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Now’s the time to shore up your finances in case economic conditions decline.
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Right now, it’s fair to say the U.S. economy is still in decent shape — at least from an employment perspective. But things have the potential to change for the worse in the new year.
The Federal Reserve has been implementing aggressive interest rate hikes in an effort to bring inflation levels down. In doing so, it’s made it more expensive for consumers to borrow money, whether in the form of a credit card balance or personal loan.
The fear is that higher borrowing costs will drive consumers to curb their spending in a very big way. And if that happens, it could be enough to fuel a recession in 2023.
In a recent survey by Principal, 53% of Americans identified a potential recession as a major concern. And that’s understandable. If you’re worried about economic conditions declining in the near term, then it pays to take these key steps to prepare.
1. Give your emergency savings a boost
It’s always a good idea to have enough money in your savings account to cover at least three full months of essential expenses. But given that financial experts have been sounding recession warnings for a good part of the year, you may want to boost your cash reserves in case things do indeed take a turn for the worse in 2023.
That could mean adding to your savings so you’re able to cover an extra month of bills on top of what you have in cash today. Or, it could mean pumping a few hundred dollars extra into your savings if that’s all you can afford right now.
2. Whittle down high-interest debt
Debt payments can be problematic during a recession. If you lose your job, you may be forced to cut back on expenses until you’re gainfully employed again. But cutting back may be difficult when you have a minimum credit card payment to make every month, or an expensive loan payment to make.
That’s why now’s a good time to reduce your current debt load. If you have multiple debts, aim to first tackle whichever one has the highest interest rate attached to it. And consider getting a second job to come up with the money to pay off your debt quickly.
3. Make sure you’re up-to-date on necessary work skills and licenses
Sometimes, diligent employees lose their jobs when economic conditions deteriorate and companies are forced to move forward with layoffs. But you might be able to stave off a layoff by making sure your job skills are solid. If there’s an area you’re lacking in, now’s a good time to do what it takes to get up to speed.
Similarly, if your profession requires you to maintain a specific license or certification, make sure it’s current. You don’t want that to be used as a reason to let you go.
We can’t say with certainty that we’re in for a recession in 2023. But is that possible? Unfortunately, yes. Rather than lose sleep over the idea, do what you can to prepare so you’re in the best position to weather that storm.
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