Recent events have shaken the confidence of many Americans — and they are wondering whether a recession is on the horizon.
When asked about current conditions, President Donald Trump said on Fox News Sunday Morning Futures in early March that “there is a period of transition” and “we’re bringing wealth back to America … it takes a little time.”
The president also said, “I hate to predict things like that” when he was asked if a recession was expected for 2025.
A recession is generally thought of as a period of time of continual decline in the economy. Some analysts define a recession as declines in gross domestic product (GDP) for two consecutive quarters.
A more accurate indicator is when other factors are also at play, like low consumer spending, high unemployment rates and less business investment. The National Bureau of Economic Research (NBER) is the organization that officially calls a recession.
Despite some signs, like the Federal Reserve Bank of Atlanta predicting negative growth this year and the Consumer Board’s consumer expectations index hitting a 12-year low, it’s hard to predict whether a recession will happen. Still, it pays to be prepared.
Here are some ways you can prep your finances in case of a recession.
Get clear on your spending
Knowing what your expenses are and the amount you need to pay for necessities is crucial because you don’t know what might happen during a recession. For example, you may face job loss or hikes to prices of goods.
Take the time to calculate the amount you’ll need to pay for essential expenses, like housing, transportation and food. Debt payments and insurance payments also count.
Once you have that figured out, take a look at your current income and any sources of cash you can access in a pinch. Although you don’t have to right now, consider what you can cut back on temporarily, like, say, new clothing and streaming subscriptions.
Having a plan can help you prepare for the unknown.
Build up your emergency fund
An emergency fund is money you set aside — ideally in a separate account — that you only use during emergencies, like a job loss, an unexpected car repair or an unplanned medical bill.
Even if you don’t anticipate needing to use it now, it’s better to have more cash. Especially so if you end up being laid off due to company cuts.
Many experts advise saving three to six months’ worth of expenses in an account that you can access quickly, like a high-yield savings account.
If you have that already saved, consider whether it’s enough or if you want to set aside more. For those that feel it’s too much, start with a smaller goal, like $1,000, and work your way up.
Focus on your career
Recessions usually come with higher levels of unemployment. Focusing on your skills and building up a professional network can help you get back on your feet if you do end up losing your job.
Staying connected with your professional network may not require a lot of time, especially if you already have established relationships. Keeping in touch can be as simple as meeting a former coworker or boss for coffee, connecting with them on LinkedIn or going to local professional meetups.
Aside from networking and expanding your skill set, take some time to update your résumé and list of references. It might not hurt to also look at current job openings, and to practice interviewing with someone.
Prioritize debt repayment
Understanding what bills you absolutely have to pay will also help you prioritize in the event you lose your job. That’s because not paying certain bills could mean losing your home, car or even seeing a drastic dip in your credit score.
Here are some best practices for handling debt if you face a loss in income:
- Make your car loan and mortgage payments on time to avoid worst-case scenarios, like repossession or foreclosure.
- Make the minimum payment on your credit cards and lines of credit.
- Pay the minimum on medical debts, if you can, or work out an updated payment plan.
- Consider reaching out to lenders to see if they have a loan forbearance or hardship program.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
