4 Steps to Recession-Proof Your Finances for 2023

A worried-looking woman looking something up on her laptop while sitting at her kitchen table.

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With more and more experts predicting a recession, it’s important to be financially ready.

Key points

  • Economists and other financial experts are warning of a recession.
  • This is a good time to get prepared in case a recession hits.
  • Steps to take include boosting your emergency fund and looking for more sources of income.

It’s looking increasingly likely that we’ll have a recession in 2023. Experts have been warning of it for months, and now, some are practically guaranteeing it. In one of the most recent reports, Bloomberg economists see a 100% chance of a recession within a year.

Just because Bloomberg says so doesn’t mean we’re sure to have a recession. But with so many alarm bells sounding, now is the time to make sure you’re fully prepared. Here’s what you can do so your finances are able to handle a recession.

1. Increase your emergency savings

The best way to give yourself peace of mind financially is to build a solid emergency fund. In a worst-case scenario where you lose your job, you can dip into your emergency savings until you get back on your feet. By having enough cash in your savings account, you won’t need to sell investments at a loss to cover expenses.

Personal finance guides have traditionally recommended an emergency fund with three to six months of living expenses. Recently, some experts have upped their recommendations to eight to 12 months. While this is up to you, a large emergency fund doesn’t hurt. If your emergency fund isn’t where you’d like it to be, make that your top savings priority.

2. Pay off or refinance high-interest debt

If money becomes tight, it helps not to have any unnecessary expenses to worry about, like costly debt. The most common issue is credit card balances, as these tend to have high interest rates. Although it’s challenging, do your best to pay down or get out of credit card debt entirely so it’s not a thorn in your side.

Another option is to refinance your debt to get a lower interest rate. This is a bit trickier now, because interest rates have been rising. However, there are still plenty of balance transfer credit cards that offer a 0% intro APR. If you have a good credit score, one of these cards can help you save on interest charges.

3. Look for additional sources of income

Before a recession hits, it’s a good idea to see if you can find more sources of income. If you have a job, try starting a side hustle. If you’re a freelancer, look for more clients. This way, you’re not completely reliant on a single source of income, be that an employer or one large client.

Companies cut back during recessions, and one way they do that is by laying off employees and contractors. With multiple ways to make money, you’re less vulnerable here. And it’s much easier to set this up before job losses start and everybody is looking for work.

4. Cut back on expenses

There are two big reasons why it makes sense to cut back on expenses as part of your recession prep. For one, it will free up more money that you can put toward paying off debt or beefing up your emergency savings. Also, if you need to tap into that emergency fund later, it will last longer since you aren’t spending as much.

You don’t need to take this to extremes, but it’s worth looking over your recent spending to see where you could cut back. Maybe that means not going out to restaurants as often for the time being, or canceling some subscription services you haven’t been using much.

The idea of going through a recession is stressful, but it’s much easier to stay calm when you know you’re prepared financially. By getting ready now, you won’t need to scramble if a recession hits.

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