A recession may be on the way. Or it couldn’t.
Economists have been forecasting and predicting for months, some saying the economy will rebound later this year while others point to 2024. If it does happen, most agree it will be mild, not to the level of job losses from the great 2007-09 Recession.
Regardless of which forecast is right, financial experts say it’s a good time to take a step back, get the economy in order and think about job security should a recession hit.
“There’s a lot that we don’t know. The crystal ball can be a little cloudy sometimes,” said Ted Rossman, senior industry analyst for Bankrate.com. “A lot of these tips are good whether there’s a recession in six months or not. At some point, unfortunately, there will be one. We can’t avoid it entirely.”
Claudia Holt wishes she had built up a bigger savings cushion 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,” she said. “That’s actually how I got better at managing my money because I didn’t have a choice.”
She hung on her house. But it was tough for a while. She took on odd jobs like babysitting or mowing people’s lawns to stay afloat until she found a permanent position.
Today, she is director of programs and strategy for Prepare and Prosper, a St. Paul-based nonprofit that offers free financial coaching and tax preparation to low-income residents.
For starters, she said now is a good time to take stock of one’s financial situation and cash flow.
She suggested making a budget. Take a look at the price of various streaming subscriptions each month, for example, and think about how you can cut back there if necessary.
Save for emergencies
Before a recession is a good time to assess savings and make sure you have funds to cover three to six months of expenses in the event 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 we can start thinking about it today,” Holt said.
It can take a long time – often years – to build that rainy day fund. So start small if you have to, maybe squirrel away $50 each paycheck, she said.
Jeanna Fifer, a financial planner and partner with Minneapolis-based Cordis Financial, noted that the emergency fund can look different for a single- or dual-income household and depending on whether both incomes come from the same industry, as some industries are more vulnerable to cutbacks in recessions.
“If you can get specific about what you think your options are, then you can tailor (the fund) to, ‘How long do I think I’ll need to find a new job, and what are my prospects in these different environments?’ ” said Fifer.
For those already in a good place with savings, she added, down markets are a good time to invest.
For retirees, however, Fifer cautions against making hasty decisions and moving investments around too much based on the current market cycle.
“Hopefully you’ve already made a plan to see yourself through good times and bad times,” she said. “You don’t want to sustain losses or find yourself looking for another option when the best move might be stuck.”
She added that recessions can be unpredictable. They can be deep and short or shallow and long. Or some other combination. So her approach is to be conservative and cautious in planning while not being overly anxious.
“We want to be aware of what we can control … and at the same time not spend too much time worrying about something that you don’t have a lot of control over,” she said.
Pay down debt
A 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% that you might get from a big bank,” he said. “Shop around to get the best return you can.”
While increasing savings is important, paying down debt is also a smart financial move, especially high-cost debt like credit cards. The average credit card rate is at a record high of more than 20% right now, Rossman said. That’s up from about 16% a year ago.
With interest rates this high, credit card debt is three, four, sometimes five times as expensive as other types of debt, he said. Upcoming tax refunds may be one way to help pay it off.
Another tip he offered is to transfer credit card balances to another card that has an initial deferral of interest payments for as long as 21 months.
“Try to use that runway as an opportunity to pay down this debt as cheaply and quickly as possible,” he said.
Increasing job security
Job losses can come 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, really need a job to make those contacts,” Rossman said.
Stay active in professional organizations and attend conferences or trade shows.
Miquel McMoore, managing partner of the St. Louis Park-based executive search firm kpCompanies, said most of the companies she works with are still looking to hire despite the economic uncertainty.
For employees, she recommends focusing on articulating your achievements and strengths.
“We are ‘Minnesota Nice’ people,” she said. “We typically don’t like to brag about ourselves. And I’m not saying get on social media and start bragging. But definitely start documenting your accomplishments.”
It is also a good idea to strengthen your LinkedIn profile. McMoore said recruiters “live and breathe” on that platform to find talent. .
It can be scary to change jobs at a time of economic uncertainty if layoffs end up targeting the newest hires.
But McMoore said that shouldn’t deter people from considering an exciting new option.
“I would never encourage anyone to operate in fear,” she said.