Official or not, many signs point to the fact that the U.S. is currently in a recession, including two consecutive quarters of a shrinking economy, company-wide layoffs, and surging inflation increasing the cost of what seems like everything. As a result, the stock market has declined from all-time highs with extreme volatility, and interest rates have continued to rise.
For younger individuals, this is the first recession (or recession-type environment) that they’ve experienced, aside from the COVID-19 recession, which was short-lived at just two months, the shortest in U.S. history. Talks of a recession can cause a lot of uncertainty and fear, especially when it seems like the media has nothing else to talk about, but there are steps you can take to prepare yourself and your finances to come out stronger on the other side.
Increase Your Emergency Fund and Pay Off Debt
Financial Planning 101 states you should have three to six months of living expenses saved in a high-yield savings account for future emergencies. It may make sense to have closer to one to two years of living expenses saved if you have variable income, you’re concerned about losing your job, or you have major expenses coming up in the next few years. Focus on increasing your reserve fund one month at a time.
With interest rates rising, rates on outstanding variable debt and new loans will also rise. Try to pay down variable debt as quickly as possible, especially credit cards, to avoid hefty interest payments.
Review Your Budget
Soaring prices have caused families to reconsider their budgets and spending. Unfortunately, paychecks are not allowing individuals to purchase as much as in years past, so it is a challenge to keep up with their standard of living. Now is the time to review your budget and ensure your spending aligns with your values. Start by reviewing your transactions from the last three months. Highlight any unnecessary purchases and unused subscriptions to see where income can be increased and expenses reduced.
Update Your Resume
With layoffs becoming more prevalent, make sure your resume is up to date and reflects your strongest accomplishments over the last few years. Increase your marketability by taking a course, learning a new skill, or tackling a challenging project. Build your network by attending local networking events and building your online presence on LinkedIn. Anything you can do to grow professionally will only help you advance in your career, no matter the current state of the economy.
Tune Out the Noise and Stay Invested
It can be tempting to sell out of the market in your investment accounts, but the best thing you can do during periods of dramatic market swings is to ignore the media and stay invested. Remember, if you continue to invest when the stock market is down, you are actually buying stocks at a discount, and losses are not locked in until you sell. History has shown that trying to time the market is nearly impossible. The great thing about being young is that you have plenty of time for your assets to rebound and grow. Don’t let an emotional decision today derail your future financial goals and success.
This is not the first recession our economy has faced, and it most likely won’t be the last. Keep these quick tips in mind, and focus on what you can control day to day: your savings rate, spending, and priorities. Make a strategic plan for your investments, automate your finances when possible, and get back to focusing on your day-to-day life.