What could a recession mean to you | Smart Change: Personal Finance

Will there be a file Recession? And if so, how bad is that for my finances?

These questions loom large for Americans after the Federal Reserve again high rates To fight high inflationthe latest GDP report showed that economy slowed for the second consecutive quarter. But at the same time, the function and Living Markets are still going strong, although a bit chilled out.

This created a lot of mixed signals. The White House and other government leaders say the economy remains healthy. But many economists say there is a good chance of a recession in the coming months – if the recession hasn’t already begun.

In the event of a recession, here’s how it affects your finances and steps you can take to protect yourself.

Preparing to lay off workers

Over the past two years, labor shortages caused by the pandemic — along with structural shortages in which fewer young workers are replacing retired workers — have given much bargaining power to employees.

As a result, unemployment and job cuts have been at or near historic lows.

“We’ve had very low layoffs and labor shortages,” said Andrew Challenger, senior vice president of offshore placement firm Challenger Gray & Christmas. “Companies have been reticent to part with anyone.”

What could stagnation mean to you

People line up for a job fair in September 2021, in Englewood, California. The Federal Reserve raised interest rates again to combat high inflation.

Patrick T. Fallon/AFP/Getty Images

That’s starting to change, Challenger said. Workers have been laid off in some industries, such as mortgage banking, fintech, construction and automobiles.

If a recession occurs, layoffs are likely to be higher and more widespread. Employers may back off hiring.

But not everyone will be at the same risk. If the demand for your role is high—whether you’re a front-line employee, an IT engineer or a high-level executive—you’re more likely to get a job, keep a job and even see Lifts And rewards along the way.

Buying and selling a house will be different

The housing market is unlikely to be as severely affected by the recession as it was, for example, the 2007-2009 Great Recession, which was caused by the housing and credit crisis.

That doesn’t mean the market won’t be affected at all, said Mike Fratantoni, chief economist at the Mortgage Bankers Association, especially if layoffs rise.

But after two years of double-digit price growth and wild bidding wars, home sales are slowly beginning to return to a more normal pace thanks to Mortgage rates risewhich makes the cost of homes lower for buyers.

“We expect the unemployment rate to rise by a small to moderate amount, along with affordability challenges, leading to lower demand,” Fratantoni said. [for homes]. “

This means that home sellers will not be able to price their properties 15% higher than what their neighbors’ home just sold. They should be prepared to accept emergency buyer requests at home shows. They should expect that their home will take longer to sell.

Oh, and appearances will matter again.

“Arrange a little to get it ready for listing… We’ll be back to a place where it matters if your house is in good shape,” said Fratantoni.

For homebuyers, relative to the overwhelming frustrations of the past few years, “it’s going to be a much better experience,” he noted. While it will become increasingly expensive to obtain a mortgage as prices rise, buyers will face less competition for each property. When it comes to deciding to make an offer, Fratantoni said, “they might have two days to think about it instead of hours.”

Ways to protect yourself now

While you can’t control the economic cycle, you can take some steps to mitigate the potentially negative effects of a recession on you.

Secure your emergency cash: For single-income families, California certified financial planner Jimmy Lima of Woodson Wealth Management recommends having 12 months of living expenses available in the event you lose your job.

For dual-income families, he recommends six months, because both workers are unlikely to be laid off.

If you don’t have much now, cut out some of the nonessential expenses and add the money you would have spent on the cat.

If you own your own home, Lima said, consider getting a home equity line of credit before prices go up again, because it can help supplement your emergency reserves as long as you can resist using them for anything else.

Stress test your financial plan: If there is a recession, you may come out of it unscathed. But you can’t assume that in advance. What you can do, Lima said, is see what resources you have to deal with the worst-case scenario, like job loss or illness.

He said, “If you don’t have a job for a year, what would that look like? What are your contingency plans?…Now is the time to think ‘What do I do?'” “

Improve your odds of staying at work: You may not be the highly sought-after cybersecurity professional that every Fortune 500 company wants. But if you make yourself indispensable in your current job—perhaps by taking on additional assignments—you may reduce your chances of being laid off if it comes to that.

Or you might consider a new role that is less likely to lay off workers when the economy contracts. “If your job is in an industry or profession where revenue depends on buyers with the discretion to defer their purchases, start looking for a job immediately for jobs where this is not the case,” he said, Lakshman AshuthanCo-founder of the Economic Cycle Research Institute, who believes there is a real risk that the recession could be longer and deeper than most people expect.

Keep a close eye on cash flow if you own a small business: Ben Johnston, chief operating officer of small business lending firm Kapitus, said small business owners should keep spending as flexible as possible.

The idea is to protect yourself in case the demand drops in the coming months.

“This could mean [negotiating] Payment terms are more flexible with vendors.” Or that could mean avoiding a long-term commitment to new expenses, Johnston said. So instead of buying new equipment or hiring a full-time employee to take advantage of a new business opportunity today, consider renting the equipment or bringing in someone as a contractor.

“If you’re not sure how strong the economy will be in a few months…look at temporary forms of expansion rather than permanent forms,” ​​Johnston said.