Strap yourselves in, folks. By all indications, America is in for a bumpy ride. According to a survey from Empower and Personal Capital, 74% of Americans are worried about a 2023 recession. But don’t panic. Here are some strategies you can use as you make preparations for economic collapse in the coming months.
Is America Facing an Economic Collapse in 2023?
Is America headed for a recession? There are some positive economic signs; interest rates are beginning to level off, and gas prices have started to ease. But banks like JPMorgan are predicting that America may face a mild recession in 2023.
This is nothing you haven’t seen before. But now, the post-pandemic stimulus money has largely run dry, and many Americans have seen their financial cushions drop thanks to record-setting inflation.
According to the Bureau of Economic Analysis, Americans were able to save $2.1 trillion at the start of the pandemic, but since then have spent $630 billion, dropping their cushion by roughly a third.
For American consumers, the recession comes at a particularly vulnerable period. Unfortunately, there’s not much you can do to stave off a recession, which means that it’s time to start preparing for economic crisis.
How to Make Preparations for Economic Collapse
Planning for a recession is easier than you think. It means simply adopting a few new habits to help you stretch your existing budget until the economy normalizes. As you’re preparing for economic crashes, remember the following tips.
1. Take a Financial Inventory
Start by assessing your financial readiness for the immediate future. Ask yourself specific questions:
- How much cash do I have on hand?
- How much do I have in my short-term (emergency) savings?
- How much do I have in my long-term savings?
- What are my regular expenses?
- Are there any bills or loans that I can pay off in the near future?
Take time to reevaluate your budget. This step is essential to preparing for economic crisis since it’s foundational to all other strategies. Once you know what you’re working with, you can adapt your budget accordingly.
2. Look for Problem Areas in Your Monthly Budget
After reviewing your finances, take a careful look at your regular expenses. Are you surprised at how much you spend on takeout? Do you really need five different TV streaming services?
At this point, your goal should be to reduce discretionary spending. Instead, prioritize the following categories:
- Food (groceries, not takeout)
- Other bills
Yes, this can be challenging, especially if you’ve gotten used to a gourmet cup of coffee on the way to the office. But even if you don’t eliminate all of these expenses, finding ways to reduce unnecessary spending will make a major difference in how much money you can save or use to pay down debt.
Decide on a reasonable amount for those little luxuries — and stick to it.
3. Pay Down Your Debts
If you’re in a financial position to pay down your debts, now’s a good time to do so. The reason is twofold. First, high interest rates mean that your credit card bills only stand to climb higher and higher, which means you’re paying more for every item you purchase.
But more importantly, you want to eliminate as many financial obligations as possible when preparing for economic crashes. If the worst should happen and you lose your job, you don’t need the added stress of a pile of credit card bills pouring through your mailbox each month.
4. Start Building Your Emergency Savings
How much do you have in your rainy day fund? Knowing how to save can be crucial for learning how to survive. Recessions already strain your finances to the limit, and if you don’t have an emergency fund to fall back on, you could end up tapping into your long-term savings.
Ideally, you’ll want enough money to cover basic expenses for three to six months. If you’re starting from scratch, building this fund by 2023 may sound daunting. But every little bit helps. Even a small emergency fund can cover unexpected expenses like car repairs, higher grocery costs, or minor medical problems.
5. Consider Other Financing Options
Remember, you’re not alone. Banks and other lenders may even be eager to show you how to survive. Recessions can be a good time to consider lending options such as a personal loan or home equity line of credit, which you might need to supplement your emergency savings.
For example, home equity loans can be a great way to cover unexpected home repairs or even tackle a home remodeling project while the economy is down. A personal loan is even more flexible, allowing you to consolidate loans, cover repairs, or even pay down medical debt.
6. Focus on Long-Term Investments
Don’t shy away from a bear market. When stock prices are down, it’s a good time to focus on long-term investments. Keep your portfolio stocked with large-cap stocks, which typically include companies with a solid, time-tested reputation and lots of staying power.
For that matter, a recession might even be an opportunity to grab some stocks in undervalued companies. Then, when the economy rebounds, you’ll reap the rewards. But stay away from that hot new startup. With an unstable economy, smaller companies face a high degree of volatility, which translates into more risk for investors.
7. Diversify Your Investments
When preparing for economic crashes, it’s important to diversify your investments as much as possible. This means diversity within an asset class as well as across asset classes.
For example, your stock portfolio should include companies from diverse sectors or industries, which will provide balance in the event that one industry is hit harder than another.
You must also diversify the type of investments you make. U.S. Treasury bonds, for example, can be great for short- and long-term savings. Treasury inflation-protected securities (TIPS) are designed to match inflation rates, which means that they won’t lose value as the consumer price index rises.
8. Help Others
One of the most overlooked preparations for economic collapse is to look out for your neighbor. A recession can take its toll on the mind as well as the wallet. But research shows that those who help others are more resilient than those who do not.
Turn off the doom-and-gloom of cable news and look for ways to reach out to family or neighbors. Many local organizations and faith-based groups regularly provide volunteer opportunities that strengthen the community in and out of crisis periods.
Investing in others gives you a chance to be part of something bigger and can help you better weather your own struggles during a recession.
When Will the Economy Improve?
Though economists are currently planning for a recession, there are signs that things will improve by 2024 and beyond. You may have already noticed that gas prices are easing, but as fertilizer prices drop, you could soon see lower prices at the grocery store. Even the auto industry is poised for a comeback after a buildup of unsold inventory.
There is light at the end of the tunnel, and these tips for preparing for economic crashes can help you stay afloat in the meantime.
Stay Informed Regarding Your Investments
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