Is it a recession?
If you have been reading the news or talking to anyone, you have noticed something as of late. Maybe at the water cooler, between conversations about sports or the new movie you just saw, there is a weird uncertainty. Everyone is dancing around the R-word, but what does it mean? Some people define a recession as just the weird negative vibes people are feeling about the economy and prospects for it in the future; those feelings can and have often induced a recession by consumers changing their spending habits. But economists and pundits usually use a better definition of a recession.
A recession is either,
1) Two-quarters of negative GDP combined with monthly increases in unemployment.
2) A noticeable decline in economic activity from employment, real income, whole-sale retail sales, industrial production, and GDP lasting more than a few months.
The National Bureau of Economic Research (NBER) identifies recessions and uses the second to define a recession. Why is this important? The White House and President Biden are trying to reduce the fear that we are headed into a recession or worse. As I mentioned earlier, vibes influence an economy. Subjective views on the economy impact the decisions made by households and businesses; a decline in confidence about how things in the future will be could spark a recession as consumers and producers cut economic activity.
What does all this mean for you? The uncertainty of a recession could mean a lot of different things a decline in the value of your assets (savings, 401k, home), loss of your or your spouse’s income, the inability to get credit, or even nothing. No matter what may happen, it is still best to prepare for it the best you can, and the same rules of thumb during a recession apply to normal times.
- Manage your money. If you don’t already subscribe to some form of budgeting, now is the time to do it. I’m partial to the 50/30/20 plan. I’ve previously written about it, but for a quick refresher, 50% on needs, 30% on wants, and 20% on savings.
- Pay down and keep down debt. I know everyone says this, and I know it is hard, but recessions usually coincide with credit crunches and rising rates, so any debt you can pay down is advised.
- Update your resume. You might get fired or need additional income if times get tough so keeping your resume updated is a good idea.
- Build up your emergency fund. Just like paying down debt, this can be hard for people already struggling, but there is no time like the present, and a good budget can help you make this achievable.
- Keep investing. I know you are worried about the market and the uncertainty around it but trying to time the market isn’t a good idea. Most of the best returns are consolidated into a few days, and trying to move in and out makes it more likely you will miss them. During downswings, you are buying at a discount, and the return is likely to be better. Don’t panic or overthink it.
I hope this was informative, and you learned not only what a recession is but have gained some insight on how you can protect yourself and your family. I also will link some of my previous articles below. Reach out and post any questions to me here or on my other social media pages. @Zeta_IronMan
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