What Is a Recession, and How Can You Protect Yourself from It?
A recession describes a significant decline in economic activity. It is typically defined as a period of two consecutive quarters of negative economic growth, as measured by a country's gross domestic product (GDP). Recessions are often characterized by high unemployment, reduced consumer spending, and decreased business investment. The effects of a recession can be severe and long-lasting.
Since the late 1940s, there has been a recession at least once every five years, if not more. These periods don't just affect commercial capitalism. They also have a serious emotional and mental impact on people.
Knowing what a recession is, how to identify the signs that one may be on the horizon, and what you can do to protect yourself is essential for weathering difficult times that could lead to financial instability, emotional hardship, and mental distress...
Why do recessions happen?
Recessions happen because the economy is slow to adjust to changes or is making up for lost ground. These can be changes in consumer behavior, technology, energy prices, or government policy.
In the short term, recessions are often caused by a sudden decrease in consumer spending. This can happen when there is a sharp increase in fuel or food prices, a major financial event such as a stock market crash, or, more relatable, a worldwide pandemic.
Over the long term, recessions can be caused by structural changes in the economy that lead to diminished supply chains, loss of jobs, or wage stagnation.
What are the symptoms of a recession?
Symptoms of a financial recession are always the same: decreased business activity, loss of jobs, and sometimes - but not always - a drop in the stock market.
In the early stages of a recession, businesses may experience reduced demand for their products or services. This can lead to decreased production, layoffs, and reduced hours for employees. As consumers lose income and confidence, they tend to spend less, further exacerbating the effects of the recession.
It isn't just businesses that suffer the symptoms of a recession - individuals do as well. Recessions mean fewer job opportunities, little chance of promotion, and virtually no possibility of a raise. These factors can lead to increased anxiety and stress, as well as mental health problems such as depression.
How can you protect yourself during a recession?
Whether you have come into the recession with good credit or bad credit, there are things you can do to protect your finances.
Utilize credit to your advantage
If you have good credit, now is the time to use it. Utilize any 0% interest offers on balance transfers or purchases to keep your payments low during the recession. This will save you money and help you keep your head above water financially.
If you have bad credit, now is the time to focus on repairing it. This will make it easier to get a loan or line of credit when you need it and help you qualify for better terms. You can improve your credit by paying your bills on time, keeping your balances low, or enrolling in debt resolution programs with Clarity.
Save money where you can
Saving money may seem difficult during a recession, but it is important to remember that every little bit counts. If you can cut back on your spending, even by a little bit, you will be in a better position financially.
There are many ways to save money, but some of the easiest include eating out less often, cutting back on unnecessary expenses, and comparison shopping for better deals. You can also save money by taking advantage of promotions and discounts or using payment methods that offer cash back on your purchases.
Prepare for the worst
No one likes to think about losing their job because of a recession, but it is crucial to be prepared for it. If you are laid off or experience a reduction in your pay, you will need to have some savings to fall back on.
A good rule of thumb is to have three to six months of living expenses saved up. This may seem like a lot, but it will give you a cushion to fall back on if you experience a loss of income. If you can't save up that much money, try to have at least enough saved to cover your essential expenses for a few months.
Stay Recession Proof
Recessions can be difficult, but by following these tips, you can protect yourself financially. Utilize credit to your advantage, create a budget and stick to it, save money where you can, and prepare for the worst. By taking these steps, you will be in a better position to weather the storm and come out ahead when the recession ends.
If you have found yourself in a tough financial situation during the recession and need help getting out of debt, don't hesitate to contact Clarity's compassionate debt negotiators. Their expert advice and guidance can help you get back on track financially and improve your financial health.