One would have thought that life would slowly return to normal after more than two years of the Covid Pandemic. Not quite! With the ongoing Ukraine-Russia war, supply chain disruptions raised inflation, and higher interest rates, experts believe we are on the brink of an economic recession.
What is a recession exactly?
Let's refresh our minds with the economic term. As described by Forbes, a recession "is when the economy's performance decreases for an extended period of several months, marked by GDP contraction, higher unemployment rates, and lower consumer spending."
What is happening?
A survey conducted on US grounds showed that 74% of consumers are concerned about a potential recession, and 85% are troubled by the increased inflation rates. 56% of consumers are experiencing a decline in their standard of living. Even though this survey only covers the opinion of American citizens, it has a lot to say regarding one of the world's biggest economies. The truth is the global economy has been experiencing a downturn in activity. Prices worldwide have skyrocketed as a byproduct of economic sanctions and supply chain fluctuations.
Should you be prepared?
Financial experts are quick to debate the odds of a potential economic recession. Some point out there is a 50% probability of a US recession in the coming year, while others object, stating the number goes down to 30%. However, one thing the Covid 19 pandemic has taught us is the importance of being prepared. Whether a recession is coming or not, one should always have a plan in place.
Here is what you can do to prepare:
1. Know where you stand financially
One of the worst parts of a recession is the total uncertainty it triggers. It is of the utmost importance (now and always) to know where you are financially. Think about liquidity, debts, and expenses. To make it easier, ask yourself these questions:
How much cash do I have on hand? How fast can I get it?
What are my essential monthly expenses? (Have a number in mind)
How much debt do I have?
2. Emergency fund
Now that you have an idea of your financial grounds, think about your emergency fund. An emergency fund is a personal budget for unexpected events or mishaps. To create it, gather three to six months' worth of expenses and set it aside. Think rent, utilities, groceries, and health needs. This fund serves as a safety net for the ambiguity of a financial downturn.
3. Think about the present and future of your career
One of the ramifications of an economic recession is higher levels of unemployment. Brace yourself for any situation that may affect your career. Shall you face a layoff, be ready for impact. To do this, refresh your resume and improve potential job opportunities, regardless of the economic situation. Enhancing your professional network can also be of aid in tough times. Having firm connections within the industry can give you an advantage in the job market.
Note: Whether or not an economic recession is around the corner, following these financial steps will surely come with some benefits.