Your Apple News alerts keep warning you a recession is on the horizon. But what does that really mean? The last time our country experienced a recession, you were probably too young to understand what it means to be laid off.
Now, you’re a working adult. Could a recession derail your budding career? How will it impact your finances, your job and your long term goals – both personal and professional? We’re going to answer these questions, so you know how to prepare for a recession and what you can do to reduce its financial impact on you.
What is a recession?
To put it simply, a recession is a period of economic decline. During a recession, consumers spend less money, so companies produce less. Additionally, it can be more difficult to borrow money for a car loan, a mortgage or a small business loan during a recession.
As a result of slowing economic activity, businesses begin to lay employees off, and many go bankrupt. It can be scary for young professionals who may feel more vulnerable to layoffs since they’re less established in their careers.
Highly sought after employers like Google and Facebook’s parent company Meta announced hiring freezes earlier this year. Missed revenue goals and slowing sales seem to be both company’s motivation for the freeze. Meanwhile, here in Maryland, Amazon announced they’d be closing two facilities, resulting in 353 layoffs. Although the job market is currently strong, there are signs the situation could change.
Are we in a recession?
Economies grow and contract over time, of course. However, when the slow down lasts for an extended period of time, it’s typically considered a recession. Ultimately, it doesn’t really matter to everyday people whether the National Bureau of Economic Research has confirmed we’re in a recession or not (they haven’t).
What really matters is how economic activity is impacting everyday Americans. Layoffs, bankruptcies and work slowdowns have consequences, especially for people living paycheck to paycheck. With inflation at its highest point in 40 years, more people are certainly feeling financially strained. Fortunately, the job market is strong right now.
Officially, we’re not in a recession, but lots of unprecedented circumstances have affected the economy in the past couple years. Experts warn the American economy is in the midst of a slowdown, which puts us on the track towards a recession. Because experts suggest a recession may not arrive until later next year, you have time to make changes that could protect you later.
Here’s what you can do to prepare for a recession.
Build your emergency savings.
Recessions often bring widespread layoffs in all industries. Although you can’t predict whether your job will be affected, it’s always a good idea to have an emergency savings account to support you if you lose your job. But how much should you aim to save? Financial experts typically recommend setting aside between 3 to 6 months of living expenses as an emergency fund.
However, one of the key characteristics of a recession is widespread and prolonged unemployment. That could mean an even longer than usual period of joblessness for those affected by layoffs. If you’re able to save up more than 6 months in an emergency fund, then do it. That way, if you’re impacted by layoffs, you have a firm backup plan for your expenses, which can support you while you look for a new job.
See your options for saving money with SECU.
Refinance your major investments.
Think you’re paying too much for your home or auto loans? You might be. Refinancing your investments can get you a lower interest rate, shorten the loan term (which lowers how much you pay in interest) and reduce your monthly payments. Plus, if you purchased a home without a down payment, you’re probably paying for costly mortgage insurance. Refinancing can even help you shed that extra payment.
Seek lower rates with SECU, so you can build your emergency savings faster and keep more money in your pocket. Use our Mortgage Refinance Calculator to find out how much you could save.
Want to learn more? See how we can help you save money on your mortgage or auto loan.
Cut back on your expenses
Budgeting is a no-brainer right now, particularly with inflation driving the cost of living up fast. You can start with cutting back on the nights out with friends — maybe you can switch the $12 cocktail for a shared bottle of wine on a friend’s couch!
To really reign in your budget, consider cutting back on your necessary expenses. Can you save money on your phone bill by switching to a lower-cost data plan? Are you taking advantage of bundling discounts for your insurance policies? Review all your expenses to see if there are ways you can cut back.
Build multiple streams of income.
Everyone has a side hustle these days. Whether you have a hobby you’ve always wanted to transform into a small business, or you’re ready to make some quick cash through the gig economy, there are plenty of ways to build your income. This can help you add to your emergency savings or provide the extra funds you need to pay down debt and reduce your living expenses.
Update your resume, and reflect on your career opportunities.
Right now, the job market is strong. With nearly 2 job openings nationwide for every worker, there is still a lot of opportunity to land a job that pays well and supports your goals. As you plan for a recession, think about how your career path may impact your finances in a challenging economy. Would your job be in jeopardy during a recession? Are there paths you can take in your career that may provide greater job security? What skills can you grow to improve your resume?
Even if you’re happy in your current role, it’s always good to maintain an updated resume and continue building your skills throughout your career. That way, you’re in a better position to hit the job market should a recession or other challenges impact your career.
Seek financial security with SECU.
Your finances are already feeling the stress of inflation, so the thought of building an emergency fund or paying down debt might seem like an insurmountable task. Our highly trained financial counselors offer free, one-on-one support. We can show you how to prepare for a recession, even on a tight budget. With our support, you’ll feel prepared to take on whatever challenges come your way — while still pursuing your financial goals.