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Published: Dec 14, 2022 6 min read
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Rangely García for Money

This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.


Growing up, my family was big on Scouting. As a Girl Scout, I recited the "Promise," hot-glued SWAPs and collected badges with the best of them. But because my brothers were in Boy Scouts, I got that experience, too. Like building Pinewood Derby cars and attending countless courts of honor.

Girl Scouts and Boy Scouts are different in a lot of ways — for one, girls don’t generally make flamethrowers with Axe body spray on camping trips — but they do share a mission. Both branches emphasize preparedness: the idea that I should equip myself so as to be ready to deal with whatever happens next.

Now that I’m an adult who buys her Thin Mints instead of having to hawk them in front of a grocery store, I’m trying to apply that “be prepared” motto to my finances. I’ve been reading a lot of concerning headlines lately about how a recession is either looming or already here, and it’s making me nervous.

How can I prepare for a recession?

First off, let’s be clear: The U.S. is not officially in a recession right now. Though the commonly accepted definition of a recession involves two consecutive quarters of negative gross domestic product growth — which happened earlier this year — there’s a body of experts at the National Bureau of Economic Research that declares when the country is in a recession.

As of now, that group has yet to formally do that.

But folks are talking about it nonetheless.

“It’s unavoidable news,” Monique White, head of community at Self Financial, tells me via email. “When you turn on your television, you see it. Or even scrolling through social media apps like Twitter or TikTok, it’s the main topic of concern.”

All that chatter can lead to anxiety. She says that Americans living paycheck to paycheck, job-hunting or eyeing a big purchase may particularly fear an economic contraction because it can jeopardize their plans.

“People don't like the word ‘recession’ — especially some people that experienced [the downturn in] 2008,” says Leo Chubinishvili, a certified financial planner with Access Wealth in New Jersey. Making matters worse is the fact that “we’re dealing with high inflation, which puts a lot of stress on individuals, families and investors,” he adds.

Preparation is key. Chubinishvili says I should imagine the “worst-case scenario” and plan around it. For instance, recessions are often accompanied by a spike in unemployment. If I lose my job, how will I pay my bills?

To mitigate this, he suggests I set up an emergency fund with three to six months’ worth of expenses in cash set aside (a high-yield savings account is a good spot to park it). That way I can still make ends meet if I need to find a new job.

Next, I should create a budget. White says this can be as easy as looking at my monthly bank statement and analyzing my spending habits. She recommends identifying which expenses I can cut down so I can increase my cash flow. Are there unused subscriptions I can cancel? Are there habits I can change?

While I’m taking stock of my finances, I should keep an eye on my debt. It’s easy in a recession to resort to using credit cards to cover daily expenses, but I don’t want to dig myself into a hole.

“With interest rates rising, and minimum monthly payments going up, missed credit card payments can do far more damage to your credit score than many assume,” White adds.

If I have existing debt, I should prioritize paying off obligations with high interest rates (like credit cards). If I’ve been a good customer for a long time, she says, I might even be able to ask my lender if I can get a lower interest rate.

It’s also important to avoid taking unnecessary risks, Chubinishvili says. Now is not the time to splurge on a fancy new car or start day trading. Investing is a smart move, as stocks are essentially on sale right now, but I should remember my time horizon and try my best not to get spooked by

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