For more than a year, we have been hearing warnings that the United States was on the verge of falling into recession.
Jamie Dimon, CEO of JPMorgan Chase;
Whether we enter a recession or not is a matter for economists. Today I want to discuss the steps you can take now to prepare for one.
If we go into a recession, you’ll be ready. If we don’t, your finances will be better off. It’s a win-win scenario. Let’s start.
Prepare your finances
Preparing for a recession requires a solid financial plan. Here are some key steps to consider:
Establish an Emergency Fund
In a recession, the most important economic risk is job losses. When the economy shrinks and businesses earn less, they start laying off employees.
Having an emergency fund is essential during a recession.
In normal scenarios, your emergency fund should cover at least three to six months of living expenses. If you think you have a higher than average chance of getting fired, you should increase the amount you save in your fund. Having a year or more isn’t a bad idea in these times.
When fears of a recession pass, these are extra savings you can invest for your future. Put your emergency fund into a high yield savings account so you earn interest.
Reduce your debt
Once you’ve stretched your emergency fund, work on reducing high-interest debt. This will lower your monthly expenses and help you weather the recession faster.
If you have low-interest debt, such as student loans or a mortgage, make regular payments. Depending on when you get the loan, these rates may be lower than what you can get from a savings account or CD.
If you can, consider consolidating higher interest rate debt if you can get it down to a lower rate. It may be difficult in our price environment, but it’s worth exploring.
Simplify your financial systems
Now is a great time to look for the complexity in your financial system and take steps to simplify it. Do you have too many bank accounts? What about credit cards? Look to consolidate them so your system is more understandable.
The last thing you want to do in an emergency is wade through unnecessary complexity.
Prepare for a potential career change
As we mentioned earlier, the most important risk in a recession is losing your job. If you don’t lose your job, you risk having your hours or shifts reduced, or you may be asked to take a pay cut.
No matter what happens, here’s what you can do to prepare for a potential career change:
Improve your skills
It’s never a bad idea to improve your skills, whether you’re learning new ones or developing existing ones. If you work in a field with certifications and accreditations, consider pursuing them so you can be a more valuable employee.
There may be an opportunity to improve your skills by taking classes or attending workshops that focus on developing new skills or strengthening existing ones. This will not only make one more valuable to their current employer, but also make them more marketable to potential employers.
Update your resume
When was the last time you refreshed or updated your resume? If you were like me, you would never have done it while working.
It’s not surprising because you’re not in “job search mode” so you don’t think to update it. Now is the perfect time to do it because your work is still fresh in your mind. Make it a practice to update your resume every six to twelve months because you never know when you’ll need it.
You’ve probably heard phrases like “the best jobs aren’t advertised” or “most jobs are covered by networking.” While the statistics may not be exact, their concept has value.
Networking plays an important role in recruitment because relationships are essential. It’s not just how many people you know, but the closeness of those relationships.
You can grow your network by meeting more people and developing those relationships over time. Attend industry events, conferences and seminars to meet new people and expand your professional network. This may not always lead to a new job, but it doesn’t hurt.
Job security is vital during a recession. One must take steps to ensure that one’s job is secure, such as performing well at work, building a good relationship with one’s boss, and proactively seeking new projects or responsibilities. It’s also essential to have a backup plan in case you lose your job, such as having a savings account or exploring other career options.
Build an emergency plan
Saving enough money in an emergency fund is essential, but what will you do when something happens? What will you do if your company fires you?
The best time to make an emergency plan it’s before you need it. You want to develop it today, while you’re calm and sane, not when you’ve just been told you’re going to be fired in 2 weeks. This version of you will be panicked and emotional.
Start budgeting today
If you don’t have a good idea of your budget, now is the time to use tools to create a budget. You need it because it tells you exactly where you stand in terms of income and expenses.
If you lose your job, you’ll know what expenses you can cut today to start saving money. You can also make smart decisions about these cuts so you don’t deprive yourself of important things.
For example, if I lost my job today, I would cancel all streaming entertainment services.
Learn the Unemployment Insurance Process
If you are laid off, you will qualify for unemployment insurance in your state. Now is the time to learn how to navigate this process because it will be a hundred times more difficult if you try to do it after realizing you’ve been fired.
Find out what documents you need and see if you can collect any of them today. In Maryland, you need documents like pay stubs, W-2 forms, etc. You probably already have them. stick them in a folder to be ready.
Prepare for other emergencies as well
Losing your job is the most important but not the only risk. Your car doesn’t know we’re worried about a recession, so it can have problems. Make sure you remember the other potential dangers in your life and prepare for them as well.
Recession is a major economic risk, but it is not the only one we face every day.
When fears of recession pass
There will come a time when fears of recession will pass and economic growth and prosperity are on the horizon. We won’t know when that time will come, but I figure you can tell by the mood and gossip in your company.
When this happens, the only step you need to take is to reassess how much money you’re saving in your emergency fund. You can use these savings for other savings goals or for retirement accounts.
Fortunately, every other step I’ve outlined in this article is beneficial to your finances and something you should continue to do.