Although experts are divided on the forecast of a possible economic recession in the United States, surely you have already been affected by the high prices of gasoline, food, and rent, among others. You can prepare yourself in case you eventually have to face a more serious economic situation. Here we explain what an economic recession is and how you can anticipate it.
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When does an economic recession occur?
An economic recession occurs during a period of time (usually six or more consecutive months) in which unemployment increases and business and industrial activity decrease. The gross domestic product (GDP) of a country decreases indicating slower or negative economic growth.
Household and business spending across the country is restricted for two or more quarters of the year. This leads to massive layoffs and rapidly rising unemployment.
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How do face an economic recession in the United States?
Whether or not a recession is looming in the United States, there are several ways you can prepare and plan your budget for any economic change:
1. Focus on paying down your debts and avoid going deeper into debt during a recession
Make a list of each debt you currently have and identify very well how much you owe and what interest rates you are handling. Make a plan to put more of your income toward the debts that have the highest interest rates. Consider paying off those that are tax deductible first, like education loans, for example, to get a cash refund during tax season. Avoid taking on more debt during a recession.
2 . Keep up with your usual retirement contributions during the recession
Whether you have a 401k plan or not, try to keep your contributions budgeted. It’s understandable to be scared of investing money while a recession is looming, but keeping up can benefit you in the long run.
3. Review your monthly budget again
Review the detail of your monthly expenses and choose those that you can eliminate. Are you spending too much on coffee? On outings to eat? In clothes? You can always save. Buy only what you really need and try to choose generic products instead of brand name products to save a couple of extra dollars during a recession.
4. During an economic downturn, contribute more to your emergency fund
After eliminating those unnecessary expenses, it is important that you manage to increase your savings budget as much as possible for you. The idea is to save 20% of your income and allocate 30% to “extra” expenses such as subscriptions and memberships (such as Netflix, HBO, iCloud, etc.). After you’ve lowered your out-of-pocket expenses, schedule higher automatic payments to your emergency fund. If you lose your job during the recession, or unexpected expenses arrive, your emergency fund will be available to help you in this situation.
5 . Don’t rule out thrift stores during a recession
One of the things you can do is buy clothes and electronics from thrift stores, whether it’s Goodwill, the Salvation Army, pawnshops, or Craigslist. One of the advantages of Craigslist is that you can search for sellers in your area, to avoid driving and save gas.
6 . What to do with investments during a recession?
If you have invested in something before the recession, calmly assess the situation. Whether your investments are doing well or not, avoid making emotional money decisions. If the market takes a turn for the worse, consider taking advantage of any upside. Contact a trusted financial advisor before making any big changes.
7. Update your resume and add competitive skills
Remember that there are free online learning platforms like YouTube and LinkedIn courses to enhance your resume and LinkedIn profile. Try to demonstrate your strengths and abilities during meetings to show your value. Improving your skills could help increase your value as an employee and your earning potential. Networking is also key to meeting more workers and professionals in your area and thus exploring more job opportunities.
8. Think of new ideas to earn extra money
You can spend time thinking of a business idea that can help you earn extra money. Things like being an outside consultant, doing freelance work, taking care of pets, decorating parties, doing crafts, babysitting, or working at Uber could give you additional income. Directly deposit your extra earnings into your savings account for an additional financial cushion.
9. Know the government public assistance programs
There are times when your salary does not cover your basic needs. It is important that you know that there are programs in the United States that can help you.
Check to see if you are eligible for programs like the food stamp program, homeowner assistance fund, farmers market nutrition program, or rental assistance program. All of these federal programs are coordinated by their respective states. Also, check in your own state, they may also offer additional assistance.
You can also look for assistance programs from nonprofit organizations, from help finding housing, food banks, or help to pay your utilities. National organizations like Feeding America have food banks in every state in the country. Ample Harvest, Hunger Free America, and Food Rescue US offer maps that let you find food banks near you.
10. Take care of your mental health during an economic downturn
It is clear that financial difficulties generate strong anxiety in individuals and families. Find free resources to understand your situation and take care of your emotional health.
If you don’t have health insurance, you can look for therapists who offer low-cost services. You can search for therapists in the FindTreament.gov and Anxiety and Depression Associated of America directories. You can also find help specific to our community at Latinx Therapy.