This Is the Most Important Thing You Can Do to Prepare for a Recession

Image source: Getty Images

It could save you a world of financial pain later.

Important points

• There is reason to believe that economic conditions could deteriorate in 2023.
• A certain move might put you in a position to weather this type of storm.
• Add to your emergency fund with a minimum savings goal of three months’ worth of expenses — but it’d be better to have even more.

If a recession hits in 2023, it could end up being fairly short-lived. Or, as one economist predicts, it could be “long and ugly.”

Unfortunately, there’s no way of knowing which end of that spectrum is more accurate. In fact, technically we can’t say for sure that there will be a recession in 2023 at all. But there is Reason to believe you could.

The Federal Reserve has pushed aggressive rate hikes to slow the pace of inflation and provide relief to defaulting consumers. By making borrowing more expensive, the Fed is effectively encouraging consumers to cut spending. And if spending falls, that could be enough to close the supply-demand gap that has been driving up inflation.

However, there are fears that consumer spending could fall drastically. And that could be enough to fuel a recession, which is why so many economists are warning about the future.

If you’re worried about a recession next year, you’re in good company. But there is one step you can take to prepare.

Give your savings a boost

Perhaps the most important step you can take to prepare for a recession is to stock up on your emergency fund. The more cash reserves you have, the more options you have in the event you lose your job and the paycheck that comes with it.

How much money should you have in your savings account? Part of it depends on your personal situation. But at the very least, you should make sure you have enough cash to cover those essential bills for a full three months. If you lose your job, it may take at least as long to find a new one.

A better bet, however, might be to save enough to cover more than six months’ worth of necessary bills — or more if you’re the sole breadwinner in your household and work in an industry where jobs are hard to come by through. Indeed, in the wake of the COVID-19 pandemic, some financial experts have changed their guidelines on emergency savings – and they now say that having up to a year’s worth of expenses in the bank is a smart move.

what else can you do

Boosting your emergency fund is essential if you want to prepare for a recession. But that’s not the only thing you can do.

You may also want to organize a side job so that when your main job is ripped away you have an extra source of income to turn to. And if you have high-interest debt, now is a good time to pay it off. You don’t want debt payments hanging over your head when you get laid off and need all of your savings and unemployment benefits to cover your essential bills.

The prospect of a recession is scary – no question about it. But building a solid emergency fund might just put your mind at ease.