With more and more experts predicting a recession, it’s important to be financially prepared.
- Economists and other financial experts warn of a recession.
- Now is a good time to prepare for a recession.
- Steps to take include increasing your emergency fund and finding more sources of income.
It looks increasingly likely that we will have a recession in 2023. Experts have been warning about it for months, and now some are practically guaranteeing it. In one of the most recent reports, Bloomberg economists see a 100% chance of a recession within a year.
Just because Bloomberg says so doesn’t mean we’re sure to have a recession. But with so many alarm bells ringing, now is the time to make sure you’re fully prepared. Here’s what you can do to prepare your finances for a recession.
1. Increase your emergency savings
The best way to give yourself financial peace of mind is to build a solid emergency fund. In the worst case scenario where you lose your job, you can dip into your emergency savings until you get back on your feet. By having enough cash in your savings account, you won’t need to sell investments at a loss to cover your expenses.
Personal finance guides have traditionally recommended an emergency fund with three to six months of living expenses. Recently, some experts have increased their recommendations to eight to 12 months. Although it’s up to you, a large emergency fund doesn’t hurt. If your emergency fund isn’t where you want it to be, make it your savings priority.
2. Pay off or refinance high-interest debt
If money gets tight, it’s helpful not to have to worry about unnecessary expenses, like expensive debt. The most common problem is credit card balances, as these tend to have high interest rates. Although it’s difficult, do your best to pay off or completely get rid of your credit card debt so it’s not a thorn in your side.
Another option is to refinance your debt to get a lower interest rate. It’s a little trickier now, because interest rates have gone up. However, there are still many balance transfer credit cards that offer an introductory APR of 0%. If you have a good credit rating, one of these cards can help you save on interest charges.
3. Look for additional sources of income
Before a recession hits, it’s a good idea to see if you can find more sources of income. If you have a job, try starting a side hustle. If you are a freelancer, look for more clients. This way, you are not entirely dependent on one source of income, be it an employer or a large client.
Companies have cut spending during recessions, and one way to do that is to lay off employees and contractors. With multiple ways to earn money, you are less vulnerable here. And it’s much easier to put that in place before the job losses start and everyone is looking for work.
4. Reduce your expenses
There are two big reasons why it makes sense to cut spending as part of your recession preparedness. On the one hand, it will free up more money that you can devote to paying off your debts or increasing your emergency savings. Plus, if you need to tap into that emergency fund later, it will last longer since you’re not spending as much.
You don’t need to take this to extremes, but it’s worth looking at your recent expenses to see where you could cut back. This might mean not going out to restaurants as often at the moment or canceling some subscription services that you don’t use much.
The thought of going through a recession is stressful, but it’s much easier to stay calm when you know you’re financially prepared. By preparing now, you won’t have to rush into a recession.
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