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Economic conditions could worsen this year, so the more savings you have, the better. Read on to learn more.
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In March, the national unemployment rate was 3.5%, which is a fairly low level of joblessness. Plus, a good 236,000 jobs were added to the U.S. economy that month.
But things may not stay that rosy for much longer. In a recent report, Vanguard says it expects the national unemployment rate to rise to 4.5% to 5% by the end of 2023. That would clearly represent a notable increase from where we are today. And it’s also why now’s a really good time to add money to your savings account.
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Make sure to boost your emergency fund
The combination of persistent rate hikes on the part of the Federal Reserve and the recent banking sector meltdown have the potential to drive the U.S. economy into a recession at some point in 2023. Now to be fair, this news shouldn’t come as a shock. Many financial experts spent the latter part of 2022 warning about an impending recession.
Those warnings, however, eased up earlier this year, and it’s only now, in the wake of banking industry woes, that they’ve picked up again. But still, the reality is that we’ve been at risk for a recession for quite some time. Borrowing has gotten expensive for consumers due to the aforementioned rate hikes. That means everything from credit card balances to personal loans is costing more.
In this sort of environment, consumers might easily decide they’ve had enough of sky-high borrowing costs and cut back on spending. That could be enough to fuel a recession, which could easily, in turn, lead to an uptick in unemployment levels.
That’s why it’s so important to give your emergency fund a boost if it could use one. You’ll want to make sure that at a minimum, you have enough money in savings to cover three full months of essential living expenses. If you don’t, start cutting your personal spending now and consider working a side job to bring your savings up to that point.
The reason it’s so important to be able to cover three months of bills is that if you were to lose your job, it might easily take that long to find another one — especially during a recession, when jobs may not exactly be plentiful. In fact, it’s a smart idea to save enough to cover a good six to 12 months of expenses if you have a family and a lot of financial responsibilities, such as a car payment and mortgage. But three months’ worth of bills should be the minimum you keep in savings.
How worried should workers be?
The idea of losing a job can be scary, so you might be nervous about yours being yanked away. The harsh reality is that a large number of Americans might very well lose their jobs at some point in 2023. And while growing your skills might spare you from getting laid off, that’s unfortunately not guaranteed, either. But if you have a fully loaded emergency fund, a layoff may not be as large a concern.
Sure, nobody wants to find themselves unemployed. But if you do your part to boost your savings, you’ll get the peace of mind that comes with knowing you’ll be able to pay your bills while you look for work.
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