What can I do to prepare for a recession?

Is a recession imminent? Well, we haven’t experienced two quarters of economic contraction yet, but it certainly appears that we’ve entered recession territory. Indeed, Goldman Sachs, JPMorgan Chase, Bank of America and others say the U.S. is already in a recession and predict GDP will be down for the first and second quarters of this year.

So, what can you do? The best strategy is to maintain sound financial habits that you should adhere to all year long, such as carefully budgeting and watching spending, building an emergency fund and saving aggressively. (And if you don’t already do these things, there’s no time like the present to start cultivating these habits!)

Here are three additional suggestions:

1. Don’t panic, but be cautious

This is the time to be more mindful than ever about your spending. Focus on covering the essentials and look at what purchases you can put off or skip entirely, so that you can shore up your savings in case you do lose your income. With travel on hold, and many bars and restaurants closed except for take-out, there are opportunities to trim spending in those categories. You can also save by buying key items—like paper goods and pantry items—in bulk.

2. Have a back-up plan

What would happen if you lost your job? Do you have a skill that you could put to use in a side gig? And could you start using it today to improve your marketability and/or build up an extra cushion in your emergency fund? Being prepared is always the best antidote to a surprise job misfortune.

3. Consider bolstering cash reserves

In addition to bulking up your emergency fund, you might want to have an extra stash of cash on hand so that you don’t have to sell stocks when they’re down or incur penalties by taking funds out of your retirement accounts to stay afloat if you hit rough water.

It’s natural to be fearful in the face of a recession. But taking steps now to safeguard your finances can help keep you on more solid financial footing.

Comments are closed.