That could put you on a solid savings path.
- Many people worry that a recession will occur at some point in 2023.
- If your savings could use a lift, here’s a simple move worth making.
- By automating your savings, you won’t accidentally spend the money you intend to save.
Will a recession hit the US economy in 2023? Wouldn’t we all like to know?
For most of the second half of 2022, economists seemed convinced that a recession was inevitable. But consumer spending remained steady and strong during the final quarter of the year, despite many people vowing to cut back during the holidays due to inflation.
In fact, we start 2023 in a pretty strong economic place. But that doesn’t mean things won’t take a turn for the worse at some point during the year. And if you’re worried about that happening, there’s one important thing you should do – increase your savings.
Of course, that’s easier said than done. And that’s why it’s a good idea to automate the process at the beginning of the year.
Put your savings on autopilot
Most banks allow you to set up an automatic transfer so that money leaves your checking account each month and goes into your savings account. If you’re looking to boost your emergency cash reserves, it pays to set up that automatic transfer in January so you can keep working toward your savings goal, no matter what happens.
A big reason many people struggle to save money is because they collect a paycheck, spend it, and think they’ll withdraw whatever they have left at the end of the month. But what happens if, month after month, there is simply nothing left?
A better bet is to automatically send money to your savings account at the beginning of the month, before your paycheck is cut. If you typically bring home $3,000 a month and $250 of that lands in your savings account before you get a chance to touch it, you’ll likely learn to settle for $2,750 in spending money. But you may have to “force” yourself to save, so to speak, through that automatic transmission to be successful.
How much do you need in emergency savings?
A big fear of a recession is job loss. And if a recession hits this year, we could see unemployment levels rise. The more money you have in savings, the more protected you’ll be in case your business ends up on the rocks.
Now, at the very least, you should aim to have enough savings to pay three months’ worth of basic bills. But the more replacement income you can use, the better protected you’ll be.
The scary thing about recessions is that our next one could be short-lived or it could drag on. So three months’ worth of living expenses in savings could disappear pretty quickly if you’re forced to leave your job and can’t find a new one for an extended period of time.
Of course, there is no guarantee that a recession will occur this year. But at some point, economic conditions are likely to worsen. And because you’re more prepared, you’ll sleep less over the idea of a recession. Putting your savings on autopilot at the beginning of the year could give you much more financial protection by the end of the year.
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