AM 760 KFMB - Talk Radio Station - San Diego, CA - Preparing your finances for an economic downturn

Preparing your finances for an economic downturn

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By Andrew Housser


Unemployment is down, home values are up, and Americans are purchasing new vehicles and other goods. They also are using credit cards, with revolving debt rising by as much as 10 percent year-over-year in recent months.

It may feel like the last recession is just now receding in the rearview mirror, but officially, it ended in 2009. If history is any guide, the U.S. economy will face another recession. It is just a question of when.  Here are six steps to set you on a strong financial path so you can be prepared before it arrives.

1. Check your credit profile and credit score.
Every year, request your credit reports, available for free from Request your file from each of the three major credit bureaus. Check each report carefully to be sure there are no inaccuracies. If you do find errors, write to the credit bureau and ask them to correct the information. Have your spouse check his or her report. If you have children, especially teens who might soon need to build credit, check their reports, too. This is a good opportunity to teach children about credit, while you make sure no one has stolen their identity.

2. Verify your insurance coverage.
Everyone needs basic insurance coverage on vehicles, home and health, as well as life insurance if there are dependents. Check policies and make sure they are up to date. Obtain new bids if it has been a while since you compared rates, if you have added onto your home or have obtained new valuables, such as jewelry. If your only life insurance is through your work, consider buying an individual policy so that if you lose your job, you will feel secure about your family’s well-being, should something happen to you. Also consider whether you might need other coverage, such as flood coverage or long-term care coverage. It can be harder to obtain policies if you are in a financial crunch or after you have a problem.

3. Get out of debt – now.
Nothing poses more risk to personal finances than being deep in debt, and then losing work for an extended period due to a recession. In the last few months, U.S. residents have been accumulating revolving debt – the category that includes credit cards – at a very high rate. Instead, during good economic times, it is better to continue living with a budget and pay down debt, especially revolving debt.

4. Save, save, save.
The most crucial savings to have in place for a recession is an emergency fund. It’s important to have at least six to nine months of living expenses saved in an account that you will not inadvertently access and spend from, but that you can reach in an emergency. Begin adding to this account immediately, even while you pay off credit card or other debt. Once you pay off debt, amp up your emergency savings. Sell unneeded items, take a side job or stash any pay increases, gifts, rebates or inheritances until you reach your goal. These savings will bring you tremendous peace of mind if a financial crunch hits, or simply when you encounter the inevitable unexpected expense.

5. Be cautious about home ownership.
If you are thinking about buying a home, be sure you understand the real cost. Beyond the mortgage, home ownership involves tax and insurance costs. Some properties require homeowners’ association (HOA) dues. If your down payment is less than 20 percent of the purchase price, you will probably pay private mortgage insurance (PMI). Homes come with maintenance and repair costs – estimated at 1 to 3 percent of the home value, per year. And in the current strong economy, houses in many markets are fully valued. In a recession, they could have a distance to fall, putting buyers – especially recent ones – at risk of being “underwater.” Be a very savvy home shopper in the current market, and make sure you will have a financial cushion after you buy.

6. Protect your home equity.
If your home has increased in value, it may be tempting to take out a home equity line of credit (HELOC) to repay debt, pay for college or splurge on a luxury. But remember, home equity borrowing comes with a repayment. In the future, if you cannot make that payment, you will put your home at risk. Think twice before turning your credit cards or medical bills into a foreclosure risk.

While the thought of what to do in a recession is less than cheery, it also presents an opportunity. By planning, you can take advantage of the current state of optimism to prepare your finances for the next downturn.


Andrew Housser is a co-founder and CEO of, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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