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Unemployment is projected to move higher this year. Here’s how to get your finances ready no matter what happens.
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There have been positive signs coming from the economy lately. Besides a slight uptick in December, inflation mostly cooled toward the end of 2023.
And, after surging over the past year and a half, interest rates have begun falling a bit and are projected to move lower in 2024.
But there are also indications that more pain could potentially be ahead for Americans. Some experts predict unemployment will rise this year, putting additional pressure on cash-strapped Americans.
Here’s where unemployment is headed and how to get your personal finances in the best shape to prepare for an unexpected financial emergency.
Unemployment will rise
You may have noticed news of recent job cuts. Amazon, Citigroup, and Google have already announced layoffs this year, and some experts believe the labor market will continue softening through 2024.
The nonpartisan Congressional Budget Office (CBO) believes unemployment will rise from its current level of 3.9% and reach 4.4% by the end of this year. The CBO believes the unemployment rate will remain “close to that level” throughout 2025.
The investment firm Morningstar predicts the same 4.4% unemployment rate by the end of this year. Morningstar’s economists think slowing economic growth will contribute to the rise in unemployment, though the firm noted the change will be “quite mild” compared to historical economic slowdowns.
Finally, the brokerage and investment firm Vanguard predicts the unemployment rate could jump by a half percentage point in the first six months of 2024 and will end the year at 4.8%.
While these are just predictions, they indicate that there could be, at the very least, some additional pressure on Americans in the job market.
How to prepare for a challenging job market
No matter what happens, it may be a good time to take a closer look at your finances and evaluate how you would weather a temporary loss in income.
Here are a few ways to prepare for a slowing job market:
Pay down debts: The beginning of the new year is a good time to focus on additional debt you may have accumulated over the holidays. There are many different strategies for paying off debt, but a simple way to get started is to focus on high-interest debt, like credit cards, and pay more than the minimum monthly balance.
Build your emergency savings: If you don’t have a savings account specifically for emergencies, now may be the time to open one. Aim to put $1,000 into the account for a rainy day, but don’t get too hung up on a set amount. Automate small monthly contributions to get any amount into the account to build your savings momentum.
Consider learning a new skill: Gallup data shows workers who learn an additional skill can boost their earning potential by 8.6%. Learning a new skill could make you more valuable in your current job and more marketable to a potential employer.
While there’s no crystal ball to see what will happen in 2024, building more savings, paying down debt, and improving skills are good financial planning ideas. And getting a jump on all three now will put your finances on the right track, no matter what happens with employment numbers this year.
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