3 Things I’m Doing Now to Prepare for a Recession

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A writer shares her plan to be recession-ready. Read on to see how she’s gearing up for a downturn. 

The Federal Reserve thinks the U.S. economy could enter into a recession at some point this year. That’s the bad news.

The good news is that the central bank expects that downturn to be mild. But the reality is that we just don’t know what a near-term recession will look like and how long it might drag on.

That’s why I’m taking the following steps to ensure I’m personally ready to handle a recession.

1. Adding to my savings — but only a little

The more savings you have ahead of a recession, the easier it becomes to cope with a period of unemployment. As such, I’m trying to add to my savings a little this summer and fall. But we’re talking a few thousand dollars and probably not much more.

The reason? I already have enough money in my savings account to cover about a year of essential expenses. And most financial experts agree that’s more than adequate. As such, I don’t want to tie up too much money in a savings account when I could be investing it instead.

Thankfully, though, savings accounts are paying pretty generously these days. So at least there’s an opportunity to earn a decent, risk-free return on my money.

But even so, many high-yield savings accounts are paying somewhere in the ballpark of 4%. The stock market, on the other hand, has delivered an average annual 10% return (before inflation) over the past 50 years, as measured by the S&P 500. Since I technically have a complete emergency fund, I’d rather pump more money into the stock market, even with a recession coming.

2. Rebalancing my portfolio

While I don’t intend to stop investing just because a recession may be on the way, I also want to make sure my portfolio is nice and diversified. So to this end, I plan to do a little rebalancing, because I happen to be a little more heavily invested in tech stocks than I feel I should be.

In fact, I recently sold some tech stocks after a rally boosted their value. I know there are tax implications to doing so — namely, that I’ll be liable for some capital gains taxes. But because the value of my tech holdings rose so much compared to that of my other investments, it created an imbalanced portfolio. That’s not something you want in general, but it’s especially not something you want ahead of a recession.

Another thing I may do ahead of a recession is put a little more money into broad market ETFs. That’s an easy way to diversify.

3. Rethinking larger purchases

My kids have spent the past number of years destroying my furniture — perhaps not intentionally, but that’s besides the point. I’ve been thinking about upgrading some of my furniture so my house looks, well, like less of a disaster zone. But at this point, I’m hesitant to make large purchases that aren’t absolutely necessary.

I happen to have savings I can tap on top of my emergency fund to pay for some furniture. And to be clear, I would never tap my emergency savings for something like a new couch. But I think I’d feel more comfortable not dipping into my savings at all right now, and instead seeing how things play out. Besides, my friends have all seen my ripped couch and beat-up kitchen table, and no one seems to be judging.

Making these moves ahead of a recession is giving me peace of mind. So if you’re worried about economic conditions declining, do what you can to gear up so you can sleep better at night.

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