Consumer Investigation: Five steps to recession-proof your finances

ROCHESTER, N.Y. – According to Forbes, most economists predict a recession in 2023 or early 2024, and one at Johns Hopkins says it’s going to be a whopper.  These are anxious times for all of us.  But one of my favorite quotes is this one. “Worry is like paying interest on a debt you don’t owe.”  Rather than worry, let’s prepare.  So I sat down with a financial whiz.  Jarrett Felton owns a wealth management firm in Rochester called Invessent.  And he says the ABC’s of planning for a recession start with the letter A.

Analyze your finances.

“Inflow to the house and outflow. What’s coming in and what’s going out,” said Felton.  “And really making sure that of those expenses, what are your needs, what are your wants.”

Then cut out those wants, and use that cash to pay off credit card debt.  That’s number 2.

“These interest rates are ferocious!” said Felton “Eighteen to 25 percent on the interest rate on a credit card?”

That hurts. How much? He points to the rule of 72.

“You take the interest rate that you’re getting on your money divide it into 72, and that equals the number of years for your money to double or the balance to double to pay off on your credit card if you’re not paying it off on time.”

For those who are not financial wizards, let me explain.  Let’s say you have $5,000 of credit card debt.  To figure out how quickly your debt will double, the rule of 72 says you divide 72 by your interest rate.  If your credit card interest rate is 20 percent, you divide 72 by 20.  That equals 3.6.  That means if you’re paying the minimum, your $5000 credit card debt will double to $10,000 in roughly 3 and a half years.

So less debt means you can save more.  That brings me to number 3.  Pay yourself first.  Each paycheck automatically deposit a set amount into a savings account.

“And now a days if you look at the high yield side of space for a savings account or a money market you may see rates much higher than what you saw a year ago,” said Felton.

Yield is the interest you earn on your savings.  A high yield savings accounts currently have a yield as high as 3.60 percent.  Compare that to your typical savings account with a yield of .01 percent.

And that makes a difference.  Let’s say you have $5,000 stashed in a savings account.  And you save $50 a paycheck or $100 dollars a month.  In a traditional savings account with a yield of .01 percent, in a year you will have $6,200.55, just 55 cents more than if you’d stuffed the cash under your mattress.  But if she puts that same $5000 in a savings account with a high yield of 3.60 percent, you’ll earn almost $6,399.67 in a year and almost $12,520.72 in 5 years.

And that brings me to rule number four.  Be patient. Don’t panic. If you have a retirement plan, it’s hard not to react when the market plummets. Felton says take a deep breath.  Don’t sell.

“If you’re selling out, well that’s a loss because you’re scared and you sell. You hit the panic button. Eject! I’m out of here. That’s what you probably want to avoid doing.”

Instead stay the course.  Commit to your plan.  That’s number 5

“It takes a commitment to writing it down on paper and actually understanding and receiving it first, in order to put a plan together and a road map, and then to implement,” said Felton.

I’ve already implemented one of those tips. I’m moving my savings to a high interest savings account.  And by doing so I’m increasing my yield by more than 300 percent.  Remember. Don’t worry.  Prepare.