It is looking less and less like the U.S. economy will achieve the promised land of a soft-landing and will instead end up in a recession. It may turn out to be a shallow recession, but the economy is not typically forgiving of rapid increases in interest rates. If hiring falls off before the holiday season, then look out below.
Where To Save Money During Recession
Making smart personal finance decisions during a recession is critical to avoid losing progress on your goals. The four places are the best way to save money during recession and even depressions.
- Money Market Account – No it’s not sexy, but it is safe, and it should pay more than your basic savings account. Get at least three months of expenses put aside in case you are one of the unfortunate ones who lose their job during a recession. The silver lining on recessions is that rising interest rates means earning more money on your savings accounts and money market accounts. Consider a high-yield online savings account from a bank you trust to earn even more.
- Pay Off Debt – Alright, this is cheating. Paying off debt isn’t technically saving money, but it will certainly save you money. Pay off credit cards and other revolving debt with variable interest rates first. While rising interest rates mean you will earn more on your savings, it also means you will pay more interest on your credit cards. The best part about paying off credit cards, or a home equity line of credit is that you can draw on the debt again if things get too bad during the recession.
- I Bonds – U.S. savings bonds are usually a snooze fest and a bad investment as well. However, there is an exception to every rule. I Bonds Savings Bonds are not regular bonds. Instead, I Bonds pay based on inflation. If inflation rises, so does the rate they pay. If you buy before the price resets in October, you will earn 9.62% for six months, guaranteed. I Bond rate projections for November 2022 range between 7% and 12.5%. Either way, that’s a big, guaranteed interest rate during uncertain recession times. There is a catch. You must hold I Bonds at least 12 months before cashing them in, so make sure that emergency fund is full first. After 12 months, you can cash in I Bonds at any time, but you lose three months’ worth of interest if you redeem I Bonds before five years. Even if you cash your I Bonds in as soon as you can, that 3 months of interest penalty is small compared to the return. You don’t save taxes by holding bonds after they mature, so watch your portfolio carefully.
- 401k or IRA – Recessions are typically short-term events. Most recessions only last 18 to 28 months. Retirement is years away. Continuing to invest in your retirement accounts as the market slumps means buying low. Regular contributions take advantage of dollar cost averaging and does the investing work for you.
Should I Put Money in Gold for Recession
You don’t need gold.
Regular investors never need gold.
But, you don’t want to listen to me. You like the idea of gold. You want to invest in gold. You need to invest in gold. Like a parent talking to their teenager, if you are going to do it anyway, I want you to do it right. Look here for how to invest in gold bullion.
Best Investing Advice During Recessions
The most important thing about making money, saving money, and investing money during recessions is to remember that recessions always end. The average recession lasts about 12 months. The Great Recession lasted about 18 months. You should always be thinking about the big picture when it comes to personal finance, and 12 or 18 months is not a long time in the big finance picture.
The best investing advice during recessions is to keep investing. Don’t panic and sell your investments or stop investing in your 401k until you have rationally thought out your needs. For your long-term goals investing in recessions is smart. Dollar cost averaging can help with the timing of investments.
Protect Your Job
The biggest danger in a recession is not your investments dropping in value. The biggest danger is losing your job while nobody is hiring. A recession is not the time to tell your boss off or make some sort of statement. Don’t leave your job until you have your next job already set. If you keep your job, then keep saving and investing, and just like the rich, you’ll get richer too.
Brian is a former Certified Financial Planner and an expert in personal finance and investing. Brian currently works as a freelance writer from his home in Colorado. His work appears on numerous sites including Money, Fortune, and GoBankingRates.