A recession could be on the way. Or couldn’t.
Economists have been predicting and forecasting for months, some saying the economy will slow down by the end of this year, while others point to 2024. If it does, most agree it will be mild, not the level of job losses of the 2007-09 Great Recession.
Regardless of the correct forecast, financial experts say it’s a good time to step back, get your finances in order, and think about job security in case a recession hits.
“There are quite a few things we don’t know. The crystal ball can be a bit cloudy at times,” said Ted Rossman, senior industry analyst at Bankrate.com. “A lot of this advice is good, whether or not there’s a recession in six months. Unfortunately, at some point there will be one. We can’t completely avoid it.”
Claudia Holt wished she had accumulated a bigger cushion of savings before the Great Recession hit. In 2009, she bought a house and then lost her job at a nonprofit organization. She was unemployed for 10 months.
“It was incredibly stressful,” he said. “In fact, that’s how I got better at managing my money because I had no other choice.”
He clung to his house. But it was hard going for a while. She took a few odd jobs, like babysitting or mowing people’s lawns to help stay afloat until she found a permanent position.
Currently, she is the director of programs and strategy for Prepare and Prosper, a St. Paul-based nonprofit organization that provides free financial counseling and tax preparation to low-income residents.
For starters, he said now is a good time to take stock of your financial position and cash flow.
She suggested making a budget. Take a look at the cost of various streaming subscriptions each month, for example, and think about how to lower it if necessary.
save for emergencies
Before a recession is a good time to evaluate savings, making sure you have funds to cover three to six months of expenses in case of an emergency, such as losing your job.
“We can’t go back in time and save tons of money, but what we can do is start thinking about it today,” Holt said.
It can take a long time, often years, to build up that fund for hard times. So start small if you have to, perhaps by saving $50 each paycheck, she said.
Jeanna Fifer, a Minneapolis-based financial planner and partner at Cordis Financial, noted that the emergency fund could look different for a single-income or dual-income household and depending on whether both incomes come from the same line of work, as some industries are more vulnerable to cuts in recessions.
“If you can be specific about what you think your chances are, then you can tailor [the fund] on, ‘How long do I think it would take me to find a new job and what are my prospects in these different environments?'” Fifer said.
For those already in a good place with savings, he added that falling markets are a good time to invest.
However, for retirees, Fifer cautions against making rash decisions and moving investments too far based on the current market cycle.
“Hopefully, you’ve already worked out a plan to get you through the good times and the bad,” he said. “You don’t want to lock in losses or find yourself looking for a different opportunity when the best move might be to stay put.”
He added that recessions can be unpredictable. They can be deep and short or superficial and long. Or some other combination. So his approach is to be conservative and prudent in planning without being overly anxious.
“We want to pay attention to what we can control… without spending too much time worrying about something you don’t have a lot of control over,” he said.
Pay the debt
One silver lining to the Fed’s recent rate hikes, Rossman said, is that some savings accounts now offer interest rates as high as 4.5%.
“Don’t settle for the 0.1% you might get from a big bank,” he said. “Compare for the best performance you can.”
While increasing savings is important, paying off debt is also a smart financial move, especially high-cost debt like credit cards. The average credit card rate is at a record over 20% right now, Rossman said. That’s an increase from about 16% a year ago.
With interest that high, credit card debt is three, four, sometimes five times more expensive than other types of debt, he said. Upcoming tax refunds could be one way to help pay for it.
Another tip he offered is to transfer credit card balances to another card that has an initial suspension on interest payments for up to 21 months.
“Try to use that lead as an opportunity to pay off this debt as cheaply and as quickly as possible,” he said.
Promote job security
Job losses can happen at any time, not just during recessions. So networking is evergreen.
“A lot of people find jobs through people they know, and you don’t want to wait until you really need a job to make those connections,” Rossman said.
Be active in professional organizations and attend conferences or trade shows.
Miquel McMoore, managing partner at St. Louis Park-based executive search firm kpCompanies, said most of the companies he works with are still looking to hire despite economic uncertainty.
For employees, he recommends focusing on articulating their accomplishments and strengths.
“We’re ‘Minnesota Nice’ people,” he said. “Usually we don’t like to brag about ourselves. And I’m not saying go on social media and start bragging. But definitely start documenting your accomplishments.”
Bolstering your LinkedIn profile is also a good idea. McMoore said recruiters “live and breathe” on that platform to find talent. .
Changing jobs in a time of economic uncertainty can be scary if layoffs end up targeting the newest hires.
But McMoore said that shouldn’t deter people from considering an exciting new opportunity.
“I would never encourage anyone to operate in fear,” he said.