Issue #168: Buckle up and hunker down for a recession

plus MrBeast’s budget + recycling raccoons
͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ 
Money
November 9, 2022 • Issue #168
Dollar Scholar
Hi y’all —

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.

Hence today’s question. 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.

spending all of my money to stop the recession not because I’m bad at saving money
 

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 boost my income, 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 paying regularly 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 market volatility.

“You have to stay invested,” he says. “If you sell now, you will lock in your losses.”

White adds that I should invest in myself, as well. If I’m worried about my career, why not learn a new skill or get a new certification that will make my resume stand out?

THE BOTTOM LINE
(but please don't tell me you scrolled past all of my hard work)
We’re not in a recession yet, but it can’t hurt for me to get my proverbial ducks in a row now. I should bulk up my emergency fund, create a budget, curb my spending, watch my debt and invest — all while keeping a cool head.

"Preparing yourself for a potentially more expensive world is a good thing to do," says Jason Wilk, CEO of mobile banking app Dave.

Always be prepared
VIA GIPHY

 

RECEIPT OF THE WEEK
check out this wild celebrity purchase
MrBeast
 
VIA INSTAGRAM
YouTuber Jimmy Donaldson, aka MrBeast, confessed on a podcast recently that he spends roughly $8 million a month on his videos — and every splurge has to be approved by his accounting team. "I walk in and I go, I want to give 100 people $100,000, and they go, 'you're crazy,'" Donaldson said. Beast mode, indeed.

 

INTERNET GOLD
five things I'm loving online right now
1 Did you know raccoons can recycle now?
2 Cheating is having a moment, what with chess, the Try Guys and now… cornhole? Apparently some players in the 2022 American Cornhole League World Championships were accused of making their beanbags too small, a controversial practice that can involve hammering, boiling or even driving over them. The scandal is being called BagGate. “I think it’s funny that anyone believed it would be all friendships and rose petals forever in cornhole,” one cornhole fan wrote on Facebook (in a comment surfaced by the Wall Street Journal). “Now the dirty underbelly is being exposed.”
3 I can’t stop thinking about this professor's clay Zoopreme Court.
4 China’s hottest job is sleeping assistant, a gig where folks get paid to talk to customers right before they go to bed. I personally lull myself to sleep by looking at memes, but whatever floats your boat.
5 Watching legendary skateboarder Tony Hawk eat Laughing Cow cheese, Ritz crackers and Bit-O-Honey candies made my day. Dude loves snacks.
 

 

401(K)9 CONTRIBUTION
send me cute pictures of your pets, please
Lucy
 
VIA Judy Maxfield
Meet Lucy, an angel who is pawparing for a recession by stocking up on treats.

 

Juliette Gordon Low would be proud.

See you next week.

Julia
 
P.S. Are you concerned about a recession? Have you ever played cornhole? What’s your all-time favorite snack? Send projections to julia@money.com or @SuperJulia on Twitter.
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