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It could set you on a solid savings path.
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Is a recession going to batter the U.S. economy in 2023? Wouldn’t we all like to know?
For much of the latter half of 2022, economists seemed convinced that a recession was inevitable. But consumer spending held steady and strong during the last quarter of the year, despite many people pledging to cut back during the holidays because of inflation.
In fact, we’re starting off 2023 in a pretty strong economic place. But that doesn’t mean things won’t take a turn for the worse at some point during the year. And if you’re worried about that happening, there’s one important thing you need to do — boost your savings.
Of course, adding money to savings is easier said than done. And so it’s a good idea to make the process automatic at the start of the year.
Put your savings on autopilot
Most banks allow you to set up an automatic transfer so money leaves your checking account each month and lands in your savings account. If you want to boost your emergency cash reserves, it pays to set up that automatic transfer in January so you can steadily work towards your savings goal, no matter what it happens to be.
A big reason many people struggle to save money is that they collect a paycheck, spend it, and figure they’ll sock away however much is left over at the end of the month. But what happens if, month after month, there’s just nothing left over?
A better bet is to send money into your savings account automatically at the start of the month, before your paycheck gets whittled down. If you normally bring home $3,000 a month and $250 of that lands in your savings account before you get a chance to touch it, you’ll most likely learn to make do with $2,750 in spending money. But you may need to “force” yourself to save, so to speak, via that automatic transfer to be successful.
How much emergency savings do you need?
The big fear around recessions is job loss. And if a recession strikes this year, we could see unemployment levels rise. The more money you have in savings, the more protected you’ll be in case your job winds up on the chopping block.
Now at a minimum, you should aim for enough savings to pay for three months of essential bills. But the more replacement income you’re able to sock away, the better protected you’ll be.
The scary thing about a recession is that our next one could be short-lived, or it could drag on. And so three months’ worth of living expenses in savings could disappear rather quickly if you’re forced out of a job and can’t find a new one for an extended period of time.
Of course, there’s no guarantee a recession will hit this year. But at some point, economic conditions are likely to decline. And so the more prepared you are, the less sleep you’re apt to lose over the idea of a recession. Putting your savings on autopilot at the start of the year could leave you with a lot more financial protection by the end of it.
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