Will we see an economic downturn anytime soon? Or are we running out of time for a 2023 recession?
A quick look at expert opinions and you’ll see there’s no consensus—thanks to conflicting economic signals.
Inflation is finally dropping, but the Federal Reserve still plans to raise the interest rate to achieve its 2% inflation target.
Major tech companies are announcing layoffs every day, but employers added an impressive 339,000 jobs in May 2023 (more jobs than the US economy added in any single month in 2019).
The odds for a 2023 recession might be 50/50, but you want to be prepared to survive—or even thrive—if it hits.
This article will show you:
- Top tips to prepare for a recession in 2023.
- How to survive the slowdown that’s already here.
- The best ways to take advantage of a slump in the economy.
Read more:
How to Prepare for a Recession: 9 Best Tips for 2023
Here’s a step-by-step breakdown of what we think is the best way to prepare for a slowdown—
1. Diversify your investment portfolio
You know what they say: Don’t put all your eggs in one basket. Cliché, but it’s true—especially with investing.
It’s essential to have a well-diversified investment portfolio. That means your investments shouldn’t be tied to a single stock or real estate property.
Make sure to spread your investments across multiple industries and businesses. This way, your entire portfolio remains unaffected even if one industry or business goes into turmoil.
Diversify your efforts by investing in mutual funds, index funds, real estate, and small businesses.
How to invest
We went through dozens of investment platforms and meticulously graded each of them based on eight categories: account minimum, trading costs, account fees, selection, ease of use, sign-on bonus, education, and customer service.
And here come our top picks—the 13 best investment apps:
Looking for more options? Read our detailed ranking of the best investment apps here.
Suggested further reading:
2. Investing in collectibles
Collectibles are alternative investments that are worth far more than their original sale price.
Add variety to your portfolio by investing in things like art, antiques, wine, stamps, books, coins, trading cards, and more.
How to invest
Start with the most stable categories: Fine wine has achieved 10.6% annualized returns over the past thirty years.
Begin your wine journey with Vinovest. The platform lets you own the wines in your portfolio outright, so you can buy, sell, and drink them whenever you want.
Investing in contemporary art has also produced 7.5% annualized returns since 1985.
Can’t afford to spend thousands of dollars on a painting? Start investing with a platform like Masterworks. It lets you buy and sell shares representing an investment in iconic artworks.
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3. Set up an emergency fund
According to a 2022 Consumer Financial Protection Bureau survey, 24% of consumers have no savings set aside for emergencies, while 39% have saved less than a month’s income.
This means most Americans are living paycheck to paycheck and would find themselves in trouble if they lost their jobs during the recession.
Weekly unemployment benefits of $398.87 in 2022 can barely cover an individual’s cost of living in the US, so an emergency fund is crucial.
And with a pending downturn, aim to get your contingency savings to cover at least one year of expenses.
Don’t get intimidated by that number, and start making small contributions today.
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4. Keep your emergency funds safe
Where you stockpile your funds can have a lot of impact on your financial situation in a recession.
Now may be a good time to park your funds in a high-yielding bank account.
Why? The Federal Reserve has been hiking interest rates aggressively to combat inflation. In response, American banks are raising savings yields at a rapid pace.
But remember, your emergency fund is your safety blanket—so don’t treat it like your investment fund. It’s alright not to make returns off of it.
Also, make sure that you aren’t sacrificing cash liquidity for yield—you want to have easy access to liquid funds during a downturn.
That’s why it’s best not to lock up your funds in a certificate of deposit (CD), and avoid accounts that put a cap on withdrawals.
How to invest
The national average for interest on savings accounts is 0.24% APY, but a high-yield savings account can fetch you upwards of 4% APY.
Wondering which bank to pick? We’ve researched and vetted banks across the US based on their APY rates, extra fees, account types, special features, and customer service.
Here are our top recommendations for the best high yield savings accounts:
Want more options? Read our full review on the best high yield savings accounts.
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Consider a Certificate of Deposit
Like the idea of high-yield earnings but want to lock in the interest?
Check out the top CD rates:
5. Reconsider expenses, especially pricey ones
Try budgeting to figure out the minimum you can spend in a month. Then start prioritizing your expenses by separating your wants from your needs.
Next, you can adapt your budget for a recession by cutting down on non-essential expenses (this includes entertainment, holidays, clothing, and so forth).
You also want to study patterns of past spending to see where you have overspent. This way, you’ll be more aware of where you can be more frugal in a downturn.
How to budget
Budgeting can be overwhelming, especially if you’ve never done it before.
No worries—we’re here to help.
We had a close look at over a dozen budgeting apps based on their ability to sync financial accounts, track bills, categorize expenses, and their device compatibility.
Here are our picks for the best budgeting apps:
Looking for more options? Read our detailed ranking of the best budgeting apps here.
Suggested further reading:
6. Zero in on debt repayment
Paying off your debt should arguably be your first step when preparing for a recession.
Why? When the recession hits, you’re more likely to experience a loss of income.
This directly impacts your ability to pay your bills. That’s why aiming to be debt-free before an economic downturn is essential.
Take stock of your financial situation and focus on:
- Credit card bills
- Rent or mortgage
- Car payments
- Medical debts
- Loan repayments
Not sure where to start?
Try the debt snowball method. This debt-reduction strategy focuses on paying off debt from smallest to largest. You keep gaining momentum as you knock out each remaining balance.
Try our free debt snowball calculator to get started today.
Want more hands-on instruction? Our How to Get Out of Debt Fast course may be the answer you’re looking for.
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7. Consider upskilling
You may face a layoff during rainy days, which is why it’s vital to have a backup plan.
If you’re thinking about switching careers, consider picking a recession-proof job or industry.
While no company or industry is 100% safe from an economic crisis, some jobs are more secure than others.
Recession-proof industries include:
- Consumer staples
- Medicine
- Grocery stores
- Discount retailers
Recession-proof jobs include:
- Healthcare professionals
- Auditors, accountants
- Insurance providers
- Underwriters
- Law enforcers
- Judiciary workers
But how should you go about switching careers? The answer may be as simple as upskilling.
Expanding your skill set can help you qualify for various roles across industries.
Plus, the World Economic Forum estimates that, by 2025, 97 million new jobs may emerge that are more adapted to the new division of labor between humans, machines, and algorithms.
After all, companies increasingly depend on digital skills and tools. This is why, recession or not, upskilling is the need of the hour.
How to upskill
Check out MasterClass today to learn new skills from the best in the business.
MasterClass is a streaming platform that allows anyone to watch or listen to hundreds of video lessons taught by more than 180 of the world’s best.
MasterClass delivers a world-class online learning experience in business, leadership, photography, cooking, writing, acting, music, sports, and other areas.
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8. Recession-proof your 401K
One thing’s for sure—when recession hits, the value of your 401K accounts will start melting away.
And, like clockwork, 401K participants will have a knee-jerk reaction to the situation and start selling.
Rookie mistake.
You’re a long-term investor in your retirement plan unless you’re less than five years from retiring. Short-term market fluctuations shouldn’t shake you up.
Instead of selling out, continue making your 401K contributions regularly. This will help you yield compounding benefits in the long haul.
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9. Capitalize on the gig economy
Another successful recession tip would be to create multiple sources of income. You can keep your current job and work on a side gig for extra cash.
Have additional skills you aren’t using in your profession? Your side hustle can be anything from teaching to selling products online.
If you’re interested in side hustling, check out portals like Upwork, Fiverr, and LinkedIn to discover job opportunities.
Suggested further reading:
What if We Said You Could Potentially Become Wealthy With a Recession?
You heard that right. It’s possible to benefit from a recession.
Wondering how?
Remember that a slowdown is usually followed by a recovery, which will see a strong rebound across industries, especially in the stock markets.
Here’s how you can take advantage of this scenario—
1. Invest in defensive stocks
A defensive stock is one that provides stable earnings and consistent dividends, regardless of the state of the overall economy.
Defensive sectors include utilities, healthcare, and consumer staples.
But why are they so stable?
That’s because even during a recession, people must buy food, hygiene products, medical supplies, and access healthcare.
These essentials are the last items to be cut from a family budget.
Other retailers selling non-essentials may experience a drop in revenue. However, businesses and retail outlets selling food products and other necessities rarely see a profit decline.
Well-established companies, such as Walmart Inc (WMT), Procter & Gamble Co (PG), or Newell Brands Inc. are considered low-risk, defensive stocks.
How to invest
Navigating the stock trading world is challenging.
But don’t worry—we’re making things easy for you. We compared plenty of tools based on their trading options, educational features, personalization, and $0 rates.
Here are our picks for the best stock apps:
Looking for more options? Read our detailed ranking of the best stock apps here.
Suggested further reading:
2. Invest in a business
If you have a fair amount of cash, consider buying a struggling business for its assets’ value.
In a scenario where you’re able to turn things around for that business, you can eventually make money.
You can still sell the assets if the business fails and recoup your investment.
How to invest
Work with a business mentor or a local SCORE group.
SCORE is a non-profit organization with a vast network of volunteer business mentors and specialists to help you with your business plan.
Also, leverage the US Small Business Administration’s Small Business Development Centers, which offer free business consulting and assistance.
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3. Invest in residential and commercial real estate
The American economist Paul Krugman has recently suggested that the US housing market may slow down even more.
He predicts that the Fed’s high interest rates will mean less demand for new homes. This would hamper construction and also further affect consumer spending.
The residential real estate market will likely recover after the downturn, making it a worthy investment opportunity.
On the other hand, commercial real estate may soon struggle—but the prices of warehouses, office buildings, and retail stores will likely bounce back after the recession.
According to the National Council of Real Estate Fiduciaries (NCREIF), the average annual return for commercial real estate assets has been 10.3% annually over the last 25 years. So we’d say this is a pretty stable investment option.
How to invest
Start your real estate investment journey with a reputed crowdfunding platform like Crowdstreet or Yieldstreet.
If you’re interested in commercial real estate investing, you should check out CrowdStreet.
With $4 billion invested, over 750 deals, and a whopping 19.2% return rate, the platform certainly stands out from the crowd.
Are you already an accredited investor? Consider investing in Yieldstreet.
The platform has over 420,000 members and growing, with a hefty total invested amount of $3.5 billion. The company also gives you over 400 private market opportunities.
Read more:
Suggested further reading:
Bonus: Dollar-cost-average your investment
You can take advantage of a declining market and apply the dollar-cost averaging method of investing. (If you’re making monthly contributions to a qualified retirement plan, you already use this technique.)
When the economy slumps, you can take advantage by boosting your contributions or starting dollar-cost-averaging in an investment account.
What this means in practice is that you’re slowly reducing your overall cost basis in the share price. So when the stock prices rebound, your cost basis stays lower than the price.
Let’s say you invest $1,000 a month in a mutual fund selling for $50, and you can buy 20 shares. If the share price drops to $40, you can buy 25 shares with the same contribution. Your account will now have 25 shares with an average cost basis of $25.
However, this will work best for the long term for investors who don’t have to worry about how their investments are performing.
The Basics: What Is a Recession?
A recession is a prolonged period of economic downturn.
The National Bureau of Economic Research’s (NBER) website describes a recession as a period between a peak of economic activity and its subsequent lowest point.
During this time, a nation experiences a negative GDP, reduced trade and industrial activity, increased unemployment, and high inflation rates.
For instance, the US experienced a significant recession in 2008 due to its housing market’s sudden collapse.
More recently, the COVID-19 pandemic led to the US witnessing a brief recession in the early months of 2020.
How long do recessions last?
Data suggests that, since 1950, recessions in the US have lasted between two and eighteen months, with the average spanning about ten months.
How long it lasts is a crucial difference between a recession and a depression. The latter is a more severe economic downturn that can last up to several years.
What Happens in a Recession?
Stalled or nonexistent economic growth is a pivotal sign of a downturn.
But what does that translate to on an individual level?
On a personal level, a recession can mean that:
- Your income becomes stagnant or drops. This is because employers are either slashing hours or reducing their workforce.
- You have lesser spending power because of reduced pay. This can hugely influence retail sales.
- There’s also a significant spike in the price of goods and services, further hindering your purchasing power.
How to Survive a Recession That’s Already Here?
If you find yourself in the midst of an economic crisis, don’t panic.
You can weather a recession by focusing on the following:
- Stay alert and pay attention to economic conditions that can have impact on your income.
- Downsize to frugal living immediately. This includes tips we discussed earlier, including cutting unnecessary expenses and stocking up on staples.
- Save everything you can. Continue to build your emergency savings fund.
- Take minimal risks when dealing with investments. Don’t make impulsive decisions that can cost you in the long run.
- Continue making minimum payments on existing debts. This will let you keep liquid cash as a lifeboat for stormy waters ahead.
Key Takeaways
- A recession is a period between a peak of economic activity and its lowest point.
- Building an emergency fund that covers at least a year’s worth of expenses is extremely important.
- Use the debt snowball method or the How to Get Out of Debt course to pay back as much debt as possible before the recession.
- Apply the dollar-cost-averaging technique to take advantage of a declining economy.
FAQ
1. What happens during a recession?
A recession is when the economy takes a serious hit and things start going downhill.
It’s like a big slump where the gross domestic product (GDP), income levels, employment, and trade all go down for a while, usually a few months or more.
People and businesses start tightening their belts and spending less, which means there’s less demand for stuff like goods and services. And when demand drops, industries and production levels also go down, leading to less profit, job cuts, higher unemployment rates, and a long-lasting economic downturn. To make matters worse, people start spending less and struggling to pay off their debts.
In response, the government might step in with economic policies to lower interest rates and increase government spending, among others.
2. How long do recessions last?
Data suggests that since 1950 recessions in the US have lasted between two and eighteen months, with the average spanning about ten months.
This average timeline is a crucial difference between a recession and a depression. Unlike a recession, a depression is a more severe economic downturn that lasts for several years.
3. How to prepare for a recession food?
Preparing for a recession food-wise involves taking some steps to protect yourself from unexpected job losses, shrinking budgets, and rising inflation:
- Create a budget: Knowing exactly how much money you have coming in, what you need to spend on necessities, and how much you can save will help you prepare financially for any eventuality.
- Stock up on non-perishable foods: Non-perishable foods such as canned foods, pasta, rice, and dried beans are shelf-stable and can last for several months. Stocking up on non-perishable food items can reduce the amount you spend on groceries, and it can also help you manage your food budget more effectively.
- Grow your food: Cultivating your own produce can be a great way to prepare for a recession. You don’t need a lot of space to grow some veggies, and it can be an excellent source of organic and healthy nutrients.
- Make a meal plan: Planning what you eat in advance can help you reduce food waste, save money on groceries, and ensure you have enough food on hand to last several weeks.
- Avoid eating out: Dining out can be a fun and convenient way to enjoy a meal, but it can also be expensive. Avoiding going out to eat—and cooking at home instead—can help you save money and reduce your expenses.
4. How to prepare for a recession at home?
Preparing for a recession at home involves taking steps to reduce expenses, increase savings, and improve financial security:
- Build an emergency fund: It’s recommended to save at least three to six months’ worth of expenses in a savings account, which can help you cover unexpected payments or a job loss.
- Reduce expenses: Evaluate your household spending and look for ways to cut back on non-essentials. This can include things like reducing your cable package, cutting back on eating out or entertainment expenses.
- Reduce your debt: Repaying your debt can help you prepare for a recession by reducing monthly expenses and freeing up more money towards savings. Look for ways to pay down credit card bills or loans.
- Improve energy efficiency: Get more frugal with your energy use by performing home improvements such as adding energy-efficient windows or insulation, can help bring down utility expenses.
- Be prepared for power outages: Gear up by stocking on emergency supplies like flashlights, candles, and non-perishable food items. This way, you’ll reduce the impact of a power outage or a service disruption.
5. How to prepare for a recession if you are retired?
Preparing for a recession when you are retired includes taking steps to protect yourself from potential investment losses, budget cuts, and inflation:
- Re-evaluate your investment strategy: Review your investment portfolio, and consult with a financial advisor to make sure your current investments align with your risk tolerance and retirement goals.
- Diversify your investments: This can help reduce the risk of potential loss. Consider spreading your investments across different asset classes to balance the potential risks and gains.
- Protect your retirement savings: Consider investing some of your retirement funds in conservative investments like bonds, CDs, or money market accounts to protect your investment’s value during economic downturns. Limiting withdrawals from your accounts and maintaining a cash reserve can also help you protect your principal investments.
- Create a budget: Re-evaluating your expenses and creating a budget can help you adjust to any changes to your income or savings. Find small areas where you can reduce spending to increase savings during tough economic times.
- Look into side hustles: Supplementing your retirement income with part-time work or in jobs with flexible schedules can help you cover unexpected expenses, reduce the stress of income-related concerns, and increase your income.
- Check for social programs: Stay on the lookout for social programs, discounts, and healthcare available to seniors to help cut down on expenses without sacrificing quality of life.
6. How to survive a recession that’s already here?
You can weather a recession by focusing on the following aspects:
- Stay alert and pay attention to economic conditions that could impact your income.
- Budget and downsize to frugal living immediately. This includes cutting down on unnecessary expenses, stocking up on staples, etc.
- Save anything and everything you can. Continuing to build on your emergency savings is essential.
- Take minimal risks when dealing with investments. Don’t make impulsive decisions that can cost you in the long run.
- Continue making minimum payments on existing debts. This allows you to preserve liquid cash for upcoming difficult times.
7. How to benefit from a recession?
While a recession can be a challenging time for many, there are also opportunities to benefit from it:
- Invest: Recessions can create opportunities to buy stocks, real estate, and other assets at discounted prices. If you have the means to invest, consider taking advantage of these opportunities to grow your wealth over the long term.
- Start a business: Recessions can also create opportunities for entrepreneurs to start a business. Look for gaps in the market and consider starting a business that addresses a need that isn’t currently being met.
- Re-negotiate contracts: During a recession, businesses may be willing to re-negotiate contracts to reduce costs. If you have contracts with suppliers or service providers, consider renegotiating the terms to reduce your expenses.
- Learn new skills: Use the downtime during a recession to learn new skills or to further your education. This can help you become more competitive in the job market and increase your earning potential.
- Consolidate debt: If you have debt, a recession can be a good time to consolidate it at a lower interest rate. This can help you reduce your monthly payments and save money on interest over time.
