Although it is impossible to know the future with certainty, several macroeconomic indicators have led many economists to think that the United States is on track for a recession in the coming months. How can you protect your finances?
What is a recession?
In general terms, it is a prolonged decrease in economic activity, for example, when the variation rate of the Gross Domestic Product (GDP) of a country is negative for two consecutive quarters.
When this happens, the level of consumption usually drops, with this some companies reduce their payroll and unemployment increases. Multiple authors consider that recessions are normal, they are part of economic cycles. No country is immune to this.
In the 21st century, the United States has experienced at least three recessions, the longest being the Great Recession from December 2007 to June 2009.
How strong will a new recession be?
Today the economy is affected by factors such as: the COVID-19 pandemic, high inflation, a prolonged conflict between Russia and Ukraine, high fuel prices, shortages of certain inputs, along with unusual behavior of government bonds.
These factors are not unique to the United States, almost the entire planet experiences these same problems in their economies. Despite this, there is a difference.
In the last year, there is a high demand for labor in the United States, in 2021 many people left their jobs, and a record number of new companies were created. So for now, high unemployment doesn't seem to be an underlying concern.
What to do?
Here are some recommendations from economists like Rob Williams of Charles Schwab and John N. Friedman of Brown University.
1) Keep your job
In times of uncertainty, it is not a good idea to leave a stable job to venture elsewhere. If there are layoffs, workers with less time in the company tend to be let go.
2) Eliminate unnecessary expenses
It is a good idea to establish an emergency fund, and you might be able to do it step by step, by eliminating unnecessary expenses. For example, if you are one of those who eat out several times a week, replace at least two of those meals with foods prepared at home. You can also cut out streaming services you don't use, or forget about those new shoes if you don't need them, plus consider a staycation.
3) Prioritize your debts
In this system it’s almost impossible not to have debts, but not all debt is created equal. Try to get rid of high-interest debt like credit cards.
Remember that you can negotiate with your creditors. For example, if you have a big medical bill, you have the right to call the hospital and ask them to lower your bill or even extend the payment time, without being charged for it.
4) If you have a business, be creative
Faced with the threat of less consumption, it is essential that small businesses seek to separate themselves from their competition. The businesses that are going to recover the fastest are the ones that are the most flexible and creative. Small businesses, because they can be more agile, can respond faster to changes.
5) Don't panic
Many people tend to react emotionally to news such as a possible economic crisis, but the ideal is to remain calm, plan ahead, prepare, evaluate your options and stay well-informed with serious media, such as La Noticia.
While the thought of a recession can be unnerving, if you plan properly, you may even find valuable opportunities to grow professionally and financially.
In the words of William George Ward: “The pessimist complains about the wind, the optimist hopes it will change, and the realist adjusts the sails.”
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