itself. Why did the stock tank? I didn’t know. Was the company struggling? Not a clue. In short, I’d let familial ties replace due diligence.

The takeaway

Think twice before investing in companies you don’t know on recommendations of friends and family. In hindsight, I’d never have blindly invested in the penny stock (a category I avoid) if the recommendation had come from a stranger, even if that stranger happened to “know” the company founder.

2. Leveraged investments for 25% of my portfolio

During the early-2020 stock market boom, I leveraged over a quarter of my investment portfolio. I’d been doing so well, I figured I might as well take advantage of low interest rates to buy stock on margin, boosting any returns. It worked great…until the stock market tanked.

My brokerage, Robinhood, hit me with multiple margin calls, forcing me to sell when I wanted to hold. I ended up losing thousands more than I would have had I leveraged a smaller portion of my portfolio or avoided investing on margin altogether.

The takeaway

Anticipate your stock portfolio falling by at least 75% and plan accordingly. The less margin you take out, the less likely you’ll be forced to sell at the worst possible time. If you’re a long-term stock picker like me, chances are, your portfolio will tank every 10 years, at least.

3. Withdrew from my 401(k) early to cover margin calls

One poor investment decision leads to another. I was so stressed from scrambling to repay my leveraged loans, I chose my 401(k) as the place to withdraw money. In hindsight, it would have been cheaper to sell stock in my taxable brokerage account.

My retirement broker, Fidelity, charged me a 10% early withdrawal fee for the privilege of withdrawing from my 401(k) before retirement. I lost over $1,000 to a single fee and forfeited tax benefits because I felt too stressed to calculate cost vs. benefits.

The takeaway

Prioritize withdrawing from a taxable brokerage. That way, you avoid paying huge fees on retirement account withdrawals. Holding individual stocks because you’re worried about missing upside is timing the market. That’s not how I invest; I don’t time the market.

How I survived my three worst investment decisions

I survived all of my worst investment decisions because I started small and early:

I invested less than $1,000 into the penny stock.I paid off my margin balance as fast as possible, reducing the downside.I was too early in my career to lose tens of thousands to an early withdrawal fee.

I’m glad I took the advice of experienced investors and started investing early. Doing so let me make mistakes without going into deep debt. I’ve learned from all my mistakes, so I don’t regret making them.

Great stock brokers make it easy for beginners to flounder around like I did. Discover where to dip your toes into the stock market for cheap — click here to compare the 10 best online brokers.

Anticipate learning hard lessons? Better to start early. You have less to lose.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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