A new survey from The Balance reveals a stunning 44% are not prepared for a recession. Another 30% consider themselves only somewhat prepared.
How do you compare?
Recession readiness can vary from person to person. Some lucky people have managed to take proactive steps to build an emergency fund and diversify their income, making them as ready as anyone can be for an economic slowdown.
More vulnerable people aren’t ready at all due to limited savings.
The Importance of Savings
There’s a chance that your industry or sector isn’t impacted by a recession, and you keep your job. In that case, you might not notice a big difference from one year to the next, even if a recession starts in 2023 as predicted.
But let’s say you are unlucky enough to get laid off. You won’t be bringing in any money until you can find another job, and during a recession, that process might take a while.
Your savings can float you until you manage to secure another job.
What to Do if You Don’t Have Savings?
You don’t have to be in the shadow of a recession to appreciate savings. A well-stocked emergency fund can help you handle any unexpected financial event in your life — from job loss to a medical emergency and urgent household repairs.
When it comes to normal economic times, people may rely on short-term personal loans to shore up their savings. You can research a financial institution like MoneyKey to learn about installment loans or lines of credit that may be available to help you with unexpected emergency expenses.
If you’re approved, these convenient online loans can give your budget a momentary boost until you get back on your feet.
The lending experts at MoneyKey cannot recommend these short-term personal loans for help in a recession. They’re for singular, unexpected expenses, like a surprising leak in your car’s fuel line.
A recession, on the other hand, can last as long as 18 months and can affect your ability to make money. Borrowing money without knowing how long you’ll go out without making money can put you into a tight financial spot.
Reasons Why You Haven’t Saved for a Recession
People don’t save for a variety of reasons, but here are two of the biggest ones below.
1. You Owe a Lot of Money
A single loan can help bridge the gaps in your finances so that you can take care of unexpected expenses. If you budget carefully, you can usually pay back what you owe without too much stress.
Of course, repaying debt gets harder the more you have. Few people have just one loan they have to pay every month. They usually have several, including personal loans, credit cards, lines of credit, and auto financing.
Add up all these accounts, and they might take up a significant portion of your monthly paycheck. According to Experian data, the average person owes more than $100,000. With that sort of drain on your earnings, you may find it hard to save money before a recession even begins.
2. The Rising Cost of Living
The steep rise in your cost of living could be another reason why you aren’t saving as you should. At one point last year, the inflation rate hit nearly 9% — the highest it’s been in 40 years. Even now that the current rate has cooled off, it’s twice that of the central bank’s 2% benchmark.
In other words, you’re paying more for all your usual essentials without getting more. With more of your income covering the essentials, you might not have leftovers to save. According to The Balance’s survey, 17% of people don’t even have what they need to cover basic expenses.
Economists have been ringing alarm bells about a possible recession for more than a year now. Despite this solid forewarning, many people aren’t ready for a steep economic downturn. The rising cost of living and debt levels put pressure on budgets, making it harder to save for a recession.