With the economy struggling to find a stable footing after months of price inflation, fears are rising about an economic downturn. Although experts aren’t sure when one might arrive, you can take steps to prepare for a possible recession in 2023.
Start by building an emergency fund and paying down debt. Shoring up your finances now will help you survive a recession with minimal damage to your long-term financial goals.
1. Look at Your Budget
Recessions can wreak havoc on your financial stability. If you don’t prepare, they can devastate your savings and erode the value of your assets, including retirement and home equity accounts.
The key to weathering a recession is to take the time to review your finances and adjust your budget before a slowdown hits. That may include reducing your expenses by cutting back on meals out or canceling monthly subscriptions to streaming services you don’t use, and it might mean not taking on any new debt if you can avoid it.
You should also aim to have an emergency savings account that holds enough money to cover three to six months of living expenses, Gilliland says. Shoring up your savings can help offset higher inflation and the impact of potential job loss in a recession. It can also help reduce your stress level if you’re worried about losing your income. You should also pay down any variable-rate debt, like credit card debt, he adds.
2. Take Stock of Your Assets
Many recession warnings have been flying around in recent months, but not all are Chicken Little. Regardless of whether next year brings a short, pandemic-driven downturn or the kind of economic turmoil that followed the 2008 housing meltdown, it’s worth taking steps to protect your finances. Creating an emergency fund, focusing on paying down debt, and stocking up on household goods are all smart moves that could help you weather a recession.
But it’s important to remember that a recession is only likely to occur after central bankers have raised interest rates in the fastest pace since the 1980s. That means families who have dipped into savings or are falling behind in their debt payments will be even less prepared for the downturn than those with money saved up and some assets to sell at a loss to offset tax obligations. By focusing on the long term, you can take steps to prepare your financials for any economic calamity that may arise in 2023.
3. Prepare for Layoffs
When the economy slows, it can lead to layoffs. Depending on the circumstances, these cuts can be devastating for affected workers and their families. However, you can reduce the impact of a layoff by being prepared.
Whether you’re in the midst of a layoff or are simply concerned about one, follow these steps to get ready:
It’s impossible to predict when a recession will hit, but it is clear that the Federal Reserve’s recent efforts to raise interest rates have delayed it for now. In fact, it would take a significant deterioration in the economy, especially in jobs, for economists to start forecasting a downturn in 2023. This delay in the timing of a recession doesn’t mean it won’t happen eventually. However, it gives you plenty of time to prepare.
4. Invest in Your Future
While it’s easy to be frightened by the possibility of economic recessions in 2023, you should remember that your financial situation is under your control. Don’t let fear make poor decisions for you, as that can lead to a host of problems.
Start with revisiting your budget and looking for low-hanging fruit, like subscriptions and memberships you hardly use. If possible, cut these out so that you can free up money to put toward short-term goals or a rainy day fund.
If you’re concerned about the potential for a recession, consider partnering with a financial advisor to help you prepare. Using WiserAdvisor’s free advisor match tool, you can find an advisor whose skills, experience, and approach best fit your needs and goals. Having an advisor can also give you peace of mind that you’re making the right decisions and preparing for adversity ahead.