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What Can You Do To Prepare For A Recession?


When a major storm is headed your way, you prepare yourself. The same should be true for a recession. A growing consensus among economists is that the U.S. economy will enter a recession in 2023. These tend to go hand in hand with major stock market declines and unemployment.

Most economists and financial advisors say that the best way to bolster your finances before a recession hits is to beef up your emergency savings, pay off any high interest and if practical, develop alternative income streams. The big caveat is that if a recession does happen soon and you haven’t already started preparing, you’re probably too late to prepare adequately.

Given the inevitable economic downturns sooner or later, financial planners recommend a long-term financial plan and outlook that accounts for future downturns so you don’t need to scramble and panic if and when this happens. The bottom line? There’s no time like the present to start preparing. We have some insight, tips and tricks with help from the Wall Street journal,, and USA Today. 

Active vs. Reactive
For many, financial vulnerability during a recession starts with poor spending and saving habits. Credit card balances have been growing over the past year and Americans’ personal savings rate was 2.4% last November down from 7.1% the year before, according to the Bureau of Economic Analysis.

Of course, telling someone on a tight budget to save may be easier said than done. A January 2022 survey by found that among households with incomes of $75,000 or more, 62% said they could cover an unexpected $1,000 in expenses out of their savings. Among households earning under $30,000, only 22% reported that they could do the same. $1,000 doesn’t go very far. All the more reason to take a longer-term and not a reactive approach to savings.

Most of us can’t renovate our personal finances on the spot but we can take incremental measures in the right direction. It all helps. For example if your cash is earning low interest look for a higher yield account.  Trim some discretionary expenses. 

Flexible Mindset
Even if your job or industry seems secure right now, your job may become vulnerable. Job losses that start out in a few companies in one sector can quickly spiral and expand to other industries. If you are less than totally confident, consider delaying big financial decisions that could lock you into large recurring payments like buying a new home. Also have an adaptive mindset. Keep an eye on the job market and on potential alternative income streams. Also understand what kind of unemployment payments you may be entitled to and for how long.

Factors beyond your control can also play a role of course like job loss. And losses that start in one sector like tech for example may well spread to other industries.  

At the moment the consensus is that in 2023 there will likely be a mild recession owning to strong job growth, but that can still bring pain. 

Action Plan
1. Understand your financial situation
Make a budget if you don’t already have one. Using an online resource can certainly help and your Credit Union is a good place to start. Check out our best in class budgeting tool. As part of the exercise scan bank statements and recurring payments. Then estimate:

  • The gap between income and expenses. If you you barely cover your expenses, or worse, look for ways to cut costs or increase your earnings.
  • If you were to lose your job tomorrow, how would you cope? Think about how much cash you have ready to tide you over for a few months, and figure out what non-essential spending you could cut if needed.  

2. Prioritize your emergency fund
Keep your emergency fund in a separate savings account so you don’t get tempted to dip into it for regular expenses. Estimate how much you’d need a month to get by without a job, and save up to meet that goal. Remember you could be out of work for a while which is why experts recommend up to six months’ worth of savings. Your Credit Union has a number of high yield savings accounts including our Rainy Day savings account. Learn more here.

3. Pay down high interest debt
If you carry high interest debt, look for ways to pay it down. Your Credit Union has excellent Credit Card and loan rates and can help you consolidate and lower debt. One big benefit is that you’ll free up some of your monthly budget to save or spend on yourself rather than on interest. A smaller debt payment will also make life easier if your income suddenly drops.

Another thing to bear in mind is that interest rates are climbing, making it more costly to carry debt. Plus, it’s often harder to borrow money in a recession. If you can reduce your credit card debt now, you’ll have leeway to borrow again if things get tough. Another side benefit is that you may also improve your credit score.  Paying down card debt can improve your credit utilization ratio (card debt relative to the total credit available on all your cards) which is a key factor in calculating your score.

4. Take steps to recession-proof your career
We’ve touched on some of the big financial steps to take, but what about your career. Layoffs and cost-cutting measures are already starting to sweep through the tech and media sectors and are starting to broaden their scope. If you’ve been thinking about switching jobs, what qualifications might you need to make the jump, and how can you go about getting them?

If you like your current job and career, are there moves you can make today to improve your standing at work and avoid being cut if layoffs are needed. Perhaps you can volunteer for additional responsibilities or learn skills that will help you stand out. There are no guarantees, but positioning yourself as a positive and adaptable colleague never does any harm.

It’s also a good idea to update your résumé and keep in contact with your professional network. It’s often easier to be specific about your skills and achievements when you have a job than when you’re sitting at home worried about your next steps.

5. If you have savings to invest, be savvy about it
The stock market typically slumps before a recession begins and rebounds before the economy improves, so heading into a recession can be a good time to buy stocks when prices are lower. To reduce your tax obligations, you can also sell some losing investments, or what’s known as tax-loss harvesting.

The market is likely to remain volatile as professional investors assess recession odds and it could take some time for stock prices to bounce back from a market selloff. That’s why it’s important to invest with money you don’t need within the next few years. Use it for a down payment on a home, for retirement or a college fund.

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