With high inflation plaguing the economy, fears of a recession are growing. Some forecasters predict a downturn before 2023, while others say a rolling recession – localized hits to different industries over time – is more likely. Either way, Americans need to be proactive and change spending habits to survive the instability ahead.
The first step is to immediately cut discretionary splurging. This means reducing expenses on leisure activities, travel, high-end goods, dining out, subscription services, and more. Stick to an essentials-only budget, which often requires lifestyle sacrifices. But curbing the urge to splurge now is vital to making it through future belt-tightening.
Next, build up a robust emergency fund. Aim to stockpile enough cash to cover 3-6 months of living costs. This savings buffer allows you to pay for necessities if you lose your job or face reduced hours. It also prepares you for unexpected costs like medical bills, home repairs, car maintenance, etc.
At the same time, pay down existing debts aggressively, especially high-interest credit cards or loans. This reduces monthly obligations and interest charges, freeing up cash flow. You want minimal debt payments when times get tough. To accelerate pay-off, temporarily halt retirement contributions beyond any employer match and use that money to nuke loans.
Seek extra income streams as a recession hedge. Options include freelancing, consulting, monetizing a hobby, renting out property, and so on. Even a few hundred extra dollars per month makes a difference when stretching limited funds. Building multiple income sources also provides more stability if your main job falters.
Maintain robust insurance coverage, including health, disability, life, homeowners/renters, auto, and umbrella policies. Review plans annually to avoid being underinsured. Insurance keeps you afloat when facing illness, injuries, lawsuits, or property damage. Explore discounts and ways to optimize premiums for essential protection.
Be selective when making major purchases in the months ahead. Avoid buying luxury cars, boats, cabins, RVs, or vacation homes. Instead, put that money into necessities like reliable used vehicles, home maintenance, emergency preparations, and affordable shelter.
Think twice before switching jobs or careers solely for more pay. Consider job security and demand more than compensation. Some industries will fare better than others. Research options thoroughly and make strategic moves. Having stable employment, even at a lower wage, is wise in tumultuous times.
Limit stock market exposure leading into a potential recession. Shift retirement accounts to more conservative allocations focused on bonds, savings vehicles, and cash equivalents. Be ready to further ratchet back stocks if a downturn hits. Periodic rebalancing maintains safety while allowing upside potential.
Keep mortgage and debt refinancing plans conservative, with fixed rates and moderate leverage. Don’t over-extend yourself chasing low rates that won’t last. Variable rate products get riskier when the Fed boosts interest rates to fight inflation. Manage maturity dates and required payments appropriately.
Shop wisely by bargain hunting for essentials, buying generic brands, using coupons, avoiding impulse purchases, and reducing frequency of costly store trips. Meal plan diligently and limit food waste. Purchase quality staples that last across multiple frugal meals. Learn new DIY skills to save money on home, car and appliance repairs.
The above actions require short-term discomfort but are necessary for surviving a potential recession. By spending less, saving more, and securing your finances, you can minimize damage and recover quicker. With preparation, ordinary Americans can outlast extraordinary economic challenges ahead. Tighten that belt now!
