While Americans’ primary financial concern the last few months has been the impact from inflation, a new concern could be ahead in 2023; a recession.

Inflation has slowed recently, in part due to the Federal Reserve’s aggressive interest rate hikes. By making borrowing more expensive, the hope is that consumers will start to cut back on spending. If that happens, the desired effect is to bridge the gap between supply and demand that caused inflation to soar.

The major concern though, is that Americans cut their spending TOO much, which could lead to a recession. With recessions, we often see an increase in unemployment rates.

Financial experts at this point aren’t sure which way things will go, but they all agree on one thing; it’s good to be prepared just in case. That’s why growing your emergency fund – or starting one if you don’t have one already – should be a top goal for everyone in 2023.

What is an emergency fund?

We all have emergencies in life, be it a blown tire, a broken appliance, an unexpected medical expense, or an interruption in income. For those times, it’s good to have some money set aside just for that moment.

An emergency fund should be low-risk savings that are quickly and easily accessible in times of crisis.

While the idea of setting extra money aside might sound tough, the benefits are substantial when these funds become necessary. Having the funds to cover a job loss or major emergency will make a difficult situation easier.

Why Now?

We should all be earmarking funds each paycheck to direct into an emergency fund. Whether you’re already doing it and looking to boost your contributions or starting a fund from scratch, now is a great time to put some money aside.

Why? Because interest rates are great right now. Rates for deposit accounts have been increasing, and customers should consider shopping around to get higher interest for their checking or savings accounts.

How much should you save?

There is no perfect amount when it comes to an emergency fund. The old rule was to save up enough funds to cover three to six months of your living expenses. But after the pandemic, financial experts shifted that advice to say that you should have enough to cover a full year’s worth of bills.

For many, that will sound like a daunting number. According to the Bureau of Labor Statistics (BLS), the average American’s household expenses totaled $66,928 for the year in 2021. Not many people can have that much saved up in a short period of time.

What’s most important though, is saving. Everyone’s financial situation is different, so just save what you can. Even if it’s $10 to $20 a month and a jar with your extra change at the end of the day, what’s most important is having money set aside for those times when we most desperately need them.

So where do you find the funds?

The first place to look for extra money to shift over to an emergency fund is in your discretionary expenses; costs viewed as nonessential spending that a household is able to maintain itself without.

Between eating out, cable and streaming service charges, monthly subscriptions, and other superfluous spending, the average American spends about $1,497 per month — or nearly $18,000 a year – on non-essentials items. That’s according to a poll commissioned by Ladder and conducted by OnePoll.

On just monthly subscriptions alone, Americans average more than $200 a month, according to a study conducted by C+R Research.

The best way to determine which discretionary spending to cut, put together a budget. Find out where your funds are going to determine where best to cut back without cutting into essentials.