Prepare for Recession?

Oh No.....there's a recession coming. What should I do?

First, know that even economic experts don't know when a recession has started until some time after it has begun. And, sometimes even later than that. It's because there isn't one economic statistic that confirms a recession. Rather, it's done by evaluating many statistics that, when taken together, indicate economic growth was negative, typically for 2 quarters in a row or 6 months. So, you can be in a recession for quite a while without knowing that you're in a recession.

Back to the original question - how or should one prepare for a recession? I'll phrase it differently: Are you prepared for a recession right now? If the answer is, "I don't think so," then you're not prepared. But to be clear, there really isn't special preparation if you're already following my advice: a sufficient emergency fund, careful and planned spending based on your budget, and being prepared for an unexpected job loss at any time. If your finances are in a good place, then if a job loss or reduced income occurs, you can handle it. If your budget is tightening due to rising costs or your emergency fund isn't where it needs to be, then yes, you need to prepare for a recession. Not just the one that may happen soon, but those that can happen at any time. That means, cut back some spending to increase emergency savings, update your resume, pay off debt, see what the job market looks for you, and put off any large expenses for a while. And, of course, don't alter long-term savings, selling out of fear of what may or may not happen.

If you're finances are not in a good place, with almost no emergency savings and too much debt, then yes, it's good to start preparing right now. Do what you can to increase emergency savings, even dropping a 401(k) contribution percentage to a level to get all of the company match. Slow spending and work harder to pay off debt. Then, if a job loss happens with the next 12 months, you're better prepared. If it doesn't, your finances are in a better place and you can go back and increase the 401(k) percentage, etc. The worst action some will take is to ignore having that adequate emergency fund then a few months into a job loss start taking money out of retirement accounts to pay the bills.

Finally, a recession has a different effect on everyone and is worse in some places than others. If you are employed and have a not-too-tight budget, then you might not even know a recession happened or is happening. But that ignorance is risky. Job losses are not equally distributed across different industries, and sometimes there's rising inflation and other times there isn't. However, a slowdown in the economy for months or years is a common occurrence in the economic boom-and-bust cycle we live throughout our lifetime.