Recessions are a natural part of the economy. They are hard to predict with accuracy and usually start before anyone even knows they’re happening. And before economists have enough data, they’re over. In fact, they are usually very short. There have been 13 recessions in the U.S. since the end of the Great Depression, and nine of them have lasted less than a year.
A recession’s impacts on individuals can be much larger and longer-lasting, causing permanent financial damage to those who are unprepared to ride out the short-term implications and get back on their feet quickly. It is not only important but crucial to take steps to protect yourself and your family from the potential consequences of a recession.
Let’s take a closer look at what a recession is and what you can do to ensure you are as prepared as possible for the next recession.
What is a Recession?
A recession is generally considered to be a slowdown in economic activity as calculated by GDP (gross domestic product) which lasts two or more consecutive quarters. The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”.
Looking beyond the dry textbook definition, this is what it entails for average people.
With rising unemployment rates during a recession, individuals and families struggle to find work to pay the bills every month. The inability to find a job can be stressful, scary, and upsetting, and can lead to even more problems. Here’s what you can do to mitigate these negative circumstances.
Short-term solutions could include making a claim for unemployment, borrowing money from friends or relatives, and taking a job with lower pay. Long-term solutions can include working closely with headhunters and recruiters to find a higher-paying job, returning to school while on unemployment, and relocating.
Moving to a new city for work can also open up new career opportunities. However, there are a lot of costs associated with a move. It should also not be seen as a last resort. In reality, being open to job opportunities in different areas can expand a job search significantly.
Real Estate Values
Recessions can lead to a decrease in borrowing money, and after an economic downturn, families might become more fiscally responsible. Less debt and greater responsibility will lead to better management of money and financial life that is stress-free.
A lot of families depend on the value of their homes as part of their retirement plan. Nevertheless, during a recession, real estate values drop dramatically, and foreclosures rise, driving many families out of their homes. During an economic downturn, real estate can no longer be seen as a safe investment. To keep your investments safe, here is what you can do.
Over time, the prices of real estate can shift, so families should try to maintain ownership of their homes, if at all possible. Through refinancing loans, homeowners may be able to avoid foreclosure. Homeowners may also benefit by renting out a room in their homes to third parties to cover some mortgage costs.
We will be updating our blog for more tips and tricks on how to prepare for a recession. Stay tuned on social media to get the first look into each blog post when they come up!
If you have any questions on how to prepare yourself for a recession, please call RMLEFCU at (303) 458-6660.