Since the US economy began to drop after the 2008 recession, people in our country have been forced to get back into their basic survival mode. The recession has hurt everyone including the wealthy section apart from those who resolved to save money and invest it smartly. After a long gap, again the recession is knocking on our door. Thus, you should be prepared to avoid the bad effects of it.
What is a recession?
When the gross domestic product or the GDP growth goes on the negative side is known as the recession. It is a downfall in economic stability. The market watchers are of the view that the world and the country were going to fall under the shadow of an inevitable recession. Unemployment levels fell too and now, the chances of a recession are said to be increasing again.
Some of the reasons behind the increased chances of a recession are as follows. You should also know what to do with your money when the recession is around the corner.
Here you go:
Reasons that can lead the country into a recession
Income levels are low and household debt is said to still be at record levels. Many people are still without a job. Home equity has lowered, banks have tightened their credit, and consumers will be required to save money even before they can start spending it. Though this is a good thing, it will be taking time for the consumers to pay down their debts and rebuild wealth at the same time. Over the last 3-4 years, spending has lowered so much that economists are wondering as to what may be successful in bringing back lost spending. This is because the right amount of spending is what keeps a country’s economy growing.
As per tradition, rising stocks are the leading indicator that helps in pulling the economy out of an economic downturn, the recession. The investors who sold to the Fed all of the mortgage-backed securities got sudden cash in their hands and thus came in the need to invest in something else. As a result, this money found its way into the stock market.
The housing market is quite an important part of a country’s economy but the real estate situation is such that it can end up crashing at any time. It is just being held together by the government and the mortgage government agencies. Housing prices have been falling for quite some time now.
Though many have thought about recovery, the fact is that government tax credits have been fueling most of the purchases, and Fannie Mae and Freddie Mac were responsible for most of the mortgages that were issued. In addition to this, the Federal government has been pushing the mortgage rates artificially low with the help of its mortgage purchases.
Slow GDP growth
Though the U.S. economy is back on track and GDP is expected to grow, it is still expanding at a very slow pace.
Quantitative easing going to end
The country’s improvement that the world and the people have been seeing was mainly due to the Federal Government’s stimulus measures. But once these quantitative easing measures end; which is going to end soon this month; nobody knows what is going to happen to the economy.
In addition to the above, there are some other reasons too which can lead the country into a recession. This sits heavily on the income and also on the minds of the people. In addition to this, the high price of fuel and the commodities are going to negate the benefits of the low taxes.
The next recession is at the doorstep: Here’s how to secure your financial health
Remember, it’s never too late to start putting your finances in place. If you’re poised to focus on employing some smart money management skills, you can certainly tread on the path to wealth. Have you made a financial checklist to safeguard your financial health during recession time? If answered no, check out these tips:
Create and follow a budget
Preparing a budget isn’t difficult but it certainly is time-consuming. Though it may take about 2 hours, this time will be well spent. Crafting a budget and sticking to it is one of the most necessary ways of improving your distressed financial situation and avoiding unnecessary debt. To save money and avoid debt, there’s no other short-cut to creating a budget and following it on your own.
Eliminate all your existing debts
Are you an avid user of those nasty little plastics that turn out to be debt generators? If answered yes, you immediately need to shun this habit as credit card debt is the worst possible debt that can attack an American. Credit card debt can adversely impact your credit score and will also jeopardize your future. The interest rate on a typical credit card is so high that you should always save money to pay more than just the minimum monthly payment. If you use such handy tips, you can easily pay off debt quickly. You should also try to reduce your debt burden by avoiding buying things on credit. If you use a credit card, then make sure you repay the bills in full and within time.
Save money aggressively
This is the main part of planning a budget but it’s more important to justify a separate resolution for saving money aggressively. Give a retrospective glance at 2019 and the big money mistakes that you made that led to your current financial state. Save at least 20% of what you earn; save 6-9 months of savings in a bank account to build an emergency fund. Having a cushion to fall back on is a prerequisite, especially when there’s another recession knocking on your door.
Save for your retirement
If you’re working and your employer offers a 401(k) plan, you should add a portion of your monthly income to it. Irrespective of a matched contribution from the employer, saving money to lead a fruitful retired life is a must.
Stay prepared for the tax benefits and also think about the opportunity to invest your pre-tax dollars that will help your money to grow tax-free.
As the New Year is here, try to embrace this time as the appropriate time to make progress on your financial goals so that you can stay recession-proof all the time. Invest money by considering the expert’s opinion so that you can raise a decent wealth that can be used during the recession. Good luck!
The views and opinions expressed in this opinion article are those of the author(s) and do not necessarily reflect the official policy or position of The Eastern Herald.