It’s something I refuse to lose sleep over.
- Financial pundits have been issuing recession warnings for months.
- While the idea of a recession can be scary, this is why I am keeping my cool.
- Recessions happen with some frequency and I have the ability to reduce my expenses if necessary.
Will a recession come in 2023? That’s the big question.
For months, economists have been warning that things could get markedly worse next year as the Federal Reserve moves forward with aggressive interest rate hikes. As loans become more expensive for consumers, they may be looking to cut spending drastically. And if that happens, it could easily spark a recession.
But while the thought of a recession is far from comforting, it’s also not something that keeps me up at night. This is why.
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1. We are not guaranteed to have one
While it’s easy enough to make the case for a short-term recession, the reality is that the current job market is very strong. And it may be strong enough to withstand a moderate pullback in consumer spending. To put it another way, there is a possibility of a recession No it hit in 2023, so I figure it’s not worth spending time actively worrying about one.
2. Recessions are normal
A recession may not be a welcome event, but a next one would not be a once-in-a-lifetime event. The National Bureau of Economic Research says there have been 10 recessions since 1945. That’s a recession about once every seven to eight years. As such, it is reasonable to expect to experience a series of economic downturns.
3. I have the option to cut expenses
I admit it: These days, I spend more money than I need to. To be clear, I usually manage to put money into my savings every month and don’t come close to spending all of my income (unless unplanned bills like home repairs sneak up on me). But there are definitely expenses in my budget that I can cut if I have to.
Right now, I’m not doing much to cut back because I’m constantly saving money. If a recession hit and my income dropped, I would have to reconsider my leisure spending. But that’s not as stressful an idea as worrying about how I’ll pay my mortgage.
4. My emergency fund is solid.
In the wake of the pandemic, many financial experts have increased their emergency fund recommendations from three to six months of living expenses to eight to 12 months. But here’s the thing: I’ve always been a fan of having extra money in savings, so even before 2020, I made it a point to keep a 12-month emergency fund.
Because I have enough money in the bank to pay for a full year’s living costs, I don’t have to worry as much about losing my job for a period of time. To be clear, I’d be devastated if that happened, but I’d also have many months to look for a job before having to sell investments or resort to debt to stay afloat.
try not to panic
It’s hard to stay calm when you keep hearing how the economy could soon get worse. But instead of losing sleep, try taking active steps to improve your financial situation and be prepared to handle a recession. That could mean building up your savings, paying off high-interest debt and upping your job skills so that if layoffs do occur, you can avoid ending up on the chopping block.
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