As if the last three years of a pandemic, lockdowns, and political turmoil weren’t enough, now we’re consumed by rising inflation and threats of a recession. It’s a lot to digest, to say the least. I want to help break it down so you understand what these events mean for you.

First, let’s define what a recession actually is: Technically, a recession is two-quarters of declining economic activity. You can read more of the technical info here.

How this matters to you: Your income

So how does a slowdown in economic growth impact you? Depending on your source of income (work), the impact may range from none to significant.

Take a moment to think about the type of work you do. If you work for a company, ask if demand for their services or products will decline if everyone is feeling pinched for cash? If you’re a small business owner, do you think your company’s customers might be impacted, consequently driving how much you earn as the owner? Or do you work for a stable company that is unlikely to respond to a recession by making significant changes?

Assessing how your income may be at risk due to supply and demand factors is an important first step to understanding how a recession might affect you. If a recession is not too bad, many people may not even notice a change. For others, the impact could be much larger depending on your profession and where in the economy the growth slowdown is being felt the most. 

Are there any proactive steps I can take?

Maybe! As I’ve written about ad nauseam, this kind of situation is why it’s so important to have cash savings. I encourage you to take a fresh look at how much cash you have available. Some things to keep in mind: Make sure you understand what your true monthly spending is (even after our most recent bout of inflation) and that you have a nest egg set aside to protect you in case your income does fluctuate. If you are feeling like you don’t have enough in cash reserves, focus on building up your cash. Be more mindful of large spending, too. If you have enough cash, then you can check this off the “Preparing for a Recession” to-do list! 

What about your investments?

Switching gears: We all know that this year has been one of the worst investment climates in decades, but what does it mean for your situation? Should you change course? Should you invest more? First, I want to emphasize that your course of action truly depends on your situation. Remember that a decline in your investments’ value matters only if you need to draw on them immediately or anticipate needing them in the very near future (i.e. the next 1-2 years). 

Even if you don’t need to access your investments right now, the emotional toll of a decline is still very real. It’s scary to see the value of your investments fall, but reassure yourself by checking in on your life plans: Have they been impacted by all these declines? If the answer is no, then let out that breath you’ve been holding. You can chalk up your worries to being more prudent given the economic environment. If you really want to take some action, add some more money into your 401k or investment account. Remember to be mindful of what’s noise versus what’s important to your investment plan.

Read More: Stock Market Correction, A Guide to Staying Sane

If you’re on the other end of the spectrum and reliant on money from your portfolio to support your spending, it’s time for a check-in. See if what you are withdrawing from the portfolio is in any way endangering the long-term prospects. An advisor can help you figure out if you’re on the right track or not. They can also help you make any tweaks to your spending plan to make sure you can weather the storm.