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If you’re tired of seeing the word “recession” all over the news, you’re no doubt in good company. But the reality is that it’s important to gear up for a potential economic downturn in 2023.
For months on end, economists have been sounding recession warnings. And while some have scaled back those warnings modestly, the general consensus is that economic conditions are likely to worsen at some point this year.
And if you’re wondering how that could be when the economy seems solid now, well, it’s simple. Borrowing money has gotten more expensive due to interest rate hikes from the Federal Reserve. And while consumer spending hasn’t yet declined to a notable degree because of that, many experts are convinced the reason spending has held steady is due to Americans having leftover stimulus funds in their bank accounts.
Once that money runs out, though, consumer spending could drop to a notable degree and fuel a recession. The question is: How bad might a 2023 recession really be?
A range of possibilities
In any given recession, there’s the chance that things will blow over quickly and that the downturn in question will be short-lived. There’s also the chance that a given recession will be painful and prolonged.
Unfortunately, it’s hard to know which end of the spectrum we’ll be looking at if a recession strikes in 2023. But a good bet may be to gear up for the worst-case scenario — not to be pessimistic, but to be prepared.
So, let’s say a recession hits in mid-2023 and it lasts a solid year. Let’s also assume that unemployment levels start to soar as a result, and that there’s no stimulus aid for anyone to fall back on. That’s probably a pretty accurate description of what the worst-case scenario might look like.
Preparing for that could boil down to loading up your emergency fund with extra cash. In fact, in the wake of the pandemic, many financial experts have advised people to boost their savings so they’re able to cover a full year’s worth of bills. The old convention was to sock away enough money in savings to cover three to six months’ worth of expenses. If you make an effort to grow your savings so you can pay for a full year of expenses, you’ll put yourself in a solid position to get through a really bad recession.
It also helps to work on boosting your job skills so your employer has a harder time letting you go if things get bad. And also, the more skills you have, the more marketable you might be if you need to find a new job.
But the reality is that you can be a skilled, knowledgeable employee and still struggle to find work if the unemployment situation gets really extreme. And so while growing your job skills certainly isn’t a bad thing, the most important move right now is to focus on boosting your savings account balance.
We can still hope for the best
An extended recession is a pretty tough thing to think about. And to be clear, we’re not necessarily headed there. In fact, there’s no reason not to be hopeful that a near-term recession will be mild and easy to recover from. But it’s also important to prepare for the opposite scenario, just in case.
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