Experts Predict a Recession in 2024: 5 Ways To Prepare Your Finances Now
Written by
Ashley Donohoe
Edited by
Daria Uhlig
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The currently high consumer spending levels, tamed inflation and strong job market have some experts feeling optimistic about the economy. However, others are concerned that next year could bring about a recession.
On the “Mornings with Maria” show, the former Kansas City Federal Reserve Bank president and CEO Thomas Hoenig expressed concerns about the economy’s fragility and high interest rates. And at a Minnesota Chamber of Commerce summit, Charlie Dougherty, Wells Fargo’s senior economist, spoke about a possible mild recession once the Fed starts cutting rates.
While there’s uncertainty about what 2024 will bring, it’s worth preparing your finances so you can better ride out any potential downturn. Here are five things you can do right now.
1. Check Where You Stand Financially
Examining your finances is useful for determining your current strengths and weaknesses. Grab items such as your bank and creditor statements, bills and documents for your assets and investments. You might want to use a spreadsheet or app to make an inventory of all your accounts, properties, expenses and income sources.
Once you have all the details, consider your long-term financial stability. Maybe you discover that your current debt takes up a lot of your income and would make things very tough if you were to lose your job. On the other hand, you might find that you have significant savings that can help you get through a recession.
2. Beef Up Your Emergency Fund
Even if you’ve already saved a lot, consider further contributing to your emergency fund since you can turn to it during temporary unemployment or another hardship. The minimum goal should be three to six months of your essential monthly expenses. However, you might even increase this to one year for a better cushion.
Make sure you put your emergency money in a highly accessible account with a competitive interest rate. Online money market accounts and high-yield savings accounts are good choices. Plus, avoid the mistake of draining your emergency fund to cover other expenses.
3. Reassess Your Budget
Before a recession forces you to, examine your budget so you can find ways to stop spending so much money now. After considering any fixed living expenses, note the categories where you have more control. For example, you can seek cheaper groceries, limit your utility usage, cancel streaming services and buy secondhand home items.
You should also note the income you usually get each month. If it is unstable or barely covers your expenses even after expense cuts, consider diversifying with gig work or recession-proof passive income sources. It may also be worth expanding your skills to prepare for a potential promotion or career change.
4. Find a Way Out of Debt
Not only does having debt limit the income available for other things, but it makes dealing with a recession worse. Losing your income source may leave you struggling to pay your debts and risking damage to your credit for years to come. So, if your finances allow, knock out some of your balances to free yourself from monthly payments.
If unsure where to start, consider looking at the interest rates your creditors are charging. High-interest debt is especially damaging to your finances, so it can be a good initial target. If you’d like an alternative, Dave Ramsey recommends the snowball method, which has you simply start with your smallest balance and go from there.
5. Be Smart About Your Investments
The fear of a potential recession can lead to mistakes such as unwisely selling off investments. You might think you’re protecting your money, but you can end up with fees and miss out on returns when the market improves. Instead, think about the long term and remember that it’s normal for the markets to be volatile.
That doesn’t mean you shouldn’t make any moves, though. Make sure you have multiple types of investments since this provides a safety net for when some don’t perform well. It also helps to invest in more recession-resistant sectors, such as utilities, healthcare and food. Consider setting up a meeting with an investment professional for guidance.
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