- A growing number of Americans think a major recession is imminent.
- There are steps you can take to gear up for a period of economic decline.
It's important to prepare, but not panic.
Is a major recession right around the corner? That's debatable.
The Federal Reserve is in the process of implementing interest rate hikes in an effort to slow inflation. As it moves forward with rate hikes and borrowing gets more expensive, consumer spending could shrink in a serious way. And that could be enough to spur a recession, despite the fact that the U.S. economy is in fabulous shape from a jobs perspective right now.
In a recent Allianz Life study, 66% of respondents said they're worried that a major recession is right around the corner. That's up from the 48% who felt similarly at the same time last year.
But while it's reasonable to anticipate that a recession might hit later this year or early next, it's too soon to sound an alarm about a major one. The reality is that while a decline in consumer spending could fuel a downturn, the damage could end up being minimal, and our next recession could wind up being fairly short-lived.
At the same time, it's a good idea to prepare for a recession in case things do take a turn for the worse. In fact, a lot of people are worried about losing their jobs -- but taking active steps to account for that possibly could actually serve as a source of peace of mind. With that in mind, here are a few essential steps to take if you're worried about a recession and want to set yourself up to get through one unscathed.
1. Make sure your emergency fund is solid
If a recession hits and you lose your job, you may have to fall back on the money in your savings account to cover your bills in the absence of a paycheck. And so now's the time to make sure you have enough cash in that account to get through a few months of unemployment.
If you don't have a three-month emergency fund at a minimum -- meaning, enough cash to cover three months of bills -- then start cutting back on spending to boost your cash reserves. If you're forced onto unemployment, those benefits will only replace a portion of your missing paycheck, and you'll risk having to rack up costly debt without adequate savings.
2. Pay off high-interest debt
The last thing you need at a time when you're out of work is an expensive credit card minimum hanging over your head. And so now's the time to work on chipping away at costly debt, especially since interest rates have the potential to rise.
Cutting back on spending could free up more cash to pay off your balances. But you might also want to consolidate your debt via a balance transfer to make it more manageable and affordable to pay off.
3. Get a side gig
Right now, the labor market is strong, and that extends to the gig economy. If you pick up some work on the side, that extra money could make it possible to shore up your emergency fund and eliminate your existing credit card debt before economic conditions worsen. Plus, if you get a side job now and lose your main job, you may have the option to scale up on that gig and replace your missing wages, or at least a larger chunk of them than what unemployment benefits allow for.
The idea of a major recession can be scary. Rather than lose sleep, be proactive. Taking control of your financial situation could make the idea of a broad economic decline a lot easier to stomach.
Our picks for 2024's best credit cards
Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like generous sign-up bonuses, long 0% intro APR periods, and robust rewards.
Click here to learn more about our recommended credit cards
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2024 The Ascent. All rights reserved.