A recession in 2022 is by no means certain, especially if the job market stays as strong as it is right now. Still, many Americans are taking a “better safe than sorry” approach to a potential economic downturn.
Across the country, families and individuals are implementing strategies now that can keep them financially afloat down the road, no matter what twists and turns the economy takes before then.
Learn the eight steps Americans are already taking to proactively protect their finances.
Paying off debt more aggressively
Recessions are a little hard to define, but most experts agree the surest sign of a recession is a slowing job market. When your job is up in the air, it’s harder to make regular payments on debt you accrued when you knew you could pay it down month over month.
Each missed payment and late fee adds to your total debt, and if you don’t have a source of ready cash on hand, you’ll probably have to add to that debt while waiting for the recession to run its course.
For this exact reason, 56% of Americans are already working hard to pay off debt more aggressively than they would be in less strained financial times.
Whether you’ve accrued consumer debt through credit card purchases or you have quite a bit of principal remaining on your mortgage, you’ll have an easier time weathering a recession without debt holding you back.
There’s never been a better time to focus on finding new ways to pay off debts.
Adding more to short-term savings
In a recession or depression where jobs are less stable, you need easy access to an emergency fund with enough cash to stay on your feet between jobs. That means tying up your money in a long-term investment, even one with a solid return, isn’t the best financial strategy for surviving an economic downturn.
Instead, you need to focus on short-term savings, which could mean making extra money now to bulk up your emergency fund.
Of course, even if you pick up a side gig or two, it’s hard to both pay off debt aggressively and save more money than usual.
Still, 56% of Americans say they’re paying off debt and 58% say they’re focusing on savings to survive a recession, which indicates that most Americans worried about the future are trying to strike a good balance between saving money and paying debts.
Diversifying investment portfolios
While more Americans are focused on short-term savings than retirement savings, 54% are actively putting more money into retirement savings accounts right now.
Additionally, almost 50% of Americans polled recently say they’re reevaluating their investment portfolios and plan to make changes. But which changes are the most crucial to recession-proof your portfolio?
It’s wise to have a few dividend-paying stocks in your portfolio. Any steady source of extra cash can help relieve your financial stress when economic tensions are high.
It’s also smart to invest in something stable, like U.S. Treasury bonds. Even though Treasury bonds have lost some value this year, they tend to give you a reliable return on investment once they mature.
One of the most important ways to prepare for a recession is to save money, so most experts don’t recommend storing your money in a long-term investment before a recession. And while it’s important to have a diverse portfolio, you probably want to avoid any massive changes before a possible downturn.
A few small tweaks to your current portfolio are likely fine, but you’ll want to avoid massive overhauls until this economic cloud passes.
Inflation has already forced many households to spend less on luxuries to afford essentials. Plus, Americans are also renegotiating budgets to make more room for short-term savings and paying down debts.
One survey found that 71% of Americans are slimming down their budgets even further to prepare for a possible recession: 41% are spending less on movies, 40% on travel, and 40% on eating out instead of staying in.
Again, during a recession, you need to focus on essentials. Rent/mortgage, utilities, groceries, and health care all come first. Cutting down on fun now frees up room in your budget to survive emergencies in the future.
Avoiding risky investments
Right now, nearly 80% of cryptocurrency owners are worried about drastic market changes — for good reason. There might be a time and a place for making risky investments in innovative, intriguing markets, but not right before a recession.
Sure, cryptocurrency and NFTs are popular investments for those who are willing to risk a lot for the possibility of getting a lot back. Right now, though, the goal is to minimize risk and hang onto as much cash as possible.
We mentioned diversifying your portfolio earlier, and for most people preparing for a recession, that doesn’t mean investing in cryptocurrency. Instead, look at companies that sell essentials you know people will need even in a dire financial time.
Health care and consumer products are great places to start. The lower the risk, the better — and that means steering clear of crypto.
Focusing on resumes and job applications
There aren’t any clear signs the job market will cool anytime soon. In fact, today’s job market is as healthy as it was before the pandemic, and in February 2020, unemployment was at a historic 50-year low.
However, since recessions are closely tied to the job market, it’s wise to keep your resume up to date in a period of economic uncertainty.
According to data from Glassdoor, around 250 people apply for every corporate job in America. No more than six people on average are offered an interview, and only one person locks down a job at the end of the process.
Looking at your resume and exploring potential career shifts now can give you a leg up if a recession sweeps your job out from under your feet.
Skipping big purchases
For many Americans, making a huge purchase in the second half of 2022 is out of the question, not necessarily because they’re preparing for a recession, but because inflation has devastated many Americans’ abilities to buy big-ticket items.
In June, one survey found that up to 70% of Americans were putting off a major purchase because their budget was already strained.
Honestly, right before a recession isn’t the ideal time to make any huge investment, whether that’s buying a house or re-landscaping your yard.
To recession-proof your finances, consider putting major purchases on the back burner until the economic future is more certain.
Being proactive about budgeting
The best defense is a good offense, not just in football, but in budgeting too. Instead of waiting for economic winds to turn and decide your budget for you, take a look at your budget now.
Decide how you’d adjust it to accommodate a lost job or higher interest rates. What would your budget look like in a worst-case scenario?
Additionally, what expenses can you cut out today to ensure you have enough money to outlast a recession? Revisit your budget frequently and proactively, not just after disaster strikes, to keep it current with your financial situation.
Whether a recession is coming or not, the eight practices listed here are smart ways to improve your budget and grow your net worth in any circumstance. If yours isn’t one of the American households already implementing these steps, it’s time to try one out.
No matter what the future has in store for us, your future self will thank you for the extra cash.