No matter where you are in your career, the past several years have likely been tumultuous. While many had hoped for a smooth post-pandemic recovery, inflation has become increasingly challenging to navigate. Rising prices have largely offset any income gains professionals recently experienced, leaving them with less purchasing power than before inflation became an issue, even with the raises.
Now, it’s possible that a full-blown recession is on the horizon. As a result, it’s wise to take steps to safeguard your financial future as much as possible, ensuring you won’t face a significant hardship if a recession occurs.
Fortunately, preparing isn’t as challenging as it may seem. Here’s a look at the value of saving for a potential recession, as well as some actions you can take to get ready.
The Value of Saving for a Potential Recession
A recession leads to financial hardships. One of the most common struggles professionals may face is sudden, unexpected unemployment. When company earnings fall – which commonly occurs during a recession – employers often have to turn to layoffs to make ends meet.
However, even if layoffs don’t occur, some employers may have to rethink wages during a recession to keep personnel costs manageable. Some may eliminate or scale back certain benefits or perks, while others may slash annual employee bonuses based on declining earnings.
In either of those cases, professionals can seek their income drop, at times dramatically and potentially with little warning. By having a financial cushion, you can tap those funds in these situations to help ensure you can make ends meet until the situation calms.
Doing so is particularly important in the current climate, as inflation may remain an issue for some time. While inflation isn’t inherently a feature of a recession, prices have been rising significantly for several months, and that pattern may not reverse depending on how the recession unfolds.
As a result, having a financial cushion is still beneficial even if you don’t experience unemployment or a wage decrease. It may give you enough wiggle room to navigate rising prices, ensuring you can handle your needs across the board instead of picking and choosing what you will or won’t cover.
How You Can Prepare for a Potential Recession
Preparing for a potential recession is usually a two-fold endeavor. First, it involves setting money aside to ensure you can weather an unexpected decline in income or rising prices related to inflation. Second, it includes reviewing your expenses and working to lower them, allowing you to free up room in your budget in case you need to redirect funds to unexpected expenses or adjust to rising costs.
While those points provide a general idea of what’s needed, looking at a step-by-step approach can make it clearer. Here are some steps you can take to prepare for a possible recession.
Review and Revamp Your Budget
Generally, the first step you should take is to review and revamp your budget. Examine every spending category, including your bills, household spending, and how you’re using your discretionary income.
The goal here is to identify potential areas for savings, as well as to seize opportunities to redirect money into an emergency fund. When it comes to your emergency fund, having three to six months of living expenses set aside is a standard recommendation. However, any financial cushion is better than none, so work to build up the balance as much as possible.
Pay Down High-Interest Credit Cards
High-interest debts, like many credit cards, take a significant bite out of your budget. Plus, the minimum required payment is usually based on the interest accrued and the size of your outstanding balance. By paying them down, you reduce the amount of interest you’ll pay. Plus, you’re making the minimum payment smaller, which could make it easier to handle if you experience an unexpected financial hardship.
Refinance Variable Rate Debts
As a means of staving off inflation, the Federal Reserve has been raising interest rates. If you have variable rate debts, that means your interest rates on those accounts are likely to climb and may continue to do so as long as the Federal Reserve keeps increasing rates. By refinancing into a fixed-rate product, your interest rate is stable, which makes your monthly payments more predictable.
Don’t Panic or Make Kneejerk Reactions
While a recession could occur, it isn’t guaranteed to happen. Additionally, there’s nothing to say that an upcoming recession would lead to the type of incidents that everyone experienced during the pandemic or the Great Recession that started in 2008.
Resist the urge to make significant changes to your investments, particularly since markets typically recover over the long term. Additionally, don’t assume that a recession means a crisis event for you personally, as that may not be the case. While it’s wise to plan for your own financial security, it’s possible a recession, if it occurs, would not be as challenging as the two incidents mentioned above.
Find Ways to Increase (and Diversify) Your Income
While it may seem like looking for a new job when a recession may be looming is risky, that doesn’t mean it isn’t worth considering. If you’re being paid less than what you’re worth or your current company is likely to experience significant financial instability should a recession occur, heading toward something new may be in the cards.
Additionally, seeking out opportunities to diversify your income could offer you a degree of protection. For example, by also having a side hustle, your income isn’t coming from one source. That ensures that if your primary source of income is impacted by a recession, you still have money coming in from somewhere else.
Do You Want a Recession-Proof Job? Burnett Specialists Can Help!
Often, certain jobs and careers are at greater risk during a recession than others. By transitioning into a role or industry that isn’t as likely to be hard hit, you can safeguard your career and your financial future. By partnering with Burnett Specialists, your journey toward a better career can be as simple as possible.
For a job search experience unlike any other, Burnett Specialists is here. Learn more about the available opportunities and how our services can benefit your career change today.
