ABA Foundation’s Recession Survival Guide

How Can I Prepare for a Recession?

Given uncertainties about the nation’s economic outlook, feeling anxious about a potential recession is normal. In fact, according to a 2022 Empower and Personal Capital survey, 74% of Americans are concerned about a recession. 

What Is an Economic Recession?

The National Bureau of Economic Research defines a recession as a period of “significant decline in economic activity that is spread across the economy.” Each recession could last a few months or a few years, but it typically spans about 17 months on average. A recession is usually characterized by job losses, increased rates of unemployment, reduced household expenditures, and poor or negative growth in the nation’s gross domestic product (GDP).

There is some disagreement about the current economic climate and whether the U.S. is in a recession. Either way, it’s a good idea to have a plan to weather an economic downturn. You’ll want to focus on three key areas: employment, expenses and emergency savings. 

Update Your Resumé

When a recession hits, the job market certainly will change. Companies might lay off workers to reduce costs, so you’ll want to prepare ahead of time and tailor your resumé for your next potential career move. Be sure to:

• Include accomplishments you are proud of, any additional responsibilities you’ve taken on, special recognition or awards you’ve received on the job, and skills you’ve gained;
• Highlight data points, such as increased revenue or reduced costs, and other items that instantly will impress the reader and demonstrate your contributions;
• Cross-reference your resumé with job descriptions that you might be interested in pursuing;
• Update your references so you are not frantically reaching out to people or searching for their contact information at the last minute.

Also, consider investing in your professional development by taking continuing education or certification courses. Some organizations offer continuing education course stipends, mentoring programs or other staff development resources. Do research to learn what’s available and what skills companies seek in potential candidates within your field.

Revisit Your Budget

Review your monthly budget to determine how you can reduce costs and increase your savings. First, take an inventory of your household bills and determine where you can cut costs. For assistance creating a budget, check out the ABA Foundation’s Manage Your Money webpage.

Some ways to cut expenses include:

• Reducing how much you dine out;
• Evaluating how many streaming services you need and actually use;
• Reconsidering your paid subscriptions to publications;
• Using coupons when shopping;
• Contrasting insurance quotes for your assets (like vehicles and homes);
• Lowering your monthly utility bills.

It is also a good time to streamline your housing costs to find ways to keep more of your money and increase what you can put into a savings account. If you are a homeowner, consider contacting your lender to explore refinancing your mortgage once the Federal Reserve begins to ease rates. Another feasible option could be to rent a room in your house to bring in additional income. 

If you have trouble paying your mortgage:

• Reach out to the U.S. Department of Housing and Urban Development to learn about support from certified housing counselors;
• Visit Homeowner-Help.org, a free online tool that connects homeowners with resources and assistance when facing financial hardships.

If you are a renter, consider finding a roommate to share expenses with, or move in with family members or friends until the economy finds its footing. For help with rent, visit the HUD rental assistance page to access support options.

Build Your Emergency Savings

Most financial advisors recommend having enough savings to cover three to six months of living expenses. But you're not alone if you don't have that much cash in the bank yet. According to a January 2022 study by Bankrate, just 44% of Americans can pay an unexpected $1,000 expense with savings. Instead, 35% would need to borrow the funds. So, it’s important to set up emergency savings sooner rather than later.

Some strategies to help fund your emergency savings account include:

• Chunking your monthly emergency savings goal. Saving can be less daunting by breaking down your goal into smaller increments so it’s more attainable each month;
• Paying yourself first. You are less likely to save if you wait to see your income after paying expenses. If you have direct deposit at work, you can have your monthly goal amount deposited directly into your emergency savings account each pay period. If you receive a raise, increase the amount of money deposited into your savings account. Even an additional 1% can add up over time;
• Reducing your debt. Even if you struggle to pay down credit card balances, you can still have emergency savings. Consider paying more than the minimum due and pay off debts with higher interest rates first.

If you are having trouble paying your bills, or are worried about future payments, visit ABA’s Crisis Help landing page to understand your options.

Remember: A recession is a normal — and temporary — part of the economic cycle. The best way to deal with a recession is to prepare for one.