Well, a deal has been inked, and the debt ceiling has been raised. The deal includes spending cuts now, and the potential for more spending cuts later. There aren’t any revenue increases to help the situation further, so if you’ve been hoping for a social safety net, it’s time to stop. It’s also time to re-evaluate your portfolio and see if you are over-exposed in terms of companies that rely on government contracts.
And, while bonds aren’t exactly as scary as they were last week in a debt default loomed, it’s still a good idea to take a look at how exposed you are — or wait until the U.S. credit rating is downgraded and yields rise. (Our debt problem is so severe that even with spending cuts, it is unlikely to be solved in a meaningful way without an increase in revenue. With continued deficits, it’s likely only a matter of time before our credit rating is slashed, even if we don’t start defaulting.)
The bottom line is that some analysts think that the current debt deal, with its drastic spending cuts in an economy already sluggish due to lack of growth, will be just enough to tip the economy into a double-dip recession. Are you ready for the next recession?
What Can You Do To Shore Up Your Finances?
When it comes to shoring up your finances, especially now, as we face a double-dip recession, there are a few things you can do:
- Back to personal finance basics: Before the recession hits, it’s time to get back to basics. If you want your finances to survive a recession, you need to be prepared. Live within your means, pay down your debt, and build up your emergency fund. This is good advice for anytime, of course, but especially important if you are facing a recession.
- Consider dividend stocks: Think about your investment portfolio, and consider some of the stocks that are likely to weather a recession. Dividend stocks (especially dividend aristocrats) can provide income, even during tough times. Additionally, these are usually companies with strong finances, and plenty of cash — after all, they can afford to pay dividends. While the stock price might drop during a recession, solid companies that provide consumer items and health items are likely to make it through.
- Think about commodities and property: If the U.S. dollar falls further, there is a good chance that gold prices will continue to be sustained. Even if gold is too rich for your blood, other possibilities, like silver, might be able to provide you a safe haven during times of economic uncertainty. Others like buying property in times like these; you can get a good deal since prices are so low, and you might be able to see some appreciation in the future.
- Improve your self-reliance: This can include building home food storage, learning how to garden, and preparing emergency supplies in the event of a disaster and other problems.
Of course, any investment comes with the risk of loss, and you never know when your plan could backfire. However, if you make efforts to shore up your finances, and properly diversify, there is a better chance that you will make it through these difficult economic times.
What will you do to prepare against a double-dip recession?