Recession, a period of time when there is a decline in trade, business activity and jobs. When the economy is booming, it’s easy to think that this kind of thing only happens in third-world countries or during The Great Depression. However, recessions are natural and necessary corrections within the economy that keep it from overheating and contracting. For those who don’t know what recession means; let us break it down for you! This is when businesses aren’t doing as well as usual and they have to cut back on costs by not hiring new people or reducing the hours of current employees. There are many different causes for recessions but they all have one thing in common and that’s when businesses have to make cuts to keep their business going smoothly and profitable again. Whether you’re just starting out in your career or you’re mid-career with years of experience under your belt, understanding how a recession can impact your personal finances can help you take actionable steps towards protecting yourself. That’s why we’ve put together this handy guide so that you can be better equipped for any economic downturns in the future.
Just What is a Recession?
A recession is defined as two consecutive quarters of decline in GDP. GDP measures the overall health of a nation’s economy, so it’s a good place to start when discussing what a recession is. The two most common types of recessions are endogenously-generated recessions, which are triggered by internal forces within the economy, and exogenously-generated recessions, which are triggered by external forces outside of the economy.
How Does a Recession Affect You?
A recession will impact your personal finances in a few different ways. The first impact it will have is on the job market. This is because the economy will generally slow down during a recession, which means that employers will be less likely to hire new employees. This can lead to you having one or more of the following problems. You may have trouble finding a job, especially if you’re just starting out in your career. You may have a harder time advancing in your current job if you’re already employed. And you may see a reduction in your hours or pay if you’re employed full-time. Unfortunately, a recession may also impact your credit score. If you’re in a situation where you’re having difficulty making your loan payments, your credit score can make a difference in whether your lender decides to take action against you. Unfortunately, a recession may also impact your credit score. If you’re in a situation where you’re having difficulty making your loan payments, your credit score can make a difference in whether your lender decides to take action against you.
Who Is Most Impacted by a Recession?
Generally, people who are just starting out in their careers, who have limited job experience or who are in lower-wage positions are likely to be the most affected. This is because they often have fewer savings or other resources to fall back on when they lose a job or see their hours reduced. People who have been in the workforce for a long time, who have more savings or who have access to other sources of income may not be as impacted. However, even those people could use a recession as an opportunity to reassess their financial situation to see what changes they can make to protect themselves in the future.
Strategies to Survive and Thrive During a Recession
First, be as cash-flow aware as possible. Being cash-flow aware means that you are aware of how much money is coming into your bank account versus how much money is going out. Having a good handle on these numbers will help you know when you may need to make cuts or put money aside to prepare for a potential downturn. This can be as simple as keeping a simple spreadsheet that has your monthly income and expenses listed out so that you can see at a glance how much money is coming in versus how much money is going out. Next, if you’re employed, make sure you have a solid savings plan in place. Keeping a comfortable amount in savings can help you make it through a periodic economic downturn. You never know when you may lose a source of income due to a layoff or reduction in hours, or when an unexpected expense could arise. Having a savings account or some other source of money set aside can help you avoid getting into debt during these situations.
A recession is an unfortunate part of the economic cycle that happens every so often. However, it doesn’t have to be an insurmountable obstacle. By keeping a close eye on your personal finances and being prepared to make adjustments as needed, you can survive and even thrive during a recession. This is when businesses aren’t doing as well as usual and they have to cut back on costs by not hiring new people or reducing the hours of current employees. There are many different causes of recessions but they all have one thing in common and that’s when businesses have to make cuts to keep their business going smoothly and profitable again.