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Worried about an economic downturn? Here’s why you may not have to stress quite so much. [[{“value”:”
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Economists spent much of 2022 predicting that come 2023, financial conditions would deteriorate in a meaningful way. But clearly, we managed to get through 2023 without an economic recession. And so far, things seem pretty stable as we creep toward the midpoint of 2024.
Meanwhile, the Federal Reserve seems pretty optimistic about the state of the U.S. economy. The central bank released a statement in late March showing that it expects economic growth this year, and in the next couple of years, to be stronger than it previously thought. And even though elevated interest rates are keeping some consumers from spending and borrowing money, all told, the Fed does not expect a recession to hit in 2024 or in 2025.
That’s good news. The idea of a recession can be scary. Not having to worry about one in the near term could be just the thing that helps you sleep better at night.
But although we may not be on the brink of a recession, it’s important to prepare for one nonetheless. Here’s how.
1. Have a fully loaded emergency fund
While a recession may not hit in 2024 or 2025, economic conditions could still decline in the future. Even if there’s not a broad recession, that doesn’t mean you won’t experience your own personal economic crisis, whether it’s a medical condition that keeps you from working or a layoff at your job.
That’s why it’s so important to have a well-stocked emergency fund. At a minimum, you should aim to have enough money in your savings account to cover three full months of essential expenses. That way, if you were to lose your job, you’d have cash reserves to tap instead of immediately resorting to credit card debt to cover your bills.
Of course, the more emergency savings you build, the more protection and peace of mind you give yourself. So if you already have three months’ worth of savings but think you can benefit from more, work on giving your emergency fund a boost.
2. Create a backup income stream
Recessions and job loss tend to go hand in hand. So it’s a good idea to maintain some sort of backup income stream, even if you don’t desperately need the money right now.
Let’s say you’re an IT professional by day, but are skilled at playing the piano. It may not be a bad idea to take on a couple of clients for music lessons. That way, if you were to get laid off, you’d potentially be able to build up your side business while looking for work. And you’d have the endorsements of the students you took on to help drum up that business.
3. Maintain contact with your professional network
If a recession hits in the future and you find yourself out of a job, you may need to call in favors from people in your professional network. But that’s a harder thing to do if you haven’t spoken to many of those people in years.
Spend some time in the coming year getting in touch with former colleagues, professors, and classmates. You don’t have to commit to a lunch date with everyone on your list. But it is a good idea to send a note to check in and say hello. That way, if you need to turn to those people for help in finding a job, it won’t be completely out of the blue.
The fact that a near-term recession is not on the Fed’s radar is a positive thing. But it’s a good idea to always be ready to cope with a recession by taking the above steps.
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