.A recession is a period when the economy slows down, usually due to a decline in business or employment.
The term “recession” was first used by British economist John Maynard Keynes in his book “The Economic Consequences of the Peace.” He defined it as “a period of reduced activity in the national income and employment.”
In other words, a recession is when there are fewer jobs available and fewer people are working.
An economic recession is a period of low economic activity. It can be caused by some factors, including:
The loss of jobs due to automation or other factors.
A decrease in consumer spending.
A decrease in business investment.
A reduction in government spending.
Pay Down Debt
Pay down high-interest debt first. It’s tempting to pay off smaller balances first, but you’ll save more in the long run by focusing on the larger debts. “It’s better to make one extra payment during good years than to pay an extra $20 a month,” says Lewitt.
The interest rate on your mortgage or car loan may be lower than your credit card interest rate, so make sure you’re paying off the highest-interest debt first—even if it means sacrificing some of your other financial priorities for now.
Pay down low-balance accounts second. If you have two accounts with similar balances and different interest rates, focus on paying off the account with higher interest; this way, even though both loans will become unsecured debts once they’re paid off (meaning that creditors can’t take them from you).
One of them will still cost less in terms of monthly payments and fees over time because it has a lower starting balance and higher monthly payments during repayment.
Have Less Debt
If you are carrying high-interest debt like credit card balances, personal loans and mortgages, now is the time to pay down this debt. Make a plan to pay off these debts in the next few years.
While paying down high-interest debt is important, it’s also smart to start saving for an emergency fund.
The average family can use about $1000 for an emergency fund, but you may need more or less depending on your situation and what you have saved already.
Increase Your Cash Reserves
It’s important to build up your cash reserves so that you can weather a recession without having to make drastic changes.
The best way to do this is by cutting back on spending, avoiding debt and cutting out frivolous expenses like eating out or paying for services that you don’t need. If you’re already in debt, try working on paying off the debt before an economic downturn hits.
If your business has taken on too much debt or if it’s not doing well financially, consider closing down or laying off employees until things improve economically.
Negotiate For A Raise
When the economy is in good shape, it’s easier to negotiate for a raise. But don’t wait until you’ve been at your job for five years and have no bargaining power whatsoever.
Negotiate a raise when you have good reasons to be asking for one: a good track record of performance, experience doing work similar to what’s required by your company and/or in the industry as a whole, or an emerging skill set that will help you stand out among your peers.
If possible, try to negotiate with someone who knows how much value you bring to the company—your manager or an executive team member—rather than just going straight through HR or another departmental intermediary (who may not fully grasp what makes you special).
And remember that when considering whether it’s worth asking for more money from an employer whose bottom line isn’t impacted by your decision.
Consider also how much longer-term impact this could have on your personal finances and career trajectory; if there’s any way that having more money now could prevent problems down the road.
Say in terms of paying off debt early enough so that interest doesn’t pile on top of interest later on—it could be worth going ahead anyway!
Improve Your Job Security
- Think about what you can do to make yourself more valuable to your employer.
- Be proactive in finding out what skills your employer is looking for.
- Learn new skills that will help you if/when there are layoffs or downsizing (e.g., computer programming).
- Improve your communication and time management skills so that you’re an asset no matter the business climate.
- Improve your problem-solving skills so that they aren’t a liability when times get tough.
Stop Spending Money Like There Is No Tomorrow
A recession can be a great opportunity to save money and get out of debt. But it’s important to realize that your lifestyle needs to change if you want to avoid being in a poor financial situation. Some of the best things that you can do include:
Stop going out to eat at restaurants or ordering takeout. You are likely eating much better at home than what you’d find at most restaurants anyway!
Plus, if you’re eating in more often, then it means less money spent on entertainment and more money for savings/investments (which we’ll talk about in a minute).
Stop buying expensive gifts for birthdays and holidays. Instead of buying new toys or clothes for kids each year, try saving up so that they only receive one present per holiday instead of two or three.
Just buy them something small but personal like their favorite candy bar or toothbrush holder instead!
Save Up An Emergency Fund
The most important thing you can do to prepare for a recession is to have an emergency fund.
This is the money you have on hand in case of a job loss, medical emergency, or other unexpected expense. Ideally, your emergency fund will be enough to cover at least three-to-six months’ worth of living expenses (the exact number depends on your monthly spending habits).
How To Do This
To save up this much cash as quickly as possible and still take advantage of any opportunities that come your way during a recession. Consider finding an interest-bearing savings account that pays dividends on top of its base interest rate.
These accounts often offer 1% – 2% more than traditional banks like Chase or Bank of America would provide without all the bells and whistles.
For example, Ally offers one such account with no minimum deposit requirement and 1% APY (annual percentage yield) for balances under $100k.
If you’re looking for more flexibility when it comes time for tax season filing next year but still want some extra income coming in overtime then look into opening up multiple accounts with them instead!
It’s important to prepare for an economic downturn by doing things like increasing your cash reserves. Also, you should lower debt now so that you can thrive during a recession if it happens.
An economic downturn is when the economy experiences a period of reduced growth or even negative growth. This often happens when there’s a drop in consumer spending, which can be caused by many things:
A reduction in household income. For example, if you lose your job or get fired from it.
An increase in unemployment rates. If more people are unemployed and not earning money to spend goods and services, it will reduce demand.s. This means business owners will have fewer customers.
So they may lay off employees or cut employee hours to try to keep their business profitable during tough times. Some maybe even close down completely and move somewhere where there aren’t as many people who need jobs).
Economic downturns aren’t always caused by these reasons alone. Some other factors contribute as well such as geopolitical events like trade wars between countries.
Natural disasters are another factor. Examples are hurricanes that destroy infrastructure like roads/bridges/electricity grids. It makes it impossible for businesses would otherwise use them for shipping goods to nearby cities where consumers live.
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