How to plan for a 2023 recession

4 minutes read | Posted on: Apr 07, 2023

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By: Smaya Anand

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You’ve probably seen mentions in the news of a possible recession– an economic downturn that’s particularly pervasive. There’s not a clear-cut definition of when exactly a downturn becomes a recession; instead, the National Bureau of Economic Research defines it broadly as a decline that is widespread, affecting a large number of people, and that lasts for at least a couple months. The lack of specific thresholds in this definition makes it difficult to say when an economy hits a recession, but factors such as high inflation, negative GDP, rising interest rates, shaky economic activity, and volatile markets are indicators that one is coming.

What should you do in the event of a recession?

Keep your household expenses low

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One of the most important ways to keep expenses low is to plan. Make sure you have a clear budget, and make sure you know what you’re spending money on and how much you’re spending. This is a great tool to cut out extra, unneeded expenses. For example, many people forget to cancel their memberships to gyms and streaming services.

Planning doesn’t just have to extend to a budget– planning meals can help you save money and time during the week. Try to have at least a general idea of what you’ll eat in a week, and try to cook at home rather than eat at restaurants or get takeout.

You can also save some money on utilities by doing simple things– not leaving devices and water running, turning lights off, switching to energy-efficient lightbulbs, turning down the thermostat at night, and if it’s winter, wearing more layers inside to save money on heating. These are small, but can add up.

Save more money to build an emergency fund

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An emergency cushion is something that’s always good to have, but it’s especially important during a recession when money may be tighter. Having something to fall back on will make your life far less stressful. In preparation for a recession, try to save money you might normally spend on non-essentials in order to put it in an emergency fund.

Diversify your investments

Stocks often don’t quite match what’s going on in the economy. For example, stocks usually hit their lowest points before recessions start, when pessimism is high from anticipating recessions. So make sure not to sell them just because they’re going low, as they may increase more. Also, some stocks like Target, Walmart, and Home Depot are still high even during a recession. Usually, healthcare, consumer staples, and utility stocks are relatively recession-proof. It can be very valuable to have these kinds of stocks in your portfolio.

Pay down high-interest loans or credit card balances.

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If you have loans, you will definitely want to prioritize paying the ones with the highest interest rates as soon as possible. Especially as prices rise due to inflation and you need to rely on your credit card more, make sure you pay your credit card bill in full every month, or else you’ll be stuck with rapidly increasing debt due to interest rates.

Plan for your essential bill payments.

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