Whispers of a recession are getting louder, and everyone is taking a closer look at their money.
Should you pad your savings in case of an emergency? Is now the time to start a side hustle? NextAdvisor contributor and financial expert Farnoosh Torabi has a new Friday feature on her So Money podcast that might be helpful as you navigate these questions.
“We can’t wait for the NBER, the National Bureau of Economic Research, to make the official claim of whether or not we are in a recession,” says Torabi. “The time is now to be talking about recessionary steps we can all be taking to alleviate some of the financial pain that we are going through.”
The Q&A series is part of Recession Help Desk, a hub of resources and advice on how to manage your money during times of economic downturn, and is a project developed by CNET Money. (NextAdvisor and CNET are owned by the same parent company.)
Here are three questions Torabi suggests we ask ourselves to help adjust our money management strategy for potentially rocky times ahead.
Save More Money or Pay Off Debt?
Many Americans are taking on more debt, especially credit card debt, to offset increased household expenses caused by inflation. Americans added $48 billion to their credit card balances between the first and second quarter of this year, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit.
In answering a listener’s question on whether to prioritize savings or debt payoff, Torabi suggested a series of questions that you can ask yourself today to clarify your recession personal finance strategy:
Question No. 1: “What do you currently have in emergency fund savings?”
If you were to suddenly lose your job, how long can you stay afloat? If the answer is less than three months, building up your cash reserves would be a good idea right now.
Recessions often lead to company restructuring, losses, and layoffs, and sometimes employees don’t see it coming. Imagine you lost your job tomorrow as a starting point to craft your recession savings game plan.
Related: 50 Ways You Can Save Money Right Now
Question No. 2: “Are you a younger or older employee?”
It’s important to take into consideration how easily you could get another position should you suddenly find yourself unemployed.
“I want to know where you are in your career,” says Torabi. “Are you a younger employee? Are you an older worker? Honestly, depending on your demographic and the industry that you’re in, you may be able to find a job quicker.”
Torabi emphasizes that, while employers can’t discriminate against you based on age, we know that younger workers are a larger percentage of the workforce, and there are more entry-level jobs than senior-level jobs at any given time.
Question No. 3: “What kind of debt do you have, and what are the interest rates?”
If some of your debt has a higher interest rate, such as credit card debt, clearing away the balance should be a higher priority. Other debts, such as student loan debt, are still on pause, giving you a window of opportunity to further pad your liquid savings.
“This also depends, of course, on how much extra you have at the end of the month,” says Torabi. “How limited is your cash flow here? Are you living right up to that paycheck-to-paycheck level, or do you have hundreds of dollars, maybe a thousand extra dollars a month?” Torabi notes that, once your emergency fund is good to go, a hybrid strategy where you put some money in savings or investments and other money toward debt each month can be a balanced approach.
Recessions can leave us feeling uncertain and on edge when it comes to our money, but hearing about the questions others have can help you catch blind spots and close any gaps. Check out the Recession Help Desk over at CNET Money to ensure you’re managing your money with confidence during tough times.