6 Ways To Weather A Recession
Buckle up, it’s time to be cautious
Inflation in the U.S is at 40 year high. Last summer, when Fed went on to play the same record of the inflation being ‘transitory’, the central banks worldwide followed suit.
What Fed discarded as transitory has now become self-sustainable. Now, the inflation is at 40 year high. Though multiple factors have led to this humongous price rise (the Russia-Ukraine war being one of them), we cannot ignore the fact that Fed and the central banks around the world have been a little too slow to react.
Well, that’s a story for another day.
Let’s answer a few questions before we get to the topic.
Does inflation lead to recession?
Indirectly, yes! Inflation may not contribute directly to the recession, but a knee-jerk reaction to tame the monster can lead to the strangulation of the economy. The successive increase in interest rates chokes the demand, in turn affecting the growth.
When do we say that there is a recession in the economy?
The overall economic activity declines, mass layoffs, more people on unemployment benefits, etc. But the textbook definition of a recession is when there are two or more consecutive quarters of GDP decline.
How can you save yourself from this phenomenon?
1. Create an emergency fund
Save up for the rainy days. This is not something one should do when the recession is about to hit. Always be ready with an emergency fund. Your funds should cover your regular expenses for up to eight months to a year, in case the recession continues for a substantial period.
2. Avoid buying anything that qualifies as a luxury item
The definition of luxury changes from person to person. One man’s luxury could be another man’s necessity. You could definitely avoid buying those swanky sneakers and, do perfectly fine with your old ones. If your mac works just fine, you can wait for buying the latest M2 Macbook pro.
It is no rocket science that you should not splurge during a recession.
3. Do not invest in risky assets
You do not go and buy bitcoins or that digital monkey NFT when the world is moving towards a recession. Catching a falling knife during an economic turmoil is the worst thing that can happen. You do not know the bottom. Something that appears comparatively cheap, could still be expensive.
Highly volatile assets are the first ones to take the blow when there is a scare in the market.
4. Probably not the right time to get a loan
Some of you might think, why not take a bank loan when it is still available at a cheaper rate of interest. I agree with that. But, only if you know that you are not going to lose your job in this scenario. Hence the word probably.
Taking a loan could only lead to a possibility of default that can affect your credit score.
5. Do not quit your job
I know that you have been planning to quit your job to start your own thing. But, it may just not be the right time to do it. Do not take your constant income source for granted. You can continue with your side hustle while keeping that day job.
As the economy will be in a state of shock, you may find it difficult to get another job with a similar pay scale.
6. Make a monthly budget
If you fall into that category where you have no control over your expenses, you need to start tracking your spending. If the major part of your budget is not going for basic necessities like groceries, diapers, utilities, etc. then you indeed need to track your spending patterns. You need to stop making those frequent trips to Starbucks if you are running a tight ship.
To conclude, these are six ways in which you can strongly face the impending recession,
- Create an emergency fund
- Avoid buying luxury items
- Do not invest in risky assets
- Do not take a loan
- Do not quit your job
- Make a monthly budget
