Do I Need to Worry About a Recession?

The economy in the US has been going strong for over a decade. That sounds like a great thing; who doesn’t want a strong economy?

But the length of this particular expansion period has a lot of people worried, because historically, recessions happen every 10 years or so. If that pattern holds, it means we’re slightly overdue for a downturn.

The last major downturn we experienced was the Great Recession, which started in 2007 and officially ended in 2009. Having an expanding economy (or the opposite end of the cycle as a recession) for as long as we’ve experienced it this time around is unusual — which makes some people feel there’s a reason to worry.

You’ll find no end to the predictions that a recession is surely just around the corner, and if you follow the financial news it’s hard not to get caught up in sensational, emotional headlines (and equally difficult to sift through the noise to figure out what’s actually worth paying attention to).

So if you’re wondering if you need to worry about a recession, let me give you the TLDR answer: no.

Don’t Let Recency Bias Make You Paranoid

As humans, we tend to project the most recent thing that happened into the future as if it will always happen in that same way. This is known as recency bias, and it’s part of why people make irrational decisions.

Just because the most recent recession happened the way it did does not mean the next one will look just like it. A recession will happen eventually, but it’s not likely it will look exactly like the Great Recession.

That means the next recession might not be very severe and you might not personally feel its impact. It could mean the next recession only lasts for a very short period of time rather than a period of years.

It’s easy to forget the facts when you’re only focused on your personal experience, so revisiting those might help ease your fears. For example, the average recession lasts 11 months. There are also far more bull markets (times when equity values are rising) than bear markets (times when values are falling).

Remember, just because the last recession might have been particularly scary or damaging does not mean we’re set for a repeat.

And if you just can’t shake your worries, consider this: as bad as the Great Recession was, the economy did recover. You’re living that right now! A future recession is probably inevitable, but keep in mind that means a future recovery probably is, too.

Recessions Are Inevitable, And Also Outside Your Control

There’s not much use worrying about things that you can’t control or influence. I’m not saying just give up and make no effort to learn, grow, improve, or achieve — but to do those things, you need to focus on what you can control.

Economic cycles probably don’t fit that description. Recessions happen because they are part of understood, predictable cycles that happen in efficient markets: periods of growth, or expansion, followed by periods of contractions or lulls, or recessions.

We know recessions happen. What we don’t know is exactly when, how long they’ll last, and what the precise impact of each will be.

Most people, even professional economists, are very, very bad at accurately predicting precisely when the next one will start.

This is why there’s not much use in worrying about a recession. It will happen, eventually. Instead of worrying, we’d probably be better off looking at how we can protect ourselves against potential negative effects of a recession.

Instead of Worrying, Focus on What You Can Control to Prepare

Recessions are the wrong thing to focus on or worry about. I suggest putting your focus on what you can control if you’re nervous about what the economy may or may not do.

And that starts with your personal finances and your livelihood. If you can’t stop worrying about a recession or you’re scared of what could happen if a recession happens, you can take some preventative measures to protect yourself in the event of an economic downturn:

Build up your cash savings now. An emergency fund is always vital, but can provide you with some added security in hard times. Start building up your cash reserves now, before you feel you need it.
Evaluate your spending and build a “doomsday” budget. It’s much easier to manage your expenses, even in a recession, if you know exactly what they are and understand what you could cut out of your budget in a worst-case scenario.

Take the time now to look at your spending and ask, what about my current spending habits is not serving me? What does not bring me value? Cut those expenses now (or find ways to reduce spending in areas where you feel you might be overdoing it) and send that freed-up cash flow to your savings instead.

Shore up your skills or resume. Many people fear recessions because they equate these periods to job losses — and that certainly does happen. But it’s not inevitable; not everyone loses their position in economic downturns.

You can also be proactive and look at how you can make yourself more marketable in a competitive job market so you’re prepared to deal with finding a new job if that’s necessary. Look into classes or trainings that you can take now, or work with a career coach to beef up your resume or identify your most marketable, valuable skills and experience.

Remember, recessions are natural part of economic cycles. They do happen, and although they can make for some hard times, they don’t have to be catastrophic.

If you feel worried about a recession, the best thing you can do is redirect some of that nervous energy into proactive steps that will help improve your financial health and career prospects if and when a recession happens — and are beneficial to do even if the current economic expansion continues for many more years.

Kali Roberge is a personal finance writer who contributes to JUGs to explain how freelancers and entrepreneurs can make the most of their money, and writes about mindful living through intentional spending through her email series, LETTERS. You can find her @KaliRoberge