In the early days of the pandemic, news tickers were full of mass layoffs as businesses shut down or went virtual. But in the years since, the economy seemed to bounce back. Now, however, log onto LinkedIn, and you’ll see a steady stream of posts about layoffs (maybe you, unfortunately, wrote one too). Inflation has continued, and there’s talk of a looming recession. Didn’t we just do this?
And some of us still remember the Great Recession in 2008—something that took several years to climb out of. Is that what’s in store for us again? Cue the doom scrolling.
That being said, experts have some tips on how to prepare for a recession.
“The word and concept of having a recession are very scary to people,” says Kimberly Palmer, a personal finance expert with NerdWallet. “It calls a lot of things into question. People wonder if they are able to keep their jobs, pay their bills and credit cards.”
The best time to fix the roof is before it starts leaking. Taking a few steps can help you recession-proof your lifestyle and finances.
“If economically, things do go in the wrong direction, but you took the time to put together a plan for this possibility, you will have a much easier situation getting through tough times than most people,” says Stuart Boxenbaum, CFP and president of Statewide Financial Group in Florida.
Here’s how to control what you can and double down on your financial security, so you’re ready for a recession.
How To Prepare for a Recession, According to Finance Experts
Build an Emergency Fund
The best step you can take right now is to start putting money away just in case you or someone in your household gets laid off or inflation spikes monthly expenses.
“Make sure you have an emergency savings fund,” Spencer says. “If you don’t, it’s the perfect time to build it because you want it before you need it.”
This emergency fund can also prevent you from accumulating debt that will exacerbate and prolong the effects of a recession.
“You can turn to your emergency fund instead of your credit card in a crisis,” Spencer says.
The standard advice is to build three to six months of expenses. Spencer knows that can feel daunting—especially in current times with inflation.
“Instead of thinking about it like that…aim for an amount that feels doable to you, even if it means taking small steps like putting away $20 per week or whatever you can manage?’” Spencer suggests. “Building up that small cushion can go a long way in getting you through a stressful time like a job loss.”
Pay Off Debt
With rates rising, it’s becoming more expensive to have credit card debt. Now is the time to focus on nixing it.
“Paying off high-interest debt is such a good thing to prioritize since the rates are rising,” Spencer says.
Spencer suggests using a debt payoff calculator (NerdWallet has one, and you can find others online for free). These tools allow you to plug in factors like your credit card interest rate and total outstanding debt. Play around with it.
“You can see, ‘If I set this much aside each month to pay off my debt, this is how long it will take,'” explains Spencer.
Once you’ve settled on a number, Spencer says there are two ways to tackle debt. The first is to pay off high-interest debt first. “This minimizes the overall interest you are paying,” Spencer says.
Alternatively, start by knocking off your smallest debts. “Some people find that very motivating,” Spencer shares. “You want to pick the method that works best for you.”
Another key part of this step: “Don’t spend money you don’t have,” Boxenbaum stresses.
Review Your Budget
A potential looming recession is a perfect excuse to re-evaluate your budget.
“It’s much more powerful to cut back before you actually need to instead of waiting for a true emergency,” Spencer explains.
