Earlier this year the dreaded “R” word – Recession – was on everyone’s mind. And with good reason. Recall how poorly the US economy appeared this past winter, with inflation persisting, interest rates rising, corporate profits waning and consumer confidence sliding into an abyss. Fast forward to July and (for now at least) it is a different story altogether. Fears of a recession have subsided as the US economy has remained buoyant. Analysts are lately forecasting that 2023 will end on a high note giving hope to investors of clawing back some of the nest egg value lost in last year’s decline.
While overjoyed at this year’s rebound, I think we all know how the story ends. Soon, perhaps in early 2024, the economic engine stalls, business contracts, unemployment rises, and consumers close their wallets and purses. Recession becomes the new reality. But hey – we have all been here before. We made it through the COVID years. We will get through our next economic collapse and emerge even stronger. In the meantime, and in anticipation of our next recession, here are a few things to focus on now to be better prepared.
Review Your Monthly Budget
Did your discretionary spending increase post-COVID as a response to being housebound for so long? Many Americans have been on a spending spree since the darkest days of the pandemic. Now is a good time to look at your monthly bank, credit card and payment service statements to see if there’s some fluff you can cut.
Homeowners especially have felt the impact of higher inflation. Utilities, energy, home insurance and mortgage interest costs now take up a greater share of the monthly budget than ever before. Look for ways now to trim fixed costs and try to avoid increasing monthly fixed costs where possible.
As consumers one and all we should always remember to focus our spending on those things that move us toward our goals. The best advice on spending is to eliminate spending on the things you can do without or don’t really bring you joy.
Reduce Your Highest Interest Rate Debt
You don’t need a looming economic recession to heed this suggestion. Anytime is the right time to pay down your highest interest rate loans and credit card debt. The sooner you eliminate the worst offenders in your debt profile the lower your overall interest costs become. And in the process, you may free up some funds for more pressing needs.
Shore Up Your Employment
A robust job market has helped keep the US economy afloat these past few years but with the rise of the gig economy many Americans face greater employment uncertainty when times are tough.
If you currently have a stable, secure job – good for you. Take steps now to make yourself even more indispensable. Take on more responsibility, study and master a new skill, challenge yourself (and your fellow team members) to help your company get through the next downturn.
If your employment is volatile, at risk and less secure, then start planning now for how you might make ends meet if your income is disrupted. Financially, you may want to build up your emergency funds and have a greater cash cushion ahead of the next crisis. Jobwise, you may wish to look for a second (or third!) line of work now while the job market is still humming. You may also consider training in a new field or continuing your education to broaden your skills. And keep networking with others to stay abreast of opportunities.
And finally, keep a good attitude and don’t let economic woes spoil your life. It is natural for the economy to undergo expansion, then slow, and eventually decline before it resets for the next cycle. True, since the great recession of 2008-2009 our economy has delivered an erratic and volatile experience for the average investor, but in no way have events of the last fifteen years signaled the end of the global financial system. Take the good times as they come and prepare for the bad times that follow. When you get the economic blues, put your phone down, close your eyes, take a deep breath, and reflect on all the positives in your life. And if you need help preparing for tough times you can always reach out to your Fiduciary Investment Advisor at American Trust Wealth for sound advice and expert counsel.