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With expectations for a recession already in the forecast for 2023, the recent failures of Silicon Valley Bank and Signature Bank have further stoked fears that an economic downturn could be on the horizon.

But it remains to be seen when a recession — defined as two consecutive quarters of negative gross domestic product growth — will happen, if at all.

Yet many Americans — 41% — have taken steps to prepare for a possible economic downturn, according to a survey by Morning Consult. That survey, of 2,203 adults, was taken in February, well before the recent banking troubles set in.

Now, all eyes are on the U.S. Federal Reserve, which will decide whether to continue to raise interest rates when it meets next week, or press pause on its inflation-fighting strategy as it watches the banking sector.

What the Fed may do is a “toss-up,” predicted Raymond James chief economist Eugenio Aleman, noting the central bank has access to much more information on banks than the general public.

Raymond James is still expecting a 25 basis point rate increase next week.

An increase would affect everything from how much interest borrowers pay on debts such as credit cards, mortgages and car loans to how much consumers may earn on their cash.

Those who are preparing for a recession are largely taking two steps, according to Morning Consult — 44% say they are saving more money or building an emergency fund, and 39% say they are cutting back on spending or spending more strategically.

A small share, 11%, said they are stockpiling goods or food. The remaining 6% indicated “other.”

More from Ask an Advisor

“Really hunkering down and preparing for hard times seemed to be a popular theme,” said Amanda Jacobson Snyder, data reporter at Morning Consult.

As bank woes hit the headlines, clients have started to signal more urgent concerns, according to Kamila Elliott, a certified financial planner and co-founder and CEO of Collective Wealth Partners, a boutique advisory firm in Atlanta. Elliott is a member of CNBC’s Financial Advisor Council.

A lot of it is PTSD from the global financial crisis of 2008, according to Elliott. But the numbers today — including recent stock performance — are stronger than they were then, she said.

Still, there are a few steps advisors say you should take now to make sure you are prepared to weather a downturn.

1. Stress-test your finances

Much of how a recession may affect you comes down to one thing — whether or not you still have a job, noted Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services. Glassman is also a member of CNBC’s Financial Advisor Council.

An economic downturn may also create a situation where even those who are still employed earn less, he noted.

As such, it’s a good idea to evaluate how well you could handle an income drop.

Make sure you have some sort of safety net.
Barry Glassman
president of Glassman Wealth Services

“Stress-test your income against your ongoing obligations,” Glassman said. “Make sure you have some sort of safety net.”

While the U.S. economy still has momentum, the recent banking issues may have consequences for employment, according to Aleman at Raymond James.

“The biggest risk today, because of these events, is that firms get spooked and they start slowing down hiring,” he said.

2. Save more cash

As banks’ woes have made headlines, one client recently asked Elliott whether it would make sense to shift more of their funds to gold.

Her answer: No.

But bulking up on emergency cash should be a priority, she said. That way, if you do get laid off, you have enough money to sustain yourself for a period of time without having to do a fire sale, Elliott said.

Admittedly, finding extra cash may be tougher amid persistent high inflation. Those higher costs have prompted some of Elliott’s clients to cut certain extras such as food delivery in order to find more wiggle room in their budgets.

“Some of the luxuries that we had during Covid are kind of going away, because people’s budgets are being squeezed,” Elliott said.

“People are realizing that they can’t continue like they were before,” she said.

The upside for conservative investors is they are now able to get higher interest rates on their cash.

“They’re finally getting safe yield on their money,” Glassman said.

3. Reduce your debts

Higher interest rates mean consumer debts are climbing higher.

Elliott said she recently saw a credit card charging a 30% annual percentage rate.

Experts say it may be wise for consumers who feel the pinch under high balances and climbing rates to find a way to renegotiate what they’re paying on that debt.

Jessica Peterson | Tetra Images | Getty Images

Better yet, paying those debts down or off completely will help to create financial flexibility in your budget.

Student debt holders should also keep in mind that they will likely soon be on the hook to resume payments on federal loans.

Because the advantages of paying those balances directly is limited, Elliott said, she tells clients to instead put the money they would pay toward those debts in a savings account, which can yield 4% interest.

“Once the payments resume, transfer that money and pay off or pay down that student loan,” Elliott said.

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