Should Americans prepare for the worst?
- Goldman Sachs recently lowered its forecast for economic growth in the United States in 2022.
- He now says there is a 35% chance of an economic recession next year.
Although inflation is making life difficult for many people right now, the US economy itself is in a pretty solid position. Unemployment is at its lowest level since the start of the pandemic and the labor market is full of jobs.
But that doesn’t mean it will be smooth sailing from now on. In fact, if you ask Goldman Sachs, our economic picture is not so rosy.
The investment banking giant now says it anticipates little to no economic growth in the first three months of the year. Worse still, it says there is a 35% chance of an economic recession over the next 12 months due to a host of factors, including the ongoing conflict overseas.
Without a crystal ball, it’s hard to predict if a recession will actually hit. But it’s certainly not a bad idea to prepare for it. Here’s how.
1. Boost your emergency fund
Job loss can be rampant during a recession. That’s why it’s important to build up a solid emergency fund, with enough money to cover three to six months of living expenses. If your savings account balance isn’t as high as it should be, it might be time to start putting more money into it.
Obviously, making your savings grow is not easy at a time when inflation is galloping and everything is more expensive. But if you’re able to cut back on some non-essential expenses, you can bolster your emergency fund when you need it.
2. Pay off high-interest debt
Being in debt can be bad news even at the best of times. But when economic conditions deteriorate, having debt over your head can be even more stressful. If you have a balance on your credit cards, try to reduce it now, even if you need to reduce your spending to free up some cash to make this possible. That way, if things get worse and you find yourself out of a job, you might have one less obligation to worry about.
3. Align a Secondary Revenue Stream
Unemployment levels tend to rise during a recession. Often layoffs can catch workers off guard. That’s why it’s a good idea to have an income stream outside of your regular salary. This way, if you lose your job, you will have a way to generate income until you can find a replacement position.
One option for getting a relief income stream is to get yourself a side business. Right now, the gig economy is still booming, so you might want to explore different options while you can.
Another route you can take is to rent out part of your home, if you own it. A finished basement or garage could serve as a tenant’s home, and the rent the tenant pays could not only help boost your savings and pay off your debts, but also bail you out in the event of a layoff.
To be clear, we don’t know if we will enter recession territory in the next year. But at some point, it’s fair to assume that economic conditions will deteriorate. It never hurts to be as prepared as possible – just in case.
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