With prices going up in basically every industry, store shelves looking emptier than usual, and interest rates rising, you might be wondering – are we in a recession? Or are we about to enter one? The question is a complicated one, because there are many variables at play, including the natural ebb and flow of the economy. Recessions are natural and normal, and not necessarily something to be feared. Rather, finances need to be managed–as they always do–perhaps more carefully. So, let’s examine whether we are or are not in a recession–and what to do about it.
What Is a Recession?
A recession is popularly defined as two consecutive financial quarters with reduced economic growth, usually measured by gross domestic product (GDP). The United States at this time has fulfilled this particular definition, but there are other factors that come into play during a recession that have not necessarily come to pass. Recessions usually see layoffs and an increase in unemployment–however, employment numbers are still up. This may change, though, and you can monitor layoff rates here.
Does It Matter If We Are in a Recession?
Ultimately, whether or not we officially title this period of time as a recession matters less than keeping your pulse in the individual elements of the economy. A “recession” is a man-made term with varying definitions, but the reality is that interest rates are up in an effort to bring down inflation, economic growth has slowed, and we may start seeing unemployment rates rise in the next few weeks or months. Understanding these factors can help you prepare for a period of potential financial slow-down in your personal finances, but you may also be less affected than you anticipate. It all depends on your current financial goals, whether you are trying to take out a loan, and how secure you are in your job.
How Can You Prepare for a Recession?
The best way to prepare for a recession is to become more conservative about your finances. Now may not be the time to make a major purchase or take out a loan. Make sure your savings account is comfortably bulked up and have a plan in place in case you find yourself out of a job. If you don’t usually budget, now may be a good time to set one up, or to tighten your budget if you already have one. Most importantly, continue to save money in all your usual ways (IRA, 401K, and so on) and don’t panic. Recessions don’t usually last very long and, with some thoughtful preparation, you will come out the other side with your finances still intact.
A recession is a normal and natural part of an economy and not something to be feared. With strategic planning, you will be able to weather whatever the economy throws at you. At DeSantis, Kiefer, Shall, & Sarcone, we can help you manage your finances so you have the tools to maintain financial stability no matter what the economy is doing.