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It’s an unsettling thought, but you don’t need to panic.
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Will there be a recession in 2023? Without a crystal ball, we can’t say for sure. But in a recent podcast episode, financial guru Suze Orman said she firmly believes a recession will strike in the course of this calendar year. And clearly, that’s not the best of news.
Why do Orman and other experts think a recession is imminent? A big part of it has to do with high inflation — and the steps the Federal Reserve is taking to combat it.
Inflation generally soars when consumer demand for goods exceeds the available supply. That’s what happened in 2021 and 2022, when supply chains got battered by the pandemic and consumers’ bank accounts grew heftier thanks to generous stimulus policies.
To slow the pace of inflation, the Fed has been aggressively raising interest rates, which has been making borrowing more expensive for consumers. The logic is that if consumers balk at higher borrowing rates, they’ll start to cut their spending, thereby allowing supply to catch up to demand and bringing inflation down to a far more moderate level.
But things may not go so smoothly. Consumer spending might decline to an extreme degree, and a sharp, sudden pullback could be enough to fuel a recession.
Plus, the stimulus funds that consumers have been sitting on since 2021 are apt to run out sooner rather than later. That, too, could lead to a major drop in spending.
As such, Orman and others like her aren’t being dramatic when they warn that a near-term recession could strike. And so your best bet is to do what you can to prepare for that possibility. Here’s how.
1. Boost your emergency savings
Do you have enough money in your savings account to cover three months of bills? Great. But if a recession strikes and you lose your job, you could end up out of work for five months, or six, or more. So now’s a good time to do what you can to give your savings a boost — whether it’s a few extra hundred dollars or a few thousand dollars.
2. Beef up your job skills
Being outstanding at what you do won’t guarantee you’ll be spared a layoff if your company is forced to downsize. But think about it — if you’re a more skilled employee than most of the people you work with, then chances are, your employer will do everything it can to keep you on board. That’s why it pays to build up your job skills, whether by taking courses or simply trying to learn from the people around you.
3. Pick up a side hustle
A recession could lead to an uptick in unemployment. But right now, there are plenty of jobs to be had, and that includes side gigs. If you take one on, you can use that extra money to boost your savings and build yourself more of a cushion. Plus, your side hustle might help you develop skills that make you better at your main job, thereby potentially helping you avoid a layoff if your company decides to slash its headcount.
The idea of a recession can be very unsettling. And when trusted names like Suze Orman say we should brace for one, it can be enough to induce panic. But rather than get worked up over the idea of an economic downturn, do what you can to protect yourself from a broad decline.
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