58% of Americans Are Making This Smart Move to Gear Up for a Recession
- Interest rate hikes could lead to a pullback in consumer spending and eventual recession.
- Many Americans are taking steps to prepare for a downturn, and you may want to follow their lead.
- Consider increasing your savings so you're prepared if a recession hits.
It pays to do the same.
Is a recession imminent? We may not see one hit tomorrow, but there's reason enough to believe that the economy could take a downward turn later this year or sometime next year. And that's worth preparing for.
The Fed's policies could backfire
The Federal Reserve has been implementing interest rate hikes this year in an effort to cool inflation. The logic there is that if borrowing gets more expensive, it will encourage consumers to spend less. That, in turn, should create a scenario where consumer demand no longer exceeds supply to such an extreme degree like it does today. And once that happens, the cost of goods should start to come down.
That, of course, is a good thing. But what might also happen is that costlier borrowing could drive consumers to cut their spending in a very big way. And that's where the potential for a recession arises.
In fact, 74% of Americans say they're worried about an upcoming recession, according to a recent Personal Capital report. But many Americans are also taking an important step to protect themselves in light of that.
It pays to boost your savings
Personal Capital reports that 58% of Americans are putting more money into savings to gear up for a recession. And doing the same could work to your benefit.
If a recession hits, it could result in widespread unemployment. And if your job and paycheck go away, you might have a really hard time paying your bills. (Don't expect unemployment benefits to replace your full paycheck, because they might only replace less than half of it.) That's where your savings come in.
Generally speaking, it's a good idea to have enough money in your emergency fund to cover three to six months of essential expenses. So if you haven't yet reached the lower end of that range, now's the time to start pumping more money into your savings. But even if you have enough cash in the bank to cover three months' worth of bills, you may want to up that to five or six months' worth, just in case.
Now the good news is that the job market is very strong right now, despite recession worries. That means it may be easier than ever to go out and pick up a side hustle -- a gig whose earnings could go directly into savings for added protection.
Cutting expenses is another option for boosting your cash reserves, but for many people, that's a challenge right now due to inflation. After all, it's hard to say you'll spend 10% less at the supermarket when food costs are up. But what you can do is eliminate some non-essential expenses -- for example, stop eating at restaurants for a while until your savings balance grows larger.
Don't ignore the warning signs
Although a recession isn't guaranteed to happen as a result of the Fed's interest rate policies, that possibility is definitely on the table. The more of an effort you make to prepare, the more easily you might manage to sleep at night.
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