Recession Preparation: How Can You Protect Yourself?
- The US is “officially” in a recession, but that doesn’t have to be bad news for you.
- “Recession” simply means two consecutive quarters with negative economic growth.
- You can protect yourself in a recession by strengthening your savings and career prospects, paying off debt, and adding to your emergency fund.
Well; it’s official. The US has entered a recession, and we’ll have to deal with it. But what is a recession anyway?
What Is a Recession?
A recession is simply a temporary situation in which economic growth slows for at least two consecutive quarters. And data covering the first and second quarters of 2022 show that our gross domestic product, or GDP, fell in both quarters. So here we are.
How Much Will a Recession Affect You?
Recessions don’t impact everyone equally, and your preparation should reflect your own risk. Your first task, then, is to figure out how it is likely to affect you.
If you are retired and on a fixed income, for instance, a recession that brings prices down could actually improve your financial picture. However, if you recently took a new job in a vulnerable industry, your income may be at risk. Your strategy will be different.
Recession Checklist: What to Do Now
Here is a list for recession preparation. Your actions for each step depend on your job security and resources.
1. Adjust your lifestyle
You may have taken on some new pandemic-related habits – new streaming subscriptions, for instance, or “revenge” spending on restaurants and recreation, or going big on home improvements. Consider putting these things on pause and directing the money you save into debt reduction, emergency savings, or retirement investing.
If you don’t already have a budget, there’s no time to lose. Check out our budgeting tips for an easy-to-follow plan you can use to improve your finances in good times and bad. If you already have a budget, start looking for opportunities to cut spending and offset recent price increases. Costs for American households have gone up about 9% on average. Can you challenge yourself to cut 9% from your current spending?
2. Deal with debt
If you are carrying high-interest debt, you should already be working on a plan to pay it off as quickly as possible. Recent inflation and rising interest rates make this an even higher priority.
However, if you have lost your job or are worried about your earnings, pull back on debt payoff. Make minimum payments to protect your credit rating and bulk up your emergency fund. The important thing is being able to cover food, utilities, transportation, and a roof over your head for at least two-to-six months.
If your job is safe, accelerate your debt repayment. Push as much income as you can toward paying off balances with the highest interest rate first, then work your way down.
3. Consider your career
If your job isn’t as secure as you’d like, take stock. Touch base with contacts who could help you if you need to find a new job fast. Update your resume and start researching opportunities in your current field or a related one.
Now might also be a good time to improve your career qualifications. Is there a class that could make you more marketable or valuable? Think about taking on a side gig to provide extra income now, make you eligible for a wider range of jobs, and add to your network. You never know who may be able to help you.
And Finally, What NOT to Do
Here’s a quick list of things to avoid when preparing for a recession:
Do not make risky investments – stick with your current plan and keep saving.
Say no to stress spending and retail therapy. It doesn’t work, and your increasing balances will lead to even more stress.
Do not panic or hide your head in the sand. Your financial survival depends on planning ahead.
The good news is that recessions are temporary and many expect that this one will be on the milder side. Until it ends, keep your eyes forward and your wallet closed.