3 Steps I'm Taking in Case a Recession Hits

It's good to be prepared.

Will a recession strike later this year or early next? That's what many financial experts seem to think. And there's a reason for that.

The Federal Reserve is moving forward with a series of interest rate hikes. Its logic is that raising interest rates will result in a drop in consumer spending, which is necessary to bridge the gap between supply and demand so inflation can start to come down. But that could, in turn, lead to a recession, and that's an important thing to be prepared for. 

Of course, we can't say with certainty that a recession will hit at some point in 2022 or early 2023. But it's a good idea to prepare for that possibility. Here are three steps I'm taking.

1. Boosting my emergency fund

As a freelance writer with a variable income, I make a point to keep a year's worth of living expenses in my savings account. And for a while, I was happy with that level of savings and didn't feel the need to add to it. 

But with a potential recession looming, I'm now thinking it would be a good idea to boost my emergency fund. I don't know how a recession might impact my workload. And I want to prepare for a drop in income by putting more money into my savings. 

2. Taking a closer look at my budget

If a recession hits, I may need to start cutting back on spending. I'd rather get into the habit ahead of time so it's not such a shock. To that end, I'm sitting down with my husband so we can review our budget together and see if there are expenses worth trimming. 

To be clear, though, we're not going to stop paying for modest luxuries that make us happy. For example, we currently pay for multiple streaming services, but cutting one out means saving $15 or so monthly -- not enough to make a huge dent in our finances. But we may rethink our habit of dining at restaurants, which costs us way more on a monthly basis.

3. Being careful about committing to expensive plans

I recently found out that my kids' schools are scheduled to be closed for a week in November due to a teachers' convention. And that initially pushed me to look at taking a vacation during that time. After all, there's a limited amount of work I'll get done if my kids don't have school.

But now, I'm rethinking those plans. The reality is that I don't know what the state of the economy will be come November, but I don't want to commit to an expensive week away. So instead of booking lodging, I'm going to take a "wait and see" approach. If things are going okay for us financially by the time that week off rolls around, I figure I can try to book a last-minute rental -- and possibly snag a discount in the process.

A potential recession isn't something I'm actively panicking about. At the same time, it's not a bad idea to prepare for a downturn, so I'm making these moves to give myself more peace of mind.