A Recession is Looming: What Does This Mean For You?
The first warning sign of an impending economic downturn often emerges in rising inflation. We know we’ve hit inflation when we see prices rising. For example, you have likely noticed gas and grocery store price increases. To gauge the extent of these price fluctuations, experts rely on the Consumer Price Index (CPI) to measure inflation, which calculates the changes in prices we pay for goods and services.
Inflation tends to suck the value out of our money, so everything costs more, and we start spending less on things we used to buy. In addition, house prices have tumbled, so if you were counting on cashing in that nest egg this year, you might want to hold off a bit longer.
As inflation rises, we start entering a temporary economic slowdown period. A country’s Gross Domestic Product (GDP) is the barometer for this slowdown period. The GDP calculates the total value of a country’s finished goods and services. Now reflect on inflation – rising prices to consumers and rising costs to producers mean less production and fewer sales, therefore a lower GDP. A lower GDP for at least two consecutive quarters implies the country’s economic health is not good. Consequently, we enter a recession.
Recessions aren’t new. We’ve had four global recessions in recent history: 1975, 1982, 1991, and 2009; we bounced back each time. The one in 2009 lasted about 18 months, but most last about a year.
So, what can you do to help you get through this latest recession that started in late 2022? Here are a few suggestions:
Reassess your budget. If you don’t have a budget, it’s time to start one. How much cash do you have, and can you access it quickly if you lose your job and still need to make debt payments, cover living expenses, and so on?
Stop spending beyond your means; start saving. I know this is not what any business (or individual) wants to hear, but a recession hurts all of us, no matter how rich or poor one happens to be.
Pay down your debts if you can. If you have more than one debt, pay the one with the highest interest rate first. Usually, this means credit cards. Ask your bank to help you consolidate your debts into one payment plan. This approach will give you peace of mind.
Don’t be a nervous investor and start pulling all your investments. Remember, investments are for the long term. As I mentioned, we’ve been through recessions before, so stay the course. We’ll get through this one, too.
But the question on everyone’s minds this time is will this recession be the worst? No one knows. But here’s what I do know. Losing money can emotionally negatively impact us, raising our stress levels and causing us to make bad decisions. So don’t let fear rule your life. Stay the course. This downturn, too, shall pass.
Try visualizing your best and worst-case scenarios involving your money. This visualization may help you better prepare and avoid impulse decisions like taking out all your investments or opening a new loan with a high interest rate when you already have savings you could use to pay off existing loans.
Other things you might consider include paying your bills before they are due, reducing the credit limit on your credit cards (or ditching them in favour of cash purchases), and opening an automatic investment contribution plan if you don’t have one already. The key is not to panic and live your life within your means. Then, we can all return to normal when the recession storm passes.
Pick up a copy of my book, Beyond Success: Considerations in Making Money, to get some insights on how to save money any time, not just during recessions.
