May 25, 2023
Any talks of a potential recession can be nerve-racking, spurring worries about how it could impact our wallets and financial goals. While it can be hard to predict exactly what an economic downturn may look like or how long it could last, there are a few steps you could take to help you feel more confident about your savings and your ability to weather a recession.
Keeping tabs on your spending is always important, but it may be especially crucial during a recession. During economic downturns, unemployment tends to be higher and the market can experience some swings, so it’s a good idea to look after the money you have coming in now, in case your financial situation is impacted by these events.
In times of economic uncertainty, it can be a good idea to stay on top of where your money is going and streamline your budget if necessary.
Identify which expenses are essential and which ones could be eliminated or cut back. You may even be able to negotiate the cost of certain subscriptions and services, like cell phone plans or fitness memberships.
When it comes to emergency funds, aim to have at least three to six months’ worth of living expenses set aside. In times of economic uncertainty, it may be worth putting even more aside if you’re in a position to do so.
Charting your expenses is admittedly not the most exciting task, and thankfully there are many online tools available that can automate tracking your spending, set goals for certain categories (like restaurants or travel) and even alert you when you’ve gone over. Some can also help you build, manage and track a budget.
One way you could earn more on your savings without having to change your spending (consider it a low-hanging fruit) is by moving your cash into a high-yield savings account.
High-yield savings accounts can be a great place to store money for both short-term goals and your emergency fund because you can easily withdraw from them when needed.
Another savings tool that could get you more bang for your buck is a certificate of deposit (CD). These accounts typically pay higher rates than traditional savings accounts, with some offering fixed rates for a specific time frame, usually from six months to several years.
That means that even if rates on savings accounts drop, the rate on your CD (depending on the terms of your CD) will likely be locked in.
During a downturn, it may seem like a good time to pull back on your retirement contributions and dedicate that money elsewhere. But when saving for retirement, it’s important to stay consistent and take the long view despite short-term market disruptions. Pausing your contributions could impact your ability to reach your retirement goals.
Keep in mind that ups and downs in the markets are normal, but we understand that staying level-headed during times of volatility may be easier said than done. This is why you may want to reach out to your financial advisor to review your retirement plan together and go over any concerns you may have.
If you received a tax refund this year or will be getting one soon, consider putting that towards your savings. Depending on your goals, you could stash it in a high-yield savings account to give your emergency fund a boost, open a CD to sock away money for a long-term goal, or make a contribution to your retirement account(s).
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs® but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.