‘Recession’ Sounds Scary. What You Actually Need to Worry About and How to Prepare

A photo to accompany a story about recessions
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Are we in a recession right now?

It depends on who you ask. Some point to an 8.5% jump in consumer prices, along with two consecutive quarters of contracting GDP, to answer in the affirmative. Others will cite robust job growth as definitive proof to the contrary.

According to the National Bureau of Economic Research, we’re still not officially in a recession. But many Americans are feeling anxious about the current (and future) economic environment. 

“It is a scary time, and I think a lot of it is just because we like certainty,” says Renee Collins, a certified financial planner at Retire Ready Inc.

Here’s a breakdown of how all of the uncertainty and technical jargon will actually affect your day-to-day life — and what you need to do to prepare.

Cost of Living Increases

Recession or not, you’ve surely felt the effects of inflation by this point. Everything from food to housing and transportation is getting more expensive. Here’s how you can counter the rising cost of living:

Take a hard look at your expenses

Now is the time to make sure your expenses are in line with—and ideally, less than—your income, says David J. Haas, a certified financial planner and owner of Cereus Financial Advisors

“Look at what you’re spending, and maybe decide how to cut back,” Haas says. It could be as simple as eating out less, and cooking more at home.

It might also be time to streamline or eliminate some luxuries you can live without—say, that third streaming service you subscribe to. 

If you simply can’t make ends meet or are facing food insecurity, consider visiting a food bank or seeking help from local non-profit organizations. You can also turn to non-profit credit counseling organizations for expert guidance on managing your finances, at little or no cost. 

Tackle the big, ‘fixed’ expenses

Your budget might only need a trim around the edges. But if you’re still struggling, you should also examine the monthly costs that seem fixed. 

“It seems like you’re not in control of them, but in the long run, you are in control of them,” Haas says.

Car payments, for example, are a potential area for savings. If your car lease is coming up, consider downgrading to something more affordable. Same for housing; if your rental agreement is coming to an end, and you want to consider moving, seek out something with a lower monthly payment.

Look for opportunities to add income

“In some cases, people might also look at areas where they might be able to add to income,” Haas says. “It doesn’t always have to be on the expense side.” 

Can you negotiate a raise with your employer? If not, is there an opportunity to take on extra hours or switch jobs entirely?

Haas also suggests thinking outside the box: Do you have an extra bedroom you could rent on Airbnb? Or a couple of hours to spare driving for Uber?

No matter how you approach it, bumping up your income could be enough to cover the cost of inflation.

Unemployment and the Possibility of Layoffs

When you look at the big picture, unemployment is at a 50-year low, with the latest jobs report offering some welcome good news. 

That said, many industries are experiencing layoffs, and it’s reasonable if you have fears about your job on an individual level. If you’re in that boat, here’s what you can do:

Set up an emergency fund so you’re prepared for a loss of income

At the end of the day, you might find yourself unexpectedly out of work. Your future self will thank you if you start preparing for that possibility now.

“Take a look and say, what is it that I absolutely have to have? And then look for ways to reduce some of those other items, so you can take that and put those resources into an emergency fund,” Collins says.

Aim to have a few months of expenses saved up in a dedicated savings account that’s only to be used for emergencies. That way, you’ll have time to find a new job without having bills piling up. 

Also consider familiarizing yourself with your state’s unemployment benefits — and how to get them — even if they don’t apply to you right now. That way, if you do lose your job unexpectedly, you’re not scrambling to figure out an often convoluted and confusing system on top of everything else. 

Learn new skills, build your network and spruce up your resume

If you’re concerned about your employment situation, start preparing now for your next role. Brush off your resume and LinkedIn, and make sure they’re updated with your most recent accomplishments.

“Staying on top of your skill sets, I believe, is really important,” Collins says.

Consider learning a new skill or building on existing ones. You don’t need to take two years off to go to graduate school, Collins adds. Start with free resources on YouTube, and then look into (more affordable) online courses and certifications.

Uncertainty in the Stock Market

You might be looking at stock market trends with gritted teeth, wondering what it all means for your investments or retirement funds. Here’s what the experts say:

Keep the long view in mind

During a bear market, like the one we’re in now, investors should stay the course, Collins advises. Even if numbers are going down at the moment, that’s not necessarily a bad thing. “The stock market going down is a fact of investing. In my opinion, it’s not abnormal,” Haas says.

When you zoom out, you realize that the stock market is cyclical, and almost always gains value in the long term.

“If you’re investing for retirement, and your retirement horizon is more than 10 years, then you want to stay the course. The market—it rewards those who stay the course,” Collins says. 

Consider upping your investment contributions

It sounds counterintuitive. But when the stock market is down, it means that stocks are “on sale” and your money will go farther if you buy at bargain prices.

Depending on your risk tolerance—and if you have enough savings and discretionary income—Haas and Collins suggest actually increasing your investment contributions at a time like this. Your 401(k) or IRA will thank you later, as the same amount of money can buy a lot more shares than it would in a bull market. Those same shares will appreciate over the long run of the market.

“Now is the time to do some homework and think about, how can I take advantage of this marketplace?” Collins says.

The Toll of Financial Anxiety on Mental Health

There’s one unquantifiable piece to all of this, and that’s your mental health. When there’s so much uncertainty in the economy, it can take its toll on your well-being. Here’s how to work through that:

Have an open conversation with an expert

Don’t keep your anxieties bottled up. Collins suggests seeking out a therapist or financial planner who can listen to your worries and provide guidance.

“Talk to them about what your concerns are,” Collins says. “When we can talk about money openly, we can find we’re not in this boat alone.” 

It’s likely that many of your family and friends are struggling with the same things right now, so you might also find comfort in your community.

Realize you can’t control everything

Most everything that is creating challenges in the economy right now is ultimately out of your control. There are certainly ways to respond and prepare, but it’s important to understand that you can’t fix everything.

“What is it that we can control, versus what is it that we can’t control?” Collins says. “It’s mind and money, and that’s the only two things that we have control over.”

Again, Collins recommends taking the long view: We’ve been here before, and we will get through this if we have a plan of action.