Some Are Forecasting a Recession To Start in Fall 2024 — How You Can Start Preparing Now
Written by
Nicole Spector
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Gary Dudak
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Though there is still fierce debate over whether a recession will befall the U.S economy, several finance experts believe that this downswing is in fact headed our way. Some experts think it could happen as soon as next summer, with others speculating it won’t happen until the fall of 2024.
A looming recession is decidedly a bad thing, but it’s nice to have some notice so that we can all start preparing now. What can we do? Let’s see what the experts suggest.
Scour and Adjust Your Budget
Hopefully you have already been budgeting, but when prepping for a recession, it’s time to go to the next ultra meticulous level.
“My recommendation is for everyone to do an internal balance sheet to itemize their income and expenses for each and every dollar that is received and spent,” said Shmuel Shayowitz, president and chief lending officer at Approved Funding. “It’s critical to start cutting expenses now and, when possible, to start building a better reserve.”
Build or Add to Your Emergency Fund
Half of Americans have no emergency savings. This is really bad news — and where you’ll want to focus first to prepare for a recession.
“First, build your emergency fund,” said Yasmin Purnell of The Wallet Moth. “This, as a rule of thumb, should be 3 to 6 months worth of wages in an easy-access savings account so it’s there if you need it. Emergency funds are meant for emergency financial situations such as being laid off, or an unexpected car or household repair, for example.”
Live Within Your Means
There are a few reasons why so many Americans are steeped in credit card debt. One of them is living beyond their means. This is something you can avoid by controlling your lifestyle spending.
“Do what you can now to ensure you are able to live within your means,” Purnell said. “If you are regularly going into the red or living paycheck to paycheck with little in the way of savings or investments, this is something to address immediately. Being able to live comfortably within your means now is a must when the financial future looks uncertain.”
Diversify Your Portfolio
No matter what the economy is doing, you must have a diversified portfolio. However, this is especially crucial when you’re readying for a recession.
“Portfolios should be broadly diversified to include stocks, bonds and alternative investments,” said Dick Pfister, CAIA, CEO and founder of AlphaCore Wealth Advisory. “This type of allocation can help protect the client if the stock market sells off or if we head into recession. On the other hand, having a certain amount of stocks in a portfolio can help a portfolio participate in the upside if a recession does not occur.”
Pfister cited a recent example of this philosophy in action — noting what happened in 2022, and, subsequently what has happened so far in 2023.
“The broad stock market indices were down nearly 20% or more in 2022 and bonds were down as well,” Pfister said. “Many alternative strategies like trend following, private credit, multi-strategy and some long/short equity managers posted positive returns in 2022. Thus, providing ‘protection’ in a down market.”
Don’t Be Too Risk-Averse
Recessions — and the time leading up to them — can be frightening and emotionally triggering. When you see the stock market tumble, or suspect it will soon, you may feel like you should bolt from investing, or become extremely sensitive to the chance of risk. This thinking can actually work against you in the long run.
“The biggest mistake people make is not taking enough risk,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business, Creighton University. “If one has a long time frame one shouldn’t focus on trying to protect from periods of potential economic and stock market weakness. Witness the recent past. Many investors have been de-risking their portfolios in anticipation of a recession. Many people have been preparing for a recession for years and have exited the stock market. The opportunity cost of such a strategy is quite high. Instead, people should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways.”
Get a High-Yield Savings Account
“Every investor should have their savings working for them,” said Max Lane, CEO of Flourish Cash. “Inflation is scary, but one of the few ways to make this period work for investors is to think strategically about maximizing your cash. One of the best ways to do that is through a high-yield savings account with elevated FDIC insurance.”
Right now, you can find high-yield savings accounts boosting interest rates as high as 5%. Stashing your cash in one of these accounts is an effortless way to enhance your savings.
“Americans have lost out on at least $291 billion in interest since the start of 2019 by keeping their savings with the biggest U.S. banks,” Lane said. “Traditional savings accounts currently have an average APY of about 0.42% while high-yield solutions are offering 4.5% or greater. In dollar terms, that’s a difference of thousands of dollars for many households.”
Pay Down High-Interest Debt
The average American is all but drowning in debt — and if it’s credit card debt, it comes with a steep interest rate. It’s important to pay this down sooner than later, so that you can stop wasting money on interest. Plus, it’ll help calm your anxiety.
“Reducing your debt can lower your financial stress during uncertain times,” said Sammie Ellard-King, founder of Up the Gains.
Use the Right Credit Card
Related to paying down credit card debt is opting for the right credit card.
“A cash rewards credit card can help you earn rewards to offset the costs associated with your routine purchases,” said Mary Hines Droesch at Bank of America.
Boost Your Income
Who among us couldn’t use more cash? This is the ideal time to take on a new side hustle if you don’t already have one.
“Consider finding additional sources of income now,” said Ellard-King. “This could be a part-time job, freelance work or starting a small business.”
Avoid Making Drastic Financial Decisions Based on Fear
“In times of economic uncertainty, it’s crucial to make informed, well-thought-out financial decisions,” said Ellard-King. “Avoid panic-selling investments or making large, unnecessary purchases.”
At the end of the day, the economy ebbs and flows — and it always will. So, make like Warren Buffett and stay cool, confident and collected.
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