Last year, many economists were quick to warn consumers of a 2023 recession. But thankfully, we’ve made it to the final stretch of the year without experiencing a broad economic decline.
Things might very well hold steady in 2024, too. If inflation continues to cool and the Federal Reserve can start cutting interest rates, consumers may find that borrowing becomes more accessible. That could lead to a stronger economy, not a weaker one.
But the reality is that a recession is the sort of thing you should always have on your radar. You never know when the economy might take a sudden turn for the worse.
The good news is that there are steps you can take to prepare for a recession. Here are a few worth concentrating on in the coming weeks and months.
1. Build an emergency fund
The scary thing about a recession is that it can lead to widespread layoffs. Losing your paycheck could mean struggling to pay your bills.
That’s why it’s so important to have a solid emergency fund at all times. Ideally, you should try to aim to have enough money in your savings account to cover three months of essential expenses — such as rent, car payments, utilities, and food.
If you have some savings now, but not enough to pay for three months of essentials, start socking more money away as soon as you can. That could mean sticking cash gifts you receive for the holidays into the bank instead of spending that money.
Recent data from SecureSave shows that 63% of Americans do not have the cash reserves to cover an unplanned $500 expense. If you’re in a similar boat, it likely means you couldn’t come close to covering three months of essential bills in the event of a layoff. And that’s not a position you want to stay in.
2. Make sure your investment portfolio is diversified
You may have a portfolio of stocks being held in a brokerage account. Investing money you don’t need for near-term bills is a smart way to grow it into a larger sum over time.
But while recessions don’t always batter the stock market, they certainly can. And so it’s important to make sure your portfolio is recession-ready.
Take a look at your investments and make sure you own stocks across a range of industries. If you own too many similar stocks, you could end up looking at steeper losses in the event of a stock market decline.
So let’s say you review your portfolio and find that you’re mostly invested in tech stocks. You may want to rebalance by selling some of those stocks while they’re up and buying other types of stocks instead, like energy stocks, auto stocks, and healthcare stocks. Or, you could replace some tech stocks with broad market ETFs, or exchange-traded funds.
3. Diversify your income
Just as you don’t want to put all of your eggs into the same basket when it comes to the stocks you hold, so too might you want to branch out when it comes to earning money. If a recession hits, your job could end up on the chopping block. If you have the time to pick up a side hustle, doing so is a great way to diversify your income. If you were to lose your main job, you’d have a second source of income to fall back on and potentially ramp up on.
Even if a side hustle isn’t possible for you (say, you’re too busy between work and household obligations), at least try to make a point to build some new job skills in the coming months. The more knowledge you bring to the table, the easier it might be to find a new job if a recession wipes out your current one.
There’s no reason to spend time panicking about a 2024 recession. The economy is strong right now, and no data is pointing to a near-term decline. But it’s important to recognize that the threat of a recession always exists. And if you make these moves, you can put yourself in a better position to get through one unharmed.
Alert: highest cash back card we’ve seen now has 0% intro APR until 2025
If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Read our free review