Prepare for a Recession: 4 Steps to Take Now
We’ve been hearing the word “recession” thrown around, but what does it mean? A simple explanation of a recession is when the economy shrinks for a sustained period of time. Recessions are a natural part of the business cycle in a market economy, which is defined by periods of both growth and shrinkage. Recessions can lead to rising unemployment, falling wages, and declining retail sales.
So, what does this mean for the average consumer? Many consumers become more diligent with spending, choosing to pass on any splurges and saving instead. During a recession, you may experience wage cuts or even job loss. Investments tend to lose money, and small businesses may struggle.
While the prospect of a recession may be scary, there’s no need to panic. Here are some steps you can take to be prepared.
Recession Looming? Four Steps to Be Prepared
- Make sure your emergency savings is well-funded, with enough to cover at least 3-6 months of expenses.
- Pay off your debt, especially if it carries a high interest rate. This will make it easier to cover monthly expenses if your income goes down.
Related: How to Pay Your Debts: Winter Inspired Ways to Make Your Plan
- Consider your purchases carefully. A recession is not the time to overextend yourself on a new car loan or luxury vacation. Review your budget and cut out any unnecessary expenses. Living within your means is good advice for any time but is especially important when times are tough.
- Consider creating multiple streams of income. This could be as simple as a dog-walking side hustle or a part-time job at the local grocery store. Do some research to see how your hobbies or interests could be turned into additional income during an economic downturn.
And remember, if a recession comes, hang in there—it won’t last forever. As a natural part of the business cycle, a period of growth and expansion is likely on its way.
For ways to jumpstart your savings habits, we have some small ways to get you going. Check out our 5 Hacks to Grow Your Savings Nest Eggs article.
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