How to prepare for a recession in 2023? What you should do financially
When extreme weather conditions are forecast, chances are you won’t sit idly by and hope it’s not as bad as forecasters are predicting. The same should apply to a recession.
The growing consensus among economists is that the US economy will enter recession in 2023. Recessions are typically accompanied by sharp falls in stock markets and widespread unemployment.
Without proper preparation, recessions can irreversibly damage your financial stability. That’s why now is a good time to start if you haven’t already, financial advisers say.
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Open an emergency savings account
As a rule of thumb, you should have enough savings to cover three to six months of expenses.
But if you don’t, you’re in good company — according to a 2021 Federal Reserve survey, 40% of Americans didn’t have enough money to cover at least three months’ expenses if they lost their main job.
That percentage is likely to be even higher this year as inflation hovers around a 40-year high.
Though it can take years to build an emergency savings account, it’s better late than never to start.
Try to set aside just enough so you can last three months on an absolutely meager budget in the event you lose your job, said Brian Robinson, financial advisor and partner at SharpePoint.
“It doesn’t give you a chance to be lazy and sit around,” Robinson said. “It gives you a chance to say, ‘Okay, we’ve got budget number two now, the really strict one. We are in survival mode while we look for a job.”
Consider automatic paycheck deposits into a savings account to reduce temptation to spend this money. Avoid using these funds to pay for credit card and other recurring expenses unless you absolutely have to, advisers suggest.
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What types of purchases should you put off?
Every penny saved now is a penny earned when you might need it most.
For this reason, Robinson recommends deferring “nice to have” purchases. For example, if your fridge breaks, get it fixed or buy a new one. But if that hair dryer you’ve owned for five years is still doing its job, albeit not as well as a newer one, keep it — and your money.
Also, take stock of all your monthly subscriptions and ask yourself which ones you could do without and cancel them. Or consider switching to a lower tier subscription. For example, next month Netflix is introducing an ad-supported subscription for $3 less than its lowest-tier ad-free subscription.
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“You don’t want to incur more spending than you really need to when you’re anticipating economic troubles or an impending recession,” said Frank Newman, Ally’s portfolio manager with wealth management experience.
Importantly, prices for many types of consumer goods tend to fall in a recession when everyone saves more, Robinson added.
What should you buy before a recession?
“It’s not a bad idea to stock up on housewares and non-perishable groceries now while you still have a regular paycheck if you’re worried you won’t have one in a few months,” Robinson said.
But don’t get carried away, he said: “I’m not saying go out there and pretend the skies are collapsing and there’s a nuclear winter.”
Try to pay off as much debt as you can, especially debts with the highest interest rates, Robinson added.
What should you avoid in a recession?
Avoid spending recklessly and breaking the budget during a recession, says Robinson. And if possible, avoid taking on more debt, Newman says.
Elisabeth Buchwald is personal finance and markets correspondent for USA TODAY. You can fFollow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here