Single income: Save six months or more
Generally, single individuals or families with a single income should save at least six months of expenses, experts say. But higher levels of cash reserves could offer more flexibility when faced with a job loss or economic downturn.
The simple answer is that during recessions people tend to lose their jobs, and when you don't have cash coming in for a while it's very important to have savings available to spend. That buffer could save you from losing your home or worse.
Liquidity is crucial in uncertain times. “I've seen people struggle during a recession because their assets were too tied up in investments. This is why I suggest keeping some of your money in cash or in easily liquidated instruments like Treasury bills,” Kovar said.
However, while the average recession lasts just 11 months, it generally takes the market more than two years to bounce back to its pre-bear peak. So, the first thing you should do to make your portfolio more recession-resistant is shore up your cash reserves.
It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.
Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.
The Bottom Line
CDs are a comparatively safe investment. They can provide a stable income regardless of stock market conditions when they're managed properly. Always consider emergency money that you might need in the future when you're thinking of purchasing a CD or starting a CD ladder.
In a recession, it's smart to preserve your capital by investing in safer assets, such as bonds, particularly government bonds, which can perform well during economic downturns.
As you discuss your plan with your financial professional, the discussion should include the most effective ways to manage cash. A widely accepted approach is to maintain a cash reserve that's at least the equivalent of six months of income.
About Recessions and Ensuring Deposit Insurance
If the United States were to enter a recession, the funds you have saved at a bank aren't at risk of becoming lost or inaccessible the same way they were during the Great Depression.
How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)
Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer.
The industries known to fare better during recessions are generally those that supply the population with essentials we can't live without. They include utilities, healthcare, consumer staples, and, in some pundits' opinions, maybe even technology.
"We would recommend between $100 to $300 of cash in your wallet, but also having a reserve of $1,000 or so in a safe at home," Anderson says. Depending on your spending habits, a couple hundred dollars may be more than enough for your daily expenses or not enough.
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
for cash of $3,000-$10,000, inclusive, to the same customer in a day, it must keep a record. more to the same customer in a day, regardless of the method of payment, it must keep a record. a record. The Bank Secrecy Act (BSA) was enacted by Congress in 1970 to fight money laundering and other financial crimes.
Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.
The recession lasted 18 months and was officially over by June 2009. However, the effects on the overall economy were felt for much longer. The unemployment rate did not return to pre-recession levels until 2014, and it took until 2016 for median household incomes to recover.
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
Understand Your Rights: You have the right to carry any amount of cash when traveling within the United States, but you must declare amounts over $10,000 to customs when entering or leaving the country.
The big question is, "How much should I keep in my checking account?" Most financial experts recommend anywhere from one to four months of living expenses as a good baseline. The idea is to have enough to cover your bills and expenses but not so much that you're losing out on potential interest.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.