Several economists are still not ready to call the current situation a recession , despite the warning signs that the US economy is currently doubtless in an exceedingly technical recession.
Recently skyrocketing oil and gas cost, continued record inflation, and the first of a possible slew of rate of interest hikes have led some specialists to marvel if a recession is on the horizon.
Additionally to a different quarterly drop in GDP or GNP, consumer confidence has gone down, the stock market is in bear territory and inflation is still soaring, despite four interest rates hikes from the Federal Reserve.
Economists are divided over whether or not a recession is looming. What’s clear is that economic uncertainty isn’t exploit anytime soon. But there are steps you can take currently to be ready for whatever is ahead.
Like many American citizens, you may be worried we are heading into a recession. More than 6 out of 10 Americans — sixty two percent — believe there will be a recession in the next year, inline with the more recent CNBC All America Economic survey conducted in early July.
Although the Covid-19 recession from February to April 2020 was significantly shorter than the average recession (the average is 11 months according to a Jan. 2022 report from the Congressional Research Service), there have been long-ranging financial effects for many Americans.
If you think a recession could destabilize your finance, here are some things you can do to organize.
Save as you can and Reduce your expenses
The more non-essential expenses you can cut, the more you can save. Start to look at where you can cut back on spending, Lassus suggested. Think about where you want your budget to be for a worse-case scenario and a best-case situation, she said.
It’s not possible for everyone, but Gene Natali, cofounder of Troutwood, an app that helps people create financial plans, says it’s ideal to budget to save enough to cover basic necessities for 3 to 6 months.
You have to think about the ‘what ifs,’” Lassus said. “What if my income goes down? What if my car breaks down? What if my rent goes up?”
And if you do have a savings account, it’s important to check whether your bank gives you a good interest rate and shop around if it doesn’t
Build up your emergency fund
A key to navigating a recession relatively unscathed is having cash in the bank. Though conventional wisdom recommends having three to six months of your essential expenses tucked away in an emergency fund, the pandemic has led some people to try to save more—up to a year’s expenses, in some cases.
However, it’s important not to get overwhelmed in thinking about reaching that target.
“Whatever they can put aside is going to help,” said Lassus, a member of the CNBC Financial Advisor Council.
Beyond building savings in an emergency fund, you should also decide what type of emergencies you’ll tap your fund for—and not be reluctant to do so.
That’s one thing Emmanuel Henson, CFP, founder and president of Gamma Wealth Management based in Towson, Maryland, often has to explain to clients: Your emergency fund is there for you to use.
Pay down debt and don’t take any more
As interest rates rise, experts recommend that you consolidate your loans to have just one fixed-rate loan and, if you can, pay down as much of your debt as possible to avoid a disaster.
“Job security tends to be worse when a recession comes, it’s not a great time to accumulate debt,”
Not only will it help you be prepared if you lose your job, but rates are also expected to move higher in response to rate hikes by the Federal Reserve.
Stay invested but Resist impulsive investing moves
It’s hard not to be worried about your portfolio after all the red arrows in the stock market this year. Recent market volatility may have you considering cutting back on your 401(k) or getting out of the market.
“You never want to make an investment decision when you panic or when you are really afraid,” Lassus said. “You got to attempt to step back from that, to create affordable choices.”.”
So review your holdings to make sure they still align with your risk tolerance for a potentially rockier road ahead.
If you have yet to sign up for automatic rebalancing, definitely look into this with your portfolio manager or online broker. “Economic growth is the long-term trend,” he added. “This is just a hiccup in that trend.”
Nurture Your Career and Update your resume
The labor market has been hot for job seekers, but that will change if a recession hits. You may not be ready to take part in the Great Resignation and make a big career change. But even if you’re happy with your current job situation, it’s always a good idea to keep your resume updated.
“People have to prepare for less overall job security,” Deer said. “With employment being at all-time highs, naturally employment will decrease.”
So it’s smart to update your resume now so you are ready if there are layoffs.
Technical abilities — or “hard skills” — are also important. Software development, data analysis, and digital marketing are among some of the “hard” skills most in demand on job websites. Learn or brush up on these skills. LinkedIn and other online platforms offer free classes.
Switch up your groceries
Its always advisable to stock up your groceries that can at least last for a while. “A lot of stores have price matching, so if you show them that a competitor is selling the same product at a lower rate, they’ll match that,” said McCallister-Young. “You also want to be looking at the stores that are closest to you, so you’re not spending the extra money you’d save on gas.”