Host
Troy Kennedy
Podcast Content
Taking steps now, while times are good, to get your wallet ready for downturns can help alleviate some of the stress and anxiety that comes with recessions. Here are seven tips that will help ensure that your finances are recession-proof, recommended by experts. Taking preventative measures to safeguard your finances can make all the difference, so make sure to do some -- or all -- of these steps to recession-proof your finances before the next financial downturn hits.
Chances are, you are not going to be saving during the recession, as you have got other things to worry about, so it is best to start saving now, before the financial downturn hits. Whether the recession is coming, or if it is still some time off, heres what you can do to get ready. Assuming that you have a little bit of time to prepare, you may want to lay off the fears, as there are plenty of daily habits that ordinary people can adopt to guard against the pains of recession beforehand, or even make the effects of recession feel nothing like they would if they were themselves in the recession.
When the economy starts dipping, our jobs and our incomes may be put at risk, which is why saving for an emergency fund is critical as you prepare for a downturn. Whether your hours are being reduced, you are losing a job, your company is not making money, or you made a few bad financial decisions, an emergency fund will provide a safety net that you can lean back on to help you ride out the waves and come out of the downturn back on your feet. Adding to your savings will stop for the time being, but your everyday life of thrifty spending can go on as usual.
Downsizing and learning how to live frugally can be a good strategy, as you will build up savings if you are able to learn how to live on less, and will not end up struggling to adjust to a new lifestyle when the downturn hits. The keys to surviving in a recession are reducing spending, working hard, and staying cool. One of the easiest ways to survive a recession is by not having any debt.
Erickson says not paying off debt before the downturn is the mistake that a lot of people make. During a recession, with jobs being scarce and money being tight, these higher debt payments only increase the stress of an already stressful situation. When emergencies strike, you are going to want to cut out as many monthly expenses as you can - and one of the most costly ones to your budget is paying off high-interest debt. It is OK to indulge every now and then, but try to build up as much cash as possible just in case you need it in case of an emergency.
These suggestions are just some ways that we can take active control over how a downturn impacts our lives. While we are not here to make economic predictions, we want to provide five strategies for small business owners that will help them deal with the next downturn, whenever that may come.
In our latest survey of business leaders, over half said that the next downturn is expected to come in the current or the next quarter, and last, under the more pessimistic scenarios, up to five quarters. While the most recent U.S. recession lasted only two months, ending April 2020, the currently sky-high housing and stock markets, combined with record-low unemployment, have led experts to estimate a recession could be on the way two or three years from now. While most economists predict that the next recession will be a smaller one, you can gain some insights about patterns that could play out in the job market by looking at the Great Recession, when unemployment about doubled to peak at 10 percent. Because the stock market is such a leading indicator, these "best days" usually came while the economy was still wallowing in the recession.
Recessions are usually marked by higher unemployment rates, stagnant wages, falling home prices, and declines in stocks and other investments. Recessions--defined as two consecutive quarters of negative economic growth--can be caused by an economic shock , financial panics , a rapid shift in economic expectations , or some combination of these three. Perhaps due to NBERs vague definition, the financial press and most practitioners of the field have shifted toward the more tangible idea that two straight quarters of falling real gross domestic product constitutes a recession. In the present situation, there is concern that there could be another recession on the way, even though, according to NBER, the last recession, which was caused by the global financial crisis, ended in June 2009.
In this way, a recession and job losses may have a negative self-reinforcing effect, making things difficult, not only for those who are out of work, but also for those who are trying to keep businesses afloat in these uncertain times. On a larger scale, recessions mean businesses losing money, and industries producing fewer products, for two quarters - or six months - in a row. Recessions usually mean economic hardships for consumers, whether that is through lost jobs or lower wages.
Good businesspeople immediately trim their businesses down to the bare bones, trying to position themselves at the edge of the curve, with their ability to take in business only slightly below that businesses demand, in contrast to the prime times, when businesses have the capacity in reserve to take on whatever extra new business may arrive. Because a downturn typically brings lower sales, and thus less cash available to finance operations, it takes shrewd financial management to survive the downturn.