Although consumer spending and the job and housing markets remain robust, inflation and the Federal Reserve raising interest rates are both signs that a recession may be coming. Economists have been warning of a possible U.S. recession since last year, but many experts are now predicting we won’t likely see a recession until 2023 or later.
A recession generally occurs when there’s a decline in economic activity. The U.S. economy has experienced multiple recessions throughout our history, and none were as severe or long as the Great Recession of 2008. During a recession many people experience job layoffs, salary freezes and reduced income. As a result, it’s a good idea to take some steps today to prepare for a possible recession. Even if a recession doesn’t occur, the following tips offered by financial experts are still great steps to improve your overall financial health!
1. Reduce your unnecessary spending
If you don’t already have a budget, use our 5-minute online module to help create one. This will help you figure out where you can reduce your spending. If you do have a budget, spend a few minutes reviewing it against your actual expenses to make sure they’re aligned. Cancel subscriptions you don’t need, and start thinking twice before making each purchase.
2. Build up your emergency savings
Financial experts recommend having savings equal to 3-6 months of your expenses. In the event of a layoff or other emergency, you’ll be able to pay your bills while you figure out your next steps. Automate your savings with payroll deductions from each paycheck or auto transfers from your checking to savings account so you don’t have to think about it. Your budget will help you determine how much you can afford to save with each paycheck.
3. Pay off high-interest loans like credit cards
Home loans and car loans have relatively low interest rates compared to credit cards and department store charge cards, so be sure to pay off balances with the highest rates first. Credit and charge cards also have variable rates, which means the rates will likely keep rising during an inflationary period. Always pay more than the minimum payment due, even if it’s only a few extra dollars. And consider consolidating your credit cards into a fixed-rate Personal Loan to lock in a lower rate and make it easier to pay off the one loan.
4. Boost your job security
It’s scary to think about losing your job, but layoffs are one of the first things that happen in a recession, and it’s happening now. You can take steps to enhance your skills with classes and online certifications, step up your job performance to make yourself less dispensable, and expand your network so in the event of a layoff your resume is ready and you have plenty of contacts to help with your job search.
5. Don’t panic and make extreme changes to your investment portfolio
If you have a 401(k) or other investments, now is not the time to sell or cash out unless you’re nearing retirement. Investments will fluctuate with the market over time, and even experts like Warren Buffett recommend that you don’t get in and out of your investments by trying to guess what the market will do next. In fact, most financial advisors recommend that you don’t even look at your investments right now. If you need reassurance, schedule a free investment portfolio analysis with an expert.
Taking these steps today can help prepare you for the next recession, whenever that may be. The economy will fluctuate over time, but just like the generations before you, you will survive. And remember that your credit union is always here for our members, through good times and bad!