Recession worries? What should I do


On January 28, 2021, the Washington Post made a headline and asked: Is the US Still in Recession?

And in February 2021, made a headline saying: The US economy is facing historic gains in 2021 after Covid. Another headline from March 2021 on Yahoo! Finance, in the following words: The 2021 recession will be long and persistent.

That’s a lot of concern in these headlines. There’s only one problem with skimming headlines like this: the context is EVERYTHING. For example, the one in the Yahoo! Finance “long and persistent” recession mentioned above? If you panicked a little after reading this, you know this headline is related to the AUSTRALIA economy.

And that’s one reason why I keep advising people worried about their finances during tough economic times in 2021 to take a deep breath, avoid panic, and investigate the facts.

Diversify your savings and investment plans

And what are these facts? Those looking to save money and secure their financial future know, or will soon find out, that diversity is key in their economic plans. Unless you have a diversified financial plan for your income and debt that does not rely on a single factor or a small number of stable factors to maintain the status quo, you are at a disadvantage, with or without a recession. What does that mean? First, let’s examine the panic-inducing word “recession”.

The National Bureau of Economic Research defines “recession” as follows:

“A recession is a marked decline in economic activity across the economy, lasting more than a few months and usually seen in real GDP, real income, employment, industrial production, and wholesale and retail trade.” Under this definition, a recession begins after the peak of activity and ends “when the economy hits the bottom”.

And what do people do when these economic conditions occur? They are shifting their priorities to being more economical. Food in restaurants plummets in a recession, interest in buying new vehicles and other high-priced items fades … people are just trying to hold on to their money. Why?

What it means to be in a recession

According to the US Bureau of Labor Statistics, these measures are being taken because the priority of consumers to preserve cash in a recession shifts. The scarcity of disposable income is forcing consumers to revise their indulgences, long-term plans, etc. Manufacturers and consumer goods companies can withhold investments in infrastructure and other areas while they wait for the recession and hope for higher sales in the future.

What should you do to anticipate or mitigate a recession? The “don’t panic” advice is sound, as is all of the other advice you’ve read on this blog about cutting corners, cutting down on drains in favor of long-term savings plans, and so on.

Don’t rush into brand new personal finance savings plans – check out what you are doing NOW and see how you can improve your game from your current location. It can make sense to revise your financial plans if you haven’t really thought out or organized them well. However, if you are already following some savings advice, make sure that you really need to change that plan first – you may just need to add some improvements.

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