The fear of a recession looms large, and though it isn’t certain that we’ll enter recession territory in 2023, there’s no doubt we’re in a period of constraint for consumers. Inflation is still high despite the efforts of the Federal Reserve to cut spending with interest rate increases, and 2022 brought the worst annual performance for all three major indexes since 2008^[1,2,3].

Understandably, this can cause panic among American consumers and pre-retirees, whether they have assets invested in the market or they’re simply looking to continue with their current lifestyle. With the times, however, our behavior and spending habits must change to give us the best chance to protect ourselves during periods of financial downturn. Here are some things you can do to counter volatile markets and economic declines.

1. Cut Unnecessary Spending

One of the best ways to avoid a financial crisis is to cut unnecessary spending. A properly structured and maintained budget typically accounts for all of your incoming and outgoing funds, so it can likely be a great place to start when looking for places to cut back. You may be forced to make some hard decisions, but the idea is for those decisions to pay dividends in the long run.

2. Build an Emergency Fund

While an emergency fund might be seen as the most obvious form of protection against difficult financial times, nearly one-in-four consumers don’t have one ^[4]. A general recommendation is to build gradually toward three to six months’ worth of expenses saved in your emergency bucket, giving you some flexibility if you’re forced to access that money.

3. Pick Up an Extra Job

One way to supplement the difference in difficult times is to pick up an extra job to increase your total income. Some ideas for an additional job include freelance or contract work, consulting, starting your own business, or even finding a part-time role at a local establishment where you already enjoy spending time, like a golf course.

4. Prioritize Financial Obligations

Market volatility, inflation, high interest rates, supply chain issues and other economic factors can be scary, but they’re even scarier when compounded with outstanding debt. It can always be a good idea to tackle debt to avoid falling into a situation where you’re beholden to that debt, seemingly allowing you little-to-no flexibility with your income.

5. Look for Advantageous Investment Opportunities

While there are certainly no guarantees when it comes to investing in the market and no current iron-clad ways to dictate market performance or protect yourself from declines, opportunistic investors with a long time-horizon to retirement can take advantage of dips. Though the big three indexes were down in 2022, they have a sustained history of long-term growth, potentially making declines a favorable time to enter the market.

6. Use Protection-Based Strategies

Diversifying your portfolio with a protection-based asset class, such as an annuity or a permanent life insurance policy, could be helpful through guaranteeing principal protection and index-linked growth. Despite allowing you to participate in market upside, these policies are not investments. Rather, they’re contracts with issuing insurance companies, and the guarantees are made by the claims-paying ability of those companies. If you think a protection-based approach may be the right strategy for you, we can help you decide based on your unique circumstances.