By the traditional definition, the U.S. is not in a recession, but stubborn inflation, high interest rates and the failure of two U.S. banks have Americans worried the economy could tip downward at any moment.
In fact, 75% of Americans worry there will be a recession in 2023, while 69% think one is already here, according to a new survey from Real Estate Witch.
Americans have little hope for an economic turnaround in 2023, with 80% saying they don’t expect the economy to improve. About half expect it to get worse.
The grim outlook is likely because of increased prices for everyday goods, such as groceries and gasoline. Costs are so high, 70% of Americans fear price hikes could cause them to sink into debt.
With Americans feeling financial pressure from inflation, it can be challenging to reach their other financial goals, such as buying a home.
It’s impossible to predict if grocery prices will drop or if companies will lay off workers, but Americans can take their financial future into their own hands. By setting goals and starting new habits, there are several ways consumers can prepare for a recession and alleviate financial stress.
Preparing financially for a recession
An alarming 55% of Americans said they’d lose everything if there was a recession, making it imperative to financially prepare now.
“Start by setting a realistic savings goal,” said Gabriel Lalonde, a certified financial planner and president of MDL Financial Group. “Consider setting up a direct deposit from your paycheck to a savings account or an automatic transfer from your checking to your savings account.”
Saving even a small amount each month in an emergency fund can alleviate Americans’ stress if they lose a source of income.
Layoffs are always a possibility, especially during a recession. About 44% of Americans said someone in their household has been laid off in the past year, and more than half are worried about their job security, according to Real Estate Witch.
If they lose their jobs, Americans may struggle to pay for living expenses while also repaying their debt. Americans of all generations struggle with debt, but it’s a particular problem for millennials, who owe more than $100,000 on average.
“High debt levels can be a significant source of financial stress, especially during tough economic times when income and job security may be at risk,” Lalonde said.
Reducing debt now will alleviate financial stress and make life easier in case of job loss. If money is tight and there’s not enough to allocate toward debt repayment, consider working a side hustle to earn extra money.
Preparing for the job market in a recession
Americans who are concerned about company layoffs can take online courses or attend workshops to level up their skills and differentiate themselves in the marketplace, said Kamyar Shah, a business consultant with experience in operations management, marketing and public relations.
Workers who can adapt and learn new skills show they contribute to the company’s success. It’s important that their bosses are aware of the new skills they’ve learned or projects they’ve completed. It may protect them in a potential layoff.
Although there’s no guarantee that learning new skills will save employees from being laid off, working hard and completing quality work can help employees secure a recommendation or referral should they need one when looking for a job in the future.
Financial mistakes to avoid in a recession
Ninety percent of Americans said they’re preparing for a recession, but if they’re not preparing wisely, it could lead to costly financial mistakes.
First, consumers should avoid taking on more debt, said Alexander Tsala, the co-founder of Vermile, a startup that helps streamline small- to mid-size businesses.
“It can become more difficult to make payments if you lose your job or experience a pay cut,” Tsala said. “Avoid taking out loans or financing large purchases during this time.”
When it comes to investing, consumers should avoid high-risk stocks that can lead to significant losses during a recession, Tsala said. Instead, stick to low-risk investments, such as bonds or index funds.