How to Prepare for a Recession

Frances Bridges

For the past couple of years, economists and investors have been bracing for a recession. The global economy is slowing, the trade war is dragging on and all signs are starting to indicate this decade of growth will end. Though economists are unsure when it will happen, it is important to start preparing as soon as possible, especially if you are a young professional who has recently entered the work force. Here are a few ways you can start preparing for the coming recession:

Build an Emergency Fund

This is a well-worn piece of advice, even when a recession is not imminent. But having an emergency fund is essential, particularly for young people, because when a recession hits companies often cut recently hired employees. So having a solid emergency fund in the event you need to look for a job is imperative. Most financial advisors recommend having three to six months worth of expenses on hand in a savings account. If you are behind in savings, now is the time to catch up before the recession hits. Make sure you’re transferring money from your checking to your savings consistently, and if you can automatically.

Pay down High Interest Debt

According to credit.com, one of the first financial goals to set is paying down high interest debt, such as credit cards debt or payday loans. If you have high interest debt and a scant savings account, your first priority should be going over your budget, and saving as much money as possible in the coming months, and paying off your debt.

If you need to majorly cut spending, Senator Elizabeth Warren writes in her book, All Your Worth: The Ultimate Lifetime Money Plan, that clipping coupons will not help you find the money you need. She recommends looking at big-ticket items such as mortgage payments, car payments, insurance, and other high monthly expenses that dictate your finances more than what you spend on groceries or coffee. See what adjustments can be made to those payments before worrying about what you spend on avocado toast.

Step up Your Job Performance

If you feel your performance has been average, now is the time to turn off autopilot. Being an indispensable employee, and having the data, either statistically or on a balance sheet of what you bring to a company is of upmost importance if you feel your job could be on the line during a recession. Take a class or course on a skill that will make you more proficient at work, volunteer for a leadership position, work hard, and be kind and helpful to colleagues because the recession is coming. It is not a matter of if, it is a matter of when.

Live Within Your Means

Though the market is still doing relatively well, the time to start saving is now, when things seem to be coasting, instead of waiting for the market to drop. This is the time to start living within your means, honoring your budget, saving as much as you can and paying off as much of your debt as possible. Be more thoughtful with smaller, every day spending decisions, and any major expenses that are not imperative should be delayed. You must live strictly within your means, as tempting as it is to believe, “everything will be fine,” things are only fine when you’re prepared.