When it comes to the economy, everyone seems to have an opinion. Maybe that's why it's still too early to answer the question: "Will there be a recession in 2023?" But it may not even be that important for us to know the answer to this question.
With economists, business leaders, and politicians all weighing in on how 2023 will affect consumers' wallets, it may be more important to focus on how we respond to the potential of a recession.
What is a recession?
There are two definitions of a recession. The textbook definition is an extended period of economic decline, starting with a peak and lasting until it hits its lowest point. You can see this play out as two quarters of economic shrinking (or how much we buy and sell as a country).
Then, there's another definition, which is closer to what we're likely to experience next. It's similar to how the pandemic caused a sharp uptick in unemployment and huge stock losses. People stopped buying things as they prepared for the worst, and this caused the economy to shrink. In fact, 2020's recession was short but real.
What to do before a recession
Being prepared for a recession is the best way to beat a recession. So, what should you do?
If you don't already have an emergency fund, now is the time to start building one. In 2022, the Federal Reserve reported that 40% of Americans didn't have enough of an emergency fund to cover three months' worth of expenses. So, even though you may be in good company, the goal should be to have enough set aside to pay for rent, food, and bills in case you should lose your job for a few months.
You might also consider putting the money you save in a high-interest savings account, so it can earn more money over time.
With an account connected to a Netspend prepaid debit card,1 you get a safe place to keep your cash and access to it if an emergency arises. With the optional high-yield Savings Account,2 you'll also see the money grow as it sits there, which will be something you can appreciate if a recession strikes!
Go through your expenses
Now may also be the time to reconsider any unnecessary purchases. Whether it's pausing a Netflix subscription or reconsidering that manicure, it's the right time to examine whether something is a want or a need. If you're sitting with good emergency savings already, you may not have to cut much. Still, now is a great time to go through everything. You may catch a subscription here or there you didn't know you were paying for.
Have extras on hand
A recession alone won't make products hard to come by, but it may affect prices to the point where you won't want to buy your favorite things. Whether it's that brand of laundry detergent you use daily or the special pet food your cat needs, consider adding one or two spares to your pantry so you're ahead of any supply chain issues or rapid price increases.
What to do in a recession
If a recession strikes, what's your plan? If you haven't taken the previous steps of setting aside savings, cutting expenses, and getting your pantry stocked, now's the time to do it! In addition, consider these essential safeguards.
Don't make any sudden money moves
Some financial moves are unavoidable, such as getting laid off from a job or a large medical bill. However, if possible, don't do anything that will significantly affect your financial picture during a recession, at least until you know how the economic environment will affect your personal budget.
Here are some things you may want to delay for a bit:
Voluntarily leaving your job (especially if you don't have another one lined up)
Buying or selling your home
Investing in a new business opportunity
Loaning or giving someone a large amount of money
Making a large unnecessary purchase
Basically, if it could eat up some of your cash savings or make your monthly payments more than they are now, consider putting off the decision for a bit to see how the recession affects you personally.
If you already have debt, now is the time to start paying it off. You want to put yourself in a better position to pay for things you need during a recession. If your debt is taking a good portion of your monthly income, this may be hard to pay off over time.
Recessions can also come with a change in interest rates. As we've seen in the recent past, the Federal Reserve can choose to raise the rates that lenders and banks use to set their credit card and loan rates. As the rates go up, it costs you more to borrow money. By paying down your debt early on in a recession, you can better protect yourself against rising rates.
Also, don't take on any new debt unless you have to, as this will be another bill you have to pay every month. If you don't have the cash to pay for an item, consider setting financial goals to save up for it over time. Whether it's a $50 birthday gift or a $500 car repair, try to pay as much as you can with the cash you have saved.
Finally, although it can be difficult to remain calm during the uncertainty of a recession, panicking won't help you. Have a plan going into any recession on how you will handle rising costs and a potential gap in or lack of employment. Talk to others in your situation, meet with a financial expert, or look at community resources available for those with financial difficulties. Sometimes, just sharing with people in a similar situation can be a welcome addition to your recession plan.
Will we see a 2023 recession?
The verdict is split on whether a recession is already here, coming soon, or well down the road. Although it's likely that, even without a recession, things may feel tight for a lot of people. A just over 6% inflation rate has made things more expensive, and that may require you to rethink how you approach money.
The good thing is that you don't have to do anything drastic to be prepared. Take early steps to understand your financial situation, set cash aside, and responsibly spend what you need to stay on track no matter what the economy throws at you.
You can also do more to manage your daily money matters, whether that's create a new budget (and stick to it!) or simply change how you pay for things at the store. With a Netspend prepaid debit card, you can easily track expenses, shop all the places you love, and stick to a purchasing plan that works for you in any kind of economy. No matter how much the economy changes, your Netspend prepaid debit card will continue to support you and your personal financial goals.
1 IMPORTANT INFORMATION FOR OPENING A CARD ACCOUNT: To help the federal government fight the funding of terrorism and money laundering activities, the USA PATRIOT Act requires us to obtain, verify, and record information that identifies each person who opens a Card Account. WHAT THIS MEANS FOR YOU: When you open a Card Account, we will ask for your name, address, date of birth, and your government ID number. We may also ask to see your driver’s license or other identifying information. Card activation and identity verification required before you can use the Card Account. If your identity is partially verified, full use of the Card Account will be restricted, but you may be able to use the Card for in-store purchase transactions. Restrictions include: no ATM withdrawals, international transactions, account-to-account transfers and additional loads. Use of Card Account also subject to fraud prevention restrictions at any time, with or without notice. Residents of Vermont are ineligible to open a Card Account.
2. No minimum balance necessary to open an optional Savings Account. Because Savings Account funds are withdrawn through the Card Account (maximum 6 such transfers per calendar month), Card Account transaction fees could reduce the interest earned on the Savings Account. To participate in the Savings Account program, you must consent to and continue receiving communications from us in electronic form. If you are subject to Internal Revenue Service backup withholding at the time of your request to open the Savings Account, your request will be declined. The Netspend Savings Account is made available to Netspend Cardholders through Pathward, National Association, Member FDIC. Card Account and Savings Account funds are FDIC-insured upon verification of your identity. For purposes of FDIC coverage, all funds held on deposit by you at Pathward, N.A., will be aggregated up to the maximum amount permitted by law upon receipt of funds by the Issuer.