Preparing for a 2023 Recession

There’s still debate whether a recession will hit this year, and where. But just the concept and its potential financial impacts can be stressful to many people. Ruth shares her mantra for prepping for a possible recession, and why she’s not conceding to the panic.

I am preparing for a recession in 2023. It may or may not happen. I am also planning on 2023 being fabulous. I’m an optimist, so I figure there is no harm in having a foot in each camp and planning for the worst while hoping for the best. 

From Investopedia:

A recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession. 

If talk of recession concerns you, I’m here to allay your fears. Let’s narrow the conversation down to you and your immediate situation and let the government of the day concern themselves with the weighty topic of the gross domestic product of the country you call home.

It’s the choices you make that will have a direct impact on the effect a recession will have on you. I choose to be prepared, not reactive. 

Hopefully, that has you feeling more relaxed already.

Everyone has a different perception of economic stress

I took part in a paid research gig late last year, and one of the questions they asked was how optimistic or pessimistic I am about 2023. I could barely contain my excitement about the year ahead; I’ve got a lot of cool stuff planned for this year, and I was looking forward to getting started.

However, my five fellow panel members were feeling a different vibe when they thought the year ahead looked particularly gloomy. They referenced rising inflation and the possibility of a recession. They each said they were doing okay personally but worried for others. 

When it was my turn, I wondered what was wrong with me. Why was I so darned optimistic? Should I have been as worried as them?

I stuck to my position of positivity and said something along the lines of, “I know it’s within my power to react (or not) to events that are outside of my control. It is within my power to do well in 2023 by financially planning for the worst and hoping for the best. And I’m really optimistic that I can. I see massive opportunities for the taking for myself in 2023, regardless of inflation or recession. It’s going to be a fun year, and I’m excited.”

This 90-minute panel discussion led to some reflection on my part long after the meeting ended. 

Try not to worry about things you can’t control

It’s my observation that most people think they will probably be okay, but they “worry about others”. They have heard of other people whose needs are not being met, and they fear for them, which is kind. But they they feel powerless to help, making them less optimistic. To me, that feels mentally draining. When I know of a real person in need, it is far easier for me to not just worry about them but to actively help them. And when I help others, it instantly makes me feel like a better human being.

I’m optimistic about 2023 because I choose to not doomscroll the news and engage with real people. I look at my situation and conclude that yes, I’m okay, and then I look beyond myself and conclude that 95% of them are okay. I offer support and help to the 5%.

So, the first step to dealing with a recession is to determine if it will impact you and adjust your level of concern to suit.

Time to cut the strings on the things you can't control

Time to do a stock take

I encourage you to do much as you would if you crashed off your bike. You would lay on the ground for a moment, and you would take stock of your situation: Am I in immediate danger of being hit by a passing car? Is anything broken? If all that checks out, get back on your bike, and enjoy your ride.

It’s the same with your finances. We could be better at predicting economic activity, and we tend to overestimate what might go wrong. Still, if we took the time to look closely at how we are right now, then we would begin to allay our fears about the future. If you are concerned about your financial situation, right now is the time to make some changes.

Given I have been warned that a recession ‘might’ be coming, and even though I really don’t know what that might mean in dollar terms, you can be sure that I’m not sitting like a possum in the headlights awaiting the moment of impact. I’m assessing where my family are financially, checking that we are okay and then planning what to do if a bump in the road occurs. With a plan in place, I just get on with enjoying life.

Embrace your future, don’t fear it

I’m constantly scanning the horizon for possibilities and pitfalls and adjusting course to suit:

  • Is my car in need of repair?
  • Are we prepared for schooling costs this year?
  • Will I need to upgrade my laptop?
  • Is my emergency fund appropriate?
  • Is my job as secure as it can be?

A possible recession is something else to add to my list of things to consider. Doing this reduces my fear of the future.

For example, I’ve personally heard people say that their fixed-term mortgage rate is up for renewal later this year, and they “will have to find more money” at that time to meet the new payments. If that was me, I’m not waiting. I would be speaking with my bank about how much higher my interest rate is likely to rise, how much extra I might be required to pay, and what impact it will have on my payoff date. And then, I would immediately begin making a plan for finding that money right now by either earning more or cutting my expenses so that when the day of increased debt repayments actually arrives, I’ve already prepared for it. 

I’ve already seen in my PocketSmith budgets that we spent more on groceries in 2022 than we did in 2021, and that has led me to allocate more to my grocery budget in 2023 because we are clearly spending more now. In addition, we are currently shopping more carefully, cutting back on some luxuries and planning our meals better to keep the costs down. Heck, it might even work out that we end up spending less with these conscious tweaks than last year! Time will tell.

For many years, as a family, we have been fiscally responsible by:

  • Tracking our net worth
  • Budgeting
  • Keeping an emergency fund
  • Getting out of debt

This process has taken years to refine, but it has made us far less reactive to current events, which is why the thought of a recession doesn’t frighten me. 

How are you?

Lastly, I just want you to ask yourself one key question: How am I doing? 

Your response either gives you comfort that you are okay or prompts you to delve deeper and make some changes. But ultimately, you have some power over how a potential recession might impact you.

Ruth blogs at all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.

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