9 Ways to Prepare for a Recession in the United States
For as long as there have been recessions, there have been people wondering how to prepare for them, and it’s only getting more complicated as the world becomes more connected and economies more globalized.
Since 2008’s recession, many experts have suggested that another one might be coming soon, but when? How severe will it be? What steps can you take now to protect yourself from the worst of it?
And what should you avoid doing to worsen your situation?
This guide will help you answer all of these questions and more
Don’t be Greedy
The saying goes Money doesn’t buy happiness, and it is true. The majority of research shows that once your basic needs are met (which in America is around $50,000 a year), money only provides marginal increases in your overall well-being.
Money can improve your living situation, but it doesn’t make you any happier day-to-day. What does make you happy? Spending time with friends and family—and being grateful for what you have right now. In other words, making sure you aren’t greedy may help protect you during a recession.
Be Cautious with Your Money
When you’re in debt, each additional dollar that you spend is going straight into someone else’s pocket—so it’s important to make sure that money is well spent.
If you’re feeling cautious about your financial situation and anticipate a recession, look into cutting back on discretionary expenses and spending more time building up an emergency fund so you don’t have to rely on credit when it comes time to make ends meet.
That way, if something unexpected happens like getting laid off from work or having your car break down, you can cut back on spending rather than accruing even more debt. Remember: It doesn’t take much of an emergency before bills start piling up and going unpaid.
Know What You Can Borrow and From Who
If you have assets, such as stocks or real estate, you can borrow against them. Taking out loans can give you more options if money is tight and reduce your reliance on credit cards.
However, before getting a loan—even an unsecured one—it’s good to know what you can borrow and from whom. If your stocks are doing well, it might be easier to get a loan from your brokerage than from banks. And if your parents own property, see if they’ll help you with financing.
Also, consider taking out private loans if your credit score is not strong enough for conventional bank lending or there’s no collateral available.
Rethink How You Spend Money
It’s not just about cutting back. The best way to prepare is to look at your budget and consider what you can do without. For example, if you have cable, are you really using it as much as you think?
Might there be an alternative that will save money in exchange for your time and attention? Can you start cooking more at home or buy some items from yard sales or thrift stores instead of new retail outlets?
Are there bills that can be cut down on or eliminated entirely because they are luxuries (for example, paying $50 per month for cable when Netflix offers over $100 worth of content) rather than essentials?
Consider the Possibility
Unfortunately, many Americans believe their financial situation is so secure that even if there was a recession tomorrow, they’d be fine.
The truth is that most people’s finances aren’t prepared for an economic downturn. In fact, over 30% of consumers don’t have $2,000 in savings to support themselves or their families in case of an emergency.
Whether you want to get your finances in order now as a way of preparing for a possible recession or simply because you feel it’s time you take control of your money, here are 10 ways you can prepare for an uncertain future.
Save What you Can
In a recession, it’s impossible to know how your income will change. That uncertainty makes saving for an emergency more important than ever—unexpected expenses could be around every corner.
Start by saving whatever money you can, even if it’s just $5 per week. And if you don’t have any savings yet, open an account with a small bank or credit union.
You won’t get many of the perks you might get at a big bank, but your money will be safe and accessible quickly in case of an emergency. Just make sure not to use an ATM card unless it’s necessary because those fees can really add up!
Get Rid of Debts or Credit Cards Immediately
The last thing you want is to use up all your credit when things are bad and then be unable to pay it back. Eliminating debt and limiting how much credit you use during tough times is one of most important steps in preparing for an economic downturn.
If there’s no way that you can get rid of your debts or limit how much credit you can take on, you might want to consider getting life insurance so that your family will be taken care of if something happens.
And remember, having cash in savings is just as important as having zero debt—if not more so. You need cash in savings (in a rainy day fund) so that when bad times do come, you have options rather than going into debt.
Learn New Skills
As you probably know, layoffs are one of the big reasons recessions happen in the first place. Even if your company doesn’t fall victim to an economic downturn (fingers crossed), you might find yourself losing hours or simply wanting to diversify your skillset.
For example, it’s pretty common for employees at larger companies to take some time off from work and go back to school during rough economic times, returning with new skills and refreshed spirits.
If that happens, a lot can change about your career: higher paychecks and better promotions may be just around the corner. There are tons of online resources that can help workers get up-to-speed on new skills—and picking up extra education while jobs are still relatively plentiful is never a bad idea!
Avoid Blaming Yourself If It Happens
Most people think that recessions and depression are caused by something that we did as individuals, like buying too much on credit. That’s not true.
The economy is actually controlled by millions of individual actions, and when those actions become too widespread, recessions happen. If you want to know what causes recessions and how you can prepare, it’s vital that you understand that recessions aren’t caused by single bad decisions—and they aren’t your fault if one happens while you’re in debt.
As long as money isn’t tied up in real estate or stocks (more on those later), putting a little away every month will help cushion any recession-related losses.
9 Ways to Prepare for a Recession in the United States