It seems like every other day, the news is talking about an incoming recession. What is a recession, exactly? And is one coming for us? How do you prepare for it?
In this post, we'll break down what a recession is, what to watch out for, and how to start preparing for one.
What is a recession?
A recession is a general downturn in business activity. It is calculated by using a country's GDP. The country's GDP that makes the most impact world is the USA's as it's the biggest market in the world.
A recession is a slowdown in economic activity, generally measured by comparing economic activity in one period to the level of economic activity in another period. Specifically, textbook wise, two consecutive quarters of negative GDP. It is usually accompanied by a rise in unemployment, a fall in stock prices, and a decline in retail sales.
Should you be worried about the recession?
So, should you be worried about the recession? The answer is that it depends. I know some hate these types of answers. However, it's true. That depends on your financial situation and outlook.
If you're in an unstable financial situation, or if you're in debt, then you should be worried about a recession. Losing your job or your income during a recession can be fatal.
However, if you have a healthy savings account and no debt, then you may not need to worry as much. In fact, this may be a good time to invest in stocks or mutual funds. Just make sure you do your research first!
What are some warning signs of recession?
While there is no one definitive sign of an impending recession, there are a few key things to watch out for.
There are two schools of thought when it comes to recession: those who believe it's coming and those who think it's already here. No one knows what will happen, but it's always better to be prepared.
For one, economists often monitor indicators such as job growth, wage growth, and spending to get a sense of how the economy is doing. If these numbers start to dip or show other signs of distress, it could be a red flag that a recession is looming.
Another indication could be if you see many companies and industries starting to lay off workers or close down. When businesses start to struggle, it's often one of the earliest warning signs that a recession is on its way.
Looking at the current indicators, the US GDP has fallen in the first quarter of 2022. If it continues this way for the second quarter, we'd officially be in a recession.
The last time the US was in a recession was in 2020, during the COVID pandemic, but it was immediately overcome by the government throwing at it as much money as it could to save companies and businesses from closing.
If you're worried about the possibility of a recession hitting, there are a few things you can do to recession-proof your life. This might include things like increasing your savings, paying down debt, or investing in stable assets like gold or real estate.
At the end of the day, it's important to remember that there's no guarantee that a recession will happen – but it's always better to be safe than sorry.
How can you prepare for a recession?
The best way to recession-proof your life is to be proactive and plan for the worst. Here are a few tips on how to do that:
1. Make a budget and stick to it. This will help you keep your finances in check, no matter what the economy is doing.
2. Invest in assets that will hold their value, such as gold or silver.
3. Make sure you have an emergency fund to cover unexpected costs.
4. Be prepared to make changes to your lifestyle if needed. This could mean downsizing or changing your job status.
5. Stay informed about what's going on in the economy and watch for signs of a recession. This way, you can be ready to take action as soon as possible.
What are some ways to recession-proof your life?
There are a few ways to recession-proof your life. The most important is to have an emergency fund that can cover at least six months of your living expenses. Looking back at the COVID pandemic, maybe you'd want to hold more, in addition to cash for an emergency fund. You can look to set aside cash for opportunities that would come at a crash.
People would be selling their assets on the cheap because they need liquidity. In other words, there'll be a fire sale that's coming soon.
Another way is to make sure you're not living above your means. If you're able to, start downsizing and moving to a smaller home or apartment. You can also start cooking more meals at home and cancelling any unnecessary subscriptions or memberships.
Finally, make sure you're diversified when it comes to your investments. Don't put all of your eggs in one basket! Spread your money out among different types of assets, such as stocks, real estate, and bonds. This will help protect you if one market crashes.
How long does a recession last?
A recession is typically defined as two consecutive quarters of negative economic growth. However, there are other factors that can contribute to a recession, such as rising unemployment, inflation and a decrease in consumer spending.
Since a recession is typically marked by a decrease in economic growth, it can last anywhere from several months to a few years. If two or more years, it's considered a Depression. It's important to be mindful of these signs and take the necessary precautions to recession-proof your life.
Conclusion:
It's impossible to predict when or if another recession will hit, but there are steps you can take to recession-proof your life just in case. Make sure you have an emergency fund to cover your basic expenses for at least 3-6 months in case you lose your job, and invest in stocks or mutual funds that have a history of performing well during recessions. By being proactive, you can reduce the impact a recession would have on your life.