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How should you prepare for a recession?

More banks are predicting an economic recession in 2023.
Economy-GDP
Posted at 2:00 AM, Jan 05, 2023
and last updated 2023-01-05 07:54:35-05

WASHINGTON — New analysis shows Americans are spending more of their savings to offset inflation.

This comes as the Wall Street Journal reports around two-thirds of major banks in our country predict a recession will happen sometime this year.

So how should you prepare?

NEW PREDICTIONS

To be clear, no one really knows what is going to happen with the economy this year. That's because many economists didn't get it right last year.

Remember when many economists thought inflation would be temporary in 2021? Well, they were wrong.

Predicting the economy has always been a bit of a guessing game. However, that's not stopping economists from guessing in 2023.

Major financial institutions like Bank of America and Barclays have indicated that a recession will happen sometime this year.

REASONS

One reason is the Federal Reserve and the decision to not just raise interest rates to fight inflation, but raise them at the fastest clip in history.

Generally speaking, interest rate hikes can reduce demand for services and goods, which can mean less business revenue.

That can lead to layoffs or hiring freezes which, in turn, can create a recession.

But, interest rates are only one statistic. Take, for instance, a piggy bank.

During the pandemic, Americans were putting a lot of their extra income into savings.

However, in the last several months, more Americans have broken into their piggy banks to get by.

In fact, new analysis from JPMorgan Chase & Co shows that savings went from $1.9 trillion early last year, to just $900 billion today.

That means Americans spent $1 trillion from their savings last year.

Declining savings is perceived by many economists as a red flag since in order to stop draining the account, Americans typically just stop spending.

PREPARE NOW

Between savings going down and interest rates going up, there are certainly signs that a recession is possible.

So what should you expect to happen if a recession occurs? How should you prepare?

First off, don't expect much help from Washington. In recent times, Congress has passed stimulus packages to help the economy during recessions.

They did that at the start of the pandemic, which was technically a recession.

They did that in 2008 during the Great Recession.

While it's possible that would happen again, the reality is that many conservatives in the House of Representatives campaigned on less spending.

A large stimulus package is not at the top of any conservative's agenda in the House right now.

How should you prepare your family for a possible recession? Financial experts suggest you bring back the savings.

Having savings can help during hard times.

Another tip is to watch your credit cards.

If something has high interest, take steps to get rid of it, or at the very least, reduce spending on it.