For the last year, there have been rumblings of a coming recession and experts agree they think one will happen sometime in 2023. In October, economists surveyed in a quarterly Wall Street Journal poll estimated there is a 63% chance of a recession this year.
By definition, a recession is two successive quarters of falling Gross Domestic Product (GDP) where our economy is producing less. Less production means less need, which means more layoffs.
But with the uncertainty of a recession, how can one prepare? Experts suggest paying down high-interest debt and bolstering savings in the event employment is lost, but that takes time.
To get a better idea of things you might be able to do now, Lynn Dunston, a certified financial planner, weighed in.
“We all know it’s important to save for retirement, but if times are hard you may have to cut back on that 401k contribution a little bit,” said Dunston. “If you don’t have enough cash to meet your bills or you don’t have enough in a rainy-day fund, we always recommend that you have a secure foundation first.”
A survey by Bankrate found 62% of households with an income of $75,000 or more could cover an unexpected $1,000 expense with their savings. In households making less than $30,000, 22% said they could cover the same expense.
Joe Gladstone, a professor of marketing at the University of Colorado Boulder, says maintaining perspective, even if it does not pay the bills, is important during recessionary times as it can help reduce anxiety, a major component of their effects.
“People’s minds are drawn to the scarce thing,” said Gladstone. “And so, you have this interesting phenomenon where during a recession, a time where money is tightest, people are thinking about what they don’t have the most. You just have to sort of recognize that this is something that is going to pass.”
This recession differs from others in that it is manufactured in a sense. In 2008, the recession was fueled by the housing market, an inherent flaw in the economy at the time. This time, it is caused by the Federal Reserve trying to bring down inflation meaning there is a degree of control to how intense it gets.
Still, Dunston suggests focusing on your source of money rather than the money itself.
“You want to make sure you stay employed to the best of your ability,” said Dunston. “I recognize people don’t always have control over that, but regardless of what industry one is in, if you can control your employment, or if you’re able to avoid switching jobs, maintaining that income during a hard time is really important.”