Make Ends Meet: What to do in case of a recession
LOUISVILLE, Ky. (WAVE) - When it comes to putting a finger on exactly what is going on now, and what will happen next for American families on the finance front, the signs are certainly hard to read.
Depending on who is speaking or who someone is listening to, we’re either heading for a recession, we are already in a recession or we will be fine.
The word recession can cause anxiety when a person thinks about what can happen during that time. Unemployment levels usually rise, investment loss increases and lenders tighten standards for loans.
Understanding how to get through that challenging time can ease the uncertainty and apprehension.
Marcus Warren, a financial advisor and founder of Warren Wealth Management & Tax Planning, focuses on tax and income planning for his clients while also sharing his financial knowledge on radio, television and in the office.
“If you take a look at what’s affecting the U.S. economy, you will see a lot,” Warren said. “A prolonged labor shortage, supply chain disruptions, historic low unemployment, historic high inflation, an increase in interest rates and a war in Ukraine that is affecting the world. There’s just all these things. All these ingredients that’s in the gumbo that we call the economy that is a lot different than things use to be.”
It is important to understand what constitutes a recession.
“A recession is six months of negative growth for our economy,” Warren said. “It’s hard to pinpoint when a recession will start, how long it will last and just how much hardship it may bring to you family, the community, and the economy.”
Warren said there is one thing people should really focus on and that is their own household.
“Pay attention to your personal economy,” Warren said.
A person should take responsibility for themself. Do not leave it to chance, especially when it comes to financial stability.
“Make sure you have an emergency fund,” Warren said.
Rule of thumb, put away at least three to six months’ worth in that fund.
“Start to pay down some of your debt,” Warren stressed.
Paying off debt lowers monthly interest expense and frees up income for other needs.
“Of course, you have to have a budget,” Warren said. “Decide your needs versus your wants. Cut out those wants. Spend money on your needs right now.”
Warren said this may also be the perfect time to recession-proof your employment. Big tech companies like Netflix and Meta have already announced a hiring freeze and layoffs.
Ford Motor Company announced it could cut 8,000 salaried jobs across the nation.
“Try to make yourself invaluable at work,” Warren shared. “Try to learn a new skill. Update your resume.”
Inflation and interest rates tend to move in the same direction. The Federal Reserve’s number one job is controlling the supply of money in the country’s economy.
Raising interest rates will hopefully reduce overall demand in the economy. That, in turn, should in theory slow down price growth.
“They’ll raise interest rates,” Warren said. “They’ll take that step back, try to balance things to try to see what happens with spending and job growth. They’ll make an assessment, and they’ll probably have to do it again.”
Prepare for what may come down the economic pike. A person should do what they can now.
In the wise words of Benjamin Franklin, “By failing to prepare, you are preparing to fail.”
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