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Worried about a recession? Read on to see how to safeguard yourself. 

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If you think about the state of the economy today, you should feel pretty good. The unemployment rate is 3.5%, which is comparable to where it was prior to the pandemic. And while a number of major companies have announced layoffs over the past few months, for the most part, we seem to be in a pretty stable place.

That has the potential to change, though. If the Federal Reserve keeps raising interest rates to cope with high levels of inflation, it could trigger a pullback in consumer spending. And if spending declines a lot, we could end up with a recession on our hands.

That’s the bad news. The good news, though, is that there are steps you can take to protect yourself financially if the economy takes a turn for the worse.

1. Build a solid emergency fund — or boost an existing one

It’s easy to think of a recession as a scary thing, but actually, financial guru Suze Orman insists that recessions are a natural part of our economy. And so when it comes to our next recession, Orman says, “The question isn’t ‘if’, it’s ‘when.'”

That’s why it’s so important to have a fully loaded emergency fund. That means having enough money in your savings account to cover a year’s worth of bills, says Orman.

Now, that may seem excessive. But the logic is that our next recession could be short-lived or prolonged, and it’s difficult to know which end of the spectrum we’ll be dealing with. So for the best protection, it’s wise to sock away enough money to ensure you can pay your bills for a year in the absence of a paycheck.

2. Make sure your money is at an FDIC-insured bank

The recent collapse of Silicon Valley Bank has left a lot of consumers spooked. If you’re going to build an emergency fund to cope with a recession, you’ll want to make sure your money is actually safe. But there’s an easy way to do that — choose a bank that’s FDIC-insured.

If you go this route, you won’t have to worry about losing money if your bank fails, provided your deposits don’t exceed $250,000. And if you happen to have a lot of cash, you can spread your money across several FDIC-insured banks.

That $250,000 protection is given on a per-bank basis. So if you have $500,000 in savings with $250,000 per account at two FDIC-insured banks, you should be well protected. A joint bank account with two people on the account at just one bank will also provide $500,000 in coverage.

We don’t know whether a recession will hit in 2023, and the idea of one may be terrifying to you. But try to put those thoughts out of your head and instead focus on the things you can do to protect yourself financially. In addition to boosting your savings and choosing the right bank(s), aim to steer clear of high-interest debt in the near term, and put off big purchases that aren’t essential. That should help you free up cash at a time when you might need it.

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