Recession Watch: Preparing Your Finances for a Potential Economic Downturn

Talk about a disturbing thought.

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Key points

• Recent data reveals that most Americans expect a near-term economic downturn.
• It's important to shore up your finances ahead of a recession.

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The COVID-19 pandemic dealt the U.S. economy a massive blow in the spring of 2020. But thankfully, things have improved tremendously over the past two years. Unemployment is down on a national level and job availability is strong. But these conditions may not last forever.

In a recent CNBC + Acorns Invest in You survey, a good 81% of U.S. adults said they think the U.S. economy will fall victim to a recession in 2022. That sentiment was expressed in late March, at a time when stocks had finally begun to work their way out of a slump. And whether it's spot-on or not, it's clear the public is concerned about an economic slide.

What defines a recession?

There are different metrics that can be used to define a recession. In a nutshell, though, a recession is a period of significant decline in economic activity. 

It's worth noting that recessions don't always lead to stock market crashes or housing market crashes. They can, however, lead to widespread job loss. And that's something it's important to prepare for. 

How to gear up for a recession

There are a few key steps you can take to gear up for a recession. For one thing, make sure you have a solid emergency fund. At a minimum, you should have enough cash in your savings account to cover three months of essential bills. For even more protection, aim for up to six months' worth of expenses in the bank. That way, if you lose your job, you'll have a strong cushion.

It also pays to try shedding high-interest debt, like credit card balances, if your earnings allow for it. You may need to cut back on spending to pay down your debt, but getting rid of it before things take a turn for the worse could spare you a world of stress. 

Finally, see about getting a side hustle. That may, at first glance, seem like just a trendy thing to do. But actually, a second job could make it possible to boost your savings, whittle down your credit card debt, and get more peace of mind. After all, that side gig could potentially become your full-time gig in the event of job loss.

Of course, if you work full-time, you may not be able to sink that many hours into a side hustle in the near term. And that's okay. Even if you start out by carving out a few hours a week, you can use that gig to earn a little extra income and boost those hours if the need to do so arises.

How worried should Americans be?

Because the economy is so solid right now, many economists aren't particularly concerned about a recession hitting this year. But that doesn't mean it's not possible. 

Rather than lose sleep worrying about a recession, a good bet is to take steps to prepare your own finances for one. That way, you'll be in a strong position to weather a potential storm -- whether one comes or not.