Don't Wait: Proven Steps to Prepare for a Recession Now

It's alright to be not alright.

No matter whether you're living from paycheck to paycheck or have substantial savings, the unpredictable tariff battles President Donald Trump's approval ratings are declining, causing markets to weaken and increasing anticipation that a recession is coming .

As workers, businesses, and consumers become more concerned, Goldman Sachs has increased its 12-month recession likelihood from 15 percent to 20 percent. Meanwhile, the chief economist at J.P. Morgan has done the same. upped the odds To 40 percent, marking a substantial increase from the 30 percent forecast made at the beginning of the year.

"If we sense that they're planning to implement even bigger tariffs than what we anticipate, or if the White House indicates strong commitment to their policies despite poorer economic indicators, then both scenarios could suggest an increased likelihood of a recession," noted David Mericle, Goldman Sachs' chief U.S. economist, on Monday during a discussion. podcast On tariffs and their impact on the U.S. economy.

The scheduling of the tariffs couldn't be more inconvenient.

It already seems as though you'd need a small loan just to buy eggs , with the average cost of a dozen having risen by 10.4 percent last month.

Your aging vehicle is just one malfunction away from being sent to the scrap yard, but you can’t afford to replace if Trump's trade war intensifies — resulting in even more increased costs for both new and pre-owned vehicles In the final quarter of 2024, the typical monthly car loan payment reached an all-time high of $754, with many customers facing even higher amounts. $1,000 a month .

Even if you find it hard to check your 401(k) retirement account (I haven’t), you’re aware of its existence. value is down The S&P 500, an important indicator of market health, plunged into a correction On Thursday, this represents a decrease of 10 percent in the stock or index price.

“Typically, we see corrections when there’s a noticeable crack in the economy, or when the market needs to cool off after a long stretch of gains,” Callie Cox, chief market strategist for Ritholtz Wealth Management, wrote in a market alert Thursday. “We think today’s correction is a mix of both dynamics. The economy is under pressure from years of high interest rates, plus large-scale government layoffs and policy-related uncertainty.”

Should an economic downturn be unavoidable this year, consider these strategies to ready both your wallet and mindset.

Settle your credit card debt — n ow

If you've been struggling with credit card debt, your main focus should be on paying off those balances as quickly as you can.

If you lose your job, you might have no option but to concentrate on covering basics like housing and groceries instead of making interest payments on outstanding debts. credit card debt .

In situations where families face financial limitations, they naturally give precedence to specific debts like their home mortgage or car loan, as stated in the passage. recent analysis by the New York Fed.

However, needing to halt payments on your credit card debts comes at a high cost. The median average credit card interest rate for March stands as 24.2 percent According to Investopedia, which monitors these rates monthly, the New York Fed noted "an upward trend in credit card defaults."

One approach to address the debt is by obtaining a low-interest personal loan or enrolling in one. balance-transfer credit card You can pay off your debts more quickly by transferring high-interest balances to a credit card with a 0% APR. Should you be unable to secure such a card, contact your current creditor and request an interest rate decrease.

Stockpile savings

A downturn can swiftly alter your situation. Both low-income and high-income individuals may be impacted.

If you lack a sufficient emergency fund, now is the time to seek reductions in spending, find ways to augment your earnings, or do both.

Have vacation plans? Hold off on that summer getaway to the beach until you've built up a sufficient savings buffer. If not, you'll likely end up relying on credit instead.

If you're currently making do with less income and have exhausted all possibilities of cutting expenses further, or you've maxed out your available working hours, think about bigger adjustments to your lifestyle. When your rental agreement is coming due, contemplate relocating or finding a new place. roommate .

I understand that this may not be a simple choice or feasible for everybody, but I frequently suggest considering whether any relatives or friends could offer temporary housing. For instance, there was a well-paid duo aiming to reduce their debts and build savings who decided to leave their costly flat and stay with their godparents for almost 12 months. Besides trimming other expenses, relocating significantly enhanced their finances, enabling them to clear $25,000 worth of debt.

Set up a reserve for your emergency fund.

Besides setting up a recession emergency fund, determine alternative sources of funding you could tap into if you require extra money unexpectedly.

As a homeowner, think about obtaining a home equity line of credit (HELOC) for borrowing against the value built up in your house. However, utilize this financial tool solely when necessary after exhausting your savings; ensure you fully comprehend all related fees and interest charges tied to a HELOC before proceeding.

Curb your consumerism

Individuals purchasing goods drives the American economy.

Approximately sixty-six percent of total domestic spending within the U.S. economy is attributed to consumer expenditure on products and services, as reported by the Bureau of Economic Analysis.

However, much of this spending is financed through borrowing. Household debt climbed by $93 billion to reach $18 trillion in the final quarter of 2024. based on information from the New York Fed Credit card debts increased by $45 billion from the prior quarter, soaring to $1.21 trillion.

In case of an economic downturn and subsequent job loss, having substantial debts complicates the recovery process. Alternatively, you may have to settle for part-time employment if full-time positions remain unavailable.

The Bureau of Labor Statistics reports that the count of those working part-time due to economic factors rose by 460,000 to reach 4.9 million in February. This group includes people who wanted full-time jobs but either could not secure them or had their hours cut back. Such trends might indicate an impending economic slowdown.

Meanwhile, federal government employment declined by 10,000 in February — even before Elon Musk’s U.S. DOGE Service orchestrated massive layoffs of civil service employees. Those cuts are already taking a hit in some local economies, like the D.C. metro area.

When dealing with substantial debts, cut back on your expenses. Afterwards, make an effort to save the funds you're not using.

Avoid selling your stocks impulsively during a market downturn.

It's fine to feel anxious about potentially heading towards a recession. However, allowing emotions to guide your decisions increases the chance of making a financial error, like cashing out your investments .

"When the stock market is stable, that's the optimal moment to determine your cash holdings, rather than doing so during volatile periods," Cox stated in response to my query about her advice for investors.

Your objectives for saving and investing ought to be clear and grounded in your financial requirements within the coming one or two years," she said additionally. "It brings a sense of rationality and personal peace to determine the amount set aside in savings; however, this decision is ideally made outside times of stress.

Do not attempt to predict the market timing.

A lot of investors offload their stocks when the market plunges significantly during a downturn, convincing themselves they will return once the economic conditions get better.

Your entire skeleton will urge you to exit when share values are falling," Cox stated. "This is your mind functioning to shield you from danger. However, if you're an enduring investor, the challenging aspect is determining the right moment to return.

A method to counteract a knee-jerk reaction during a panic is to utilize "dollar-cost averaging." This involves consistently investing the same sum of money at regular intervals irrespective of fluctuations in the market. As such, you end up purchasing a lesser number of shares when prices are high and acquire more shares when their cost decreases.

Think about Charles Schwab’s caution Regarding waiting for the optimal time to invest: "Since accurately predicting the perfect entry point in the market is extremely difficult, the superior approach for the majority of people is not to attempt market-timing. Rather, create a plan and invest promptly."