Lately, the word “recession” has been creeping up in economic discussions. With inflation still a concern, interest rates at two-decade highs, daily tariff talk, and continued uncertainty in global markets, many experts believe the U.S. could be headed for a slowdown. But what does that mean for the average consumer?
A recession doesn’t hit everyone the same way, but the effects tend to ripple through the economy in ways that most people feel. Job security can become a concern as businesses cut costs – hiring slows down and layoffs increase. For those who keep their jobs, raises and bonuses may shrink, making it harder to keep up with the cost of living. And while some prices may stabilize, essentials like food, energy, and housing can remain stubbornly expensive, squeezing household budgets even further.
Market swings can be unnerving for anyone with money in the stock market – whether through a retirement account or investments. When investors sense uncertainty, they react emotionally, often pulling money out of stocks and causing major fluctuations in portfolio values. While markets recover over time, those downturns can be stressful, especially if you rely on investments for near-term financial goals.
Despite all of this, recessions don’t have to spell disaster. The key is preparation; one of the most important steps is strengthening financial reserves. Having cash set aside for emergencies – ideally six to twelve months’ worth of living expenses can provide a critical safety net if your income is disrupted. Even if a full recession doesn’t materialize, having reserves in place is never a bad idea.
For homeowners, one way to secure financial flexibility is by setting up a home equity line of credit (HELOC). This allows you to tap into the equity in your home if you need it, offering a lower-cost borrowing option compared to high-interest credit cards or personal loans. Banks tend to tighten lending standards during economic downturns, so waiting until you need a HELOC to apply might make it harder to qualify. Setting one up while credit is still readily available can provide peace of mind, even if you never have to use it.
Managing expenses wisely is another crucial step. In strong economic times, it’s easy to overlook unnecessary spending – subscriptions, takeout, impulse purchases, and the like. But when financial uncertainty looms, tightening up your budget and cutting non-essential expenses can make a big difference.
Employment is another factor to consider. In times of economic uncertainty, job security can become unpredictable, which is why staying “marketable” is so important. Keeping your skills sharp, networking, and positioning yourself as an indispensable part of your company can help protect your income. For business owners, diversifying revenue streams and keeping expenses lean can provide stability during an economic slowdown. Debt management is also critical. Carrying high-interest debt into a recession can be a financial burden, so paying down credit card balances and consolidating higher-interest loans before borrowing costs rise further is a smart move.
Recessions are a natural part of the economic cycle. While no one can predict exactly when or how severe the next one will be, preparation is always the best strategy. Having financial reserves, securing access to credit, managing spending, and staying proactive about job security can make all the difference in how well you navigate a downturn. Financial security isn’t about knowing what’s coming – it’s about being ready for whatever happens next. And the best time to prepare is before you have to.
Would you rather inherit $5 million but never be allowed to work again or earn $500,000 a year doing a job you love until retirement? Please let me know if you have a good “Would you rather” question, and we will highlight your submission.
Shmuel Shayowitz (NMLS#19871) is a highly regarded Real Estate & Finance Executive, Writer, Speaker, Coach, and Advisor. He is President and Chief Lending Officer of Approved Funding, a privately held national mortgage banker and direct lender. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including certified mortgage underwriter, licensed real estate agent, residential review appraiser, and accredited investor, to name a few. Shmuel has successfully navigated through many changing markets and business landscapes, making his market insights and experience well-coveted within the real estate industry. He can be reached via email at [email protected].
