Economists, policymakers, and news outlets are all at-odds over the U.S. economy heading toward a recession in 2023. For those paying close attention, the same debate took place prior to 2022; however, the economy mostly stayed its course, and recent economic data is pointing to the same…for now. Unfortunately, we have no way of knowing what the future holds, but there are still steps we can take to manage our finances during periods of uncertainty.
The first step in easing recession concerns is to review your current spending habits. It is very difficult to follow a financial plan, while simultaneously preparing for a potential economic downturn, if you have no idea where your money is going. But the good news…there are plenty of free tools out there to help! Utah State University’s PowerPay, the Ohio Public Employees Retirement System’s 50-20-30 Rule Calculator, and the Economic Policy Institute’s Family Budget Calculator are great for analyzing your spending in different ways.
The purpose of this exercise is not only to see where your money is going, but also to free up dollars toward your other goal: building emergency savings for the short and medium-term future. We often think of using emergency savings for an immediate, one-and-done expense; however, a recession can be much more than that for some households. That is why many financial professionals recommend having 3, 6, or even 12 months’ worth of expenses saved, depending on your situation.
On the long-term side of things, having a diversified retirement portfolio, sticking to your asset allocation, and rebalancing when necessary are all key strategies for reducing recession stress. The U.S. Securities and Exchange Commission’s Investor.gov website provides a Beginner’s Guide to Asset Allocation, Diversification, and Rebalancing (PDF format). This free publication explains the value of these strategies and how they can be utilized to benefit your savings goals.
If all else fails, please know that Iowa State University Extension and Outreach is here to help!