Is America heading for a recession?Here’s what you need to know

this story is part of So money (subscribe here)an online community dedicated to financial empowerment and advice, led by CNET editor and So Money podcast host Farnoosh Torabi.

what happened

A growing number of economists and financial experts are predicting that the U.S. is heading for a recession — defined as two consecutive quarters of a broad-based slump in economic activity.

why it matters

Past recessions have been marked by massive layoffs, bankruptcies, rising borrowing costs and stock market volatility.

what’s next

No one can predict the future, but staying calm is crucial. Gather the facts and exercise caution to protect your finances.

After years of low unemployment and high market growth, an economic storm is rolling in.

hit an all-time high inflation Consumer spending slows, big-box stores like Walmart and Target report sales hit, Economists and financial experts worry that we may be heading for a recession.

These experts focus on gross domestic product (GDP) — the value of all goods and services a country produces in a given period — a key measure of economic growth and recession. U.S. GDP fell 1.4% in first three months of 2022, likely due to surge in COVID-19 cases and Inflation rises. This ukraine war The turmoil in the stock market will only exacerbate the broader economic woes. When gross domestic product declines for two consecutive quarters, the country is technically in recession. (National Bureau of Economic Research Usually official calls are made, but not yet. )

With growing fears of an impending recession in the U.S., you may be concerned, or at least a little curious, about what this might mean for your finances. My So Money podcast listeners recently sent some Recession-Related Issues – on how best to prepare, save, invest And generally make smart money moves during these uncertain times. Here are some guidelines to help us through what can be difficult financial times for many of us.

First, what usually happens in a recession?

It’s always helpful to review recession outcomes so we can manage expectations. While the duration, severity and consequences of each recession vary, we tend to see more layoffs during recessions. Access to credit markets could also become more difficult, and banks could lend more slowly because they fear default rates.

If the Fed continues rate hike To keep inflation in check, we may see borrowing costs increase.So even if you be eligible for a loan or credit card, Interest rates may be higher than the previous year.We’ve seen this in the mortgage market, where the average interest rate 30 Year Fixed Mortgage More than 5%, the highest level since 2009.

The silver lining in some recessions is that as interest rates rise and inflation cools, the price of goods and services falls Personal savings rate rises. As we saw in the Great Recession of 2009, we may also see a rise in entrepreneurship as newly unemployed are inspired to bring small business ideas to life.

Should I stop investing in my 401(k)?

With stocks spiraling downward for weeks, many are wondering how a recession will affect their long-term investments.if you stop invest? The most concise answer is no. At least, if you can help. Avoid panicking and cashing out just because you can’t stand the volatility or bearish arrows.

My advice is to avoid knee-jerk reactions. This may be a good time to review your investments to ensure you are diversifying. If for some reason your appetite for risk suddenly changes, discuss with a financial professional to determine if your portfolio needs to be adjusted.some online robo-advisor The platform provides customer service and can provide guidance.

Historically, sticking to the market has been worthwhile. Investors cashing in 401(k)s in the Great Recession missed out on the rally. The S&P 500 has gained nearly 150%, adjusted for inflation, since its 2009 low.

The caveat is if you desperately need funds in the stock market to cover emergency expenses like medical bills and there is no other way to afford it.In this case you may need to investigate 401(k) loan options. If you decide to borrow from your retirement account, commit to repaying it as soon as possible.

What if I or my partner are fired?

During the Great Depression, when unemployment hit 10%, it took the unemployed an average of 8 to 9 months to find a new job. So if you think there is a shortage, now may be the time to review your emergency fund.If you can’t pay for at least 6 to 9 months, pay by reducing your spending or generate some extra money.

If you’re self-employed and concerned about a potential downturn in the industry or customer churn, explore new sources of income. Also designed to increase your cash reserves. If previous recessions have taught us anything, it’s that having cash unlocks options and brings more control during challenging times.

What if interest rates on my debt spike or loans become harder to get?

as the Federal Reserve keep raising rates Adjustable interest rates may increase to curb inflation – higher APRs on credit cards and loan, and make monthly payments more expensive.Contact your lender and card issuer to find out Low Interest Credit Options. See if you can refinance or consolidate debt Single Fixed Rate Loan.

In past recessions, some banks have been reluctant to lend as often as in “normal” times. This can be a hassle if your business relies on credit to expand, or if you need a mortgage. buy house. Time to pay close attention to your credit score, which is an important factor in bank decision-making. The higher your score, the better your chances of qualifying and getting the best price.

My final point is that it’s important to remember that recessions are a normal part of the economic cycle. Long-term financial planning will always experience some downturns. The United States has endured more than a dozen recessions since World War II, usually ending a year or more later. By contrast (and with some better news), periods of expansion and growth are more frequent and persistent.

read more: 8 Ways to Prove Your Financial Status – wikiHow