No Recession, No Problem, Being Prepared Is The Key

New data reveals that the majority of U.S. families take the potential of an economic recession seriously. An eighty-four percent survey of respondents expressed concern about a recession before the end of this year. Data indicates that American families are already taking steps to prepare for a recession. A whopping seventy-six percent said they are making lifestyle adjustments in preparation for the downturn, according to the latest Real Financial Progress Index from the financial group BMO.

The most common financial adjustment is postponing significant expenditures such as a home or vehicle (34%). This is followed by plans to reduce holiday spending (28%) and pay down debt (29%)

The poll of over 3,400 American adults was conducted between July 27 and August 29. Furthermore, 74% of Americans reported that their inflation fears had worsened.

According to Tina DeGustino, head of the consumer strategy at BMO, confidence has fallen since last year and even three months ago.

Some experts warn that a recession is imminent. Many people believe the United States has already entered a recession, and some experts warn that a recession is coming. An economic recession is typically characterized by two consecutive quarters of negative growth and additional conditions, such as substantial job losses.

The initial portion of this computation is already accurate: According to the Bureau of Economic Analysis, economic activity decreased by 1.6% and 0.6%, respectively, for the first two quarters of 2022. (A third-quarter estimate will be provided on October 27.)

Nevertheless, the labor market remains tight. According to statistics published by the U.S. Bureau of Labor Statistics, unemployment remains low at 3.5%.

Inflation persists in its elevated state.

Moreover, consistently rising inflation — 8.2% over the last year — puts pressure on household budgets and drives the Federal Reserve to continue raising interest rates. In theory, by increasing the cost of borrowing money, the expenditure would decrease, resulting in slowing consumer demand and reducing inflationary pressure. However, this can also result in job or income loss, typically the major source of distress for households during a recession.

David Mendels, director of planning at Creative Financial Concepts in New York, stated if we enter a recession, it does not always indicate that it will be severe or endure for a long time. It doesn’t mean you’ll lose your job, and even if you do, it doesn’t mean you won’t find another.

Having emergency funds is crucial.

Nonetheless, he stated that having a cash buffer in case of job loss is a smart idea regardless of the state of the economy.

Idealistically you should have six to twelve months’ worth of income in savings, Mendels said. Even when there is no recession, bad things can occur.

Remember that while you should generally put your emergency savings in a cash account, earning more on your money is possible. According to Kathryn Hauer, a CFP with Wilson David Investment Advisors in Aiken, South Carolina, depending on where you keep it makes a big difference.

Hauer suggests you “Open a high-yield savings account to retain your money.”

In conclusion, if you’re concerned about the impact of a recession on your financial security, you should consider changing your budget to develop a financial buffer.

Mendels stated if you have a safety net, you can face the future with greater confidence.

Additionally, he suggested that it may be advantageous to obtain a home equity line of credit but not use it. Then, if you are unemployed, you have access to cash. Mendels stated you would emerge from unemployment with debt, but you would be able to feed and not fall behind on other expenses.