With high gas prices and rising inflation and interest rates, fear of an upcoming recession is not uncommon for people across the United States. While a recession has not yet been confirmed, it’s important to understand what a recession is and how you can prepare for it financially. Our goal at Landmark National Bank is to provide our customers with financial and budgeting tips that will help make you feel at ease during a time of uncertainty. Here’s how to prepare financially for a recession and how we can help.
What is a recession?
A recession happens when there is a two-quarter decline in the country’s gross domestic product (GDP). The GDP is the value of the goods and services the country produces, and when this number drops, consumers experience a rise in costs of gas, inflation, and unemployment rates. A recession causes the economy to struggle because many people lose work due to companies making fewer sales. Many people experience financial hardships while in a recession, battling the high costs of everyday items and less income coming into their households.
Don’t get a recession confused with a depression, though. A depression is much worse than a recession with longer lasting effects.
5 Ways to Prepare for a Recession
Preparing your finances for a recession doesn’t need to be drastic. Taking small steps can make a big impact, and it all starts with reconsidering your budget, building an emergency fund, taking care of debt, updating your resume, and making smart decisions about your retirement funds.
1. Reconsider Your Budget
With higher costs of gas, groceries, and other essential items, creating a new budget and sticking to it is vital to prepare for a recession. Start by taking a look at all of your current expenses and determine things that may not be a necessity that you can cut back on. For instance, consider eating out less or getting rid of subscription services you don’t use as often.
If you are married or in a dual-income household, look at what things may look like if one of you loses your job and how you would handle your finances with one income. Reduce your expenses as much as possible, so you can use the extra money to build an emergency fund.
2. Build an Emergency Fund
In the event of a recession, many employers can’t afford to keep paying all of their staff. This usually leads to mass job cuts and layoffs, which leaves many without a consistent income to rely on. To prepare for a potential layoff or reduced salary, it’s important to build an emergency fund that can help keep you afloat. Any money you’re saving from the reduced-spending budget you created can go directly into your savings account to be used as emergency funds. Because a recession can last anywhere from six to 18 months, we suggest you aim to have at least six months’ worth of funds set aside.
Don’t have a savings account to build your emergency fund in? Landmark National Bank offers a few different personal savings accounts that can help you reach your emergency fund goals. Learn more about our personal savings account options and open an account today.
3. Take Care of Debt
When a recession hits, it is common for banks to raise interest rates on consumer credit. That’s why it’s important to take care of your debt beforehand, so you aren’t stuck paying higher rates. Your mortgage rate and your auto loan rate are likely locked in, but you should monitor your credit card and other personal loan rates for a change. Continue to make your payments as you normally would. Although this shouldn’t be a top priority, pay off small debts if you have the opportunity. You can also reach out to your credit issuer to explore opportunities to reduce your interest rate. Getting your debt into a stable position before a recession will help relieve some financial stress.
4. Update Your Resume
As mentioned, layoffs and job cuts aren’t unheard of during a recession. While this may be the worst-case scenario, it’s always good to stay ahead of the curve and be prepared. Even if you’ve been at your job for a while, a recession can cause employers to make tough and unpredictable decisions that may leave you without a job. Stay prepared by updating your resume and staying connected to your professional network so you’re ready to land a new job sooner rather than later.
5. Be Smart About Your Retirement Funds
Lower incomes and higher expenses during a recession are sure to put a strain on your 401(k) and retirement funds. While it may be difficult to see the value during a recession, try to continue to contribute to your retirement funds. It has been proven that consistent investing pays off throughout time. It may be tempting to cash out your retirement funds, but if you can, try not to. This short-term decision can become very costly in the long run, and you might regret it. Overall, don’t panic when it comes to your retirement funds. Keep contributing to your accounts for as long as possible.
Stay Ahead of the Curve with Landmark National Bank
A potential recession is stressful to think about. When you need help budgeting and saving in preparation, count on our experts at Landmark National Bank. With branches located throughout Kansas, we’re here to provide you with the financial advice you need to be successful. Find a Landmark National Bank branch near you and learn more about our budgeting and savings tips today!