What Is A Recession: How to Get Ready for Hard Times

Fears are growing that the economy has or will start shrinking, but you can still take steps to help get you through tough financial times.

It seems that every day, another financial expert predicts that the United States will enter a recession soon

Last week saw the biggest interest rate hike in 28 years, in the Federal Reserve’s effort to combat inflation. As the economy continues to deal with sky-high gas prices, a wobbly stock market and an ongoing labor shortage, it’s looking increasingly like we’re going to see economic activity decline, which tends to correlate with rising unemployment, stock market declines, and cut backs in pay and benefits. 

But here’s the thing, it’s entirely possible that we’re already in a recession, and just don’t know it yet, according to Howard Dvorkin, CPA and Chairman of Debt.com. 

What Is A Recession?

“Economists define a recession as two consecutive quarters of negative growth – which means production drops and unemployment rises. There’s a problem baked into that definition: You can’t know for sure if you’re in a recession for almost six months,” says Dvorkin. “We can read the tea leaves and make educated guesses, but we can’t confirm those until two quarters are nearly over. By then, of course, it’s too late to prepare.”

So at the moment, it’s unclear whether or not we’re actually in a recession, as we won’t know until we have two reported quarters of regression, though there was a decline in the Gross Domestic Product (the total value of goods and services produced in a country in a given period of time) in the first quarter of the year. 

It’s not ideal to start preparing for a possible recession when one finally arrives, but better late than never.

“Preparing for a recession is like preparing for a natural disaster: You do it even though you aren’t sure exactly when you’ll need it. I live in hurricane country, and I buy my supplies well before hurricane season,” says Dvorkin. “When will one hit me? Hopefully never. But I’m not going to be one of those desperate people fighting to buy the last plywood and bottled water the day before the storm hits.”


How To Prepare For A Recession

Even if you do not personally lose your job, money is still going to be tight during a recession. The two best steps you can take right away are to begin saving for an emergency fund, and looking at how you can save money in your day-to-day spending.

“Always prepare for a recession,” says Dvorkin. “You should always be dropping a few dollars into an emergency fund. You should always be saving the most you can on gas, food, and clothing. Otherwise, by the time a recession hits, you’ll be six months too late.”

Dvorkin points out that a Chase study found more than 70% of consumers “wasted more than $50 per month on recurring payments for things they did not need,” such as unused gym memberships and magazine subscriptions for periodicals that mostly don’t get read. So if you are paying for a gym you don’t go to, consider biting the bullet and canceling. (You can always find free exercise programs on YouTube if you become serious about getting in shape.)

There are apps that can help people find the cheapest grocery stores and gas prices in their area (many of them are local, though Insert Basket is a popular one for groceries and TheStreet has found several to help with gasoline.

But Dvorkin insists that while “there’s no shortage of apps that point you to the cheapest gas or best deals at your local grocery chain, the ‘killer app’ is a budgeting app. 

“That’s the one app to rule them all – because it saves you money all the time. Whether it’s a free app like Mint or a paid app like YNAB, or something your bank or credit union offers on its website, use the latest tech to make the math easy on your monthly expenses. That will save you more than any gasoline app.”

Making a budget for food, expenses and utilities, based on your current salary, while taking note of how much you want to save, what you can skimp on and what you can’t, and then sticking to that budget is a key way to make it through an economic downturn. It’s not easy for some people, but a budget app can help even the most unorganized person get their ducks in a row.

“Recommending a budgeting app is like recommending a brand of mayonnaise. Some people like Kraft, others Hellman’s. But they both do the same thing,” Dvorkin says. “So I’m agnostic, as long as you use one. One welcome trend is the number of banks and credit unions that are adding these budgeting apps to their websites. They might not be as flashy as some of the stand-alone apps, but they get the job done – and for free.”


How To Save Money For An Emergency Fund

Some people don’t have a lot of extra money at the end of the month, or they don’t have a clear idea of how much they actually spend, and on what. That’s where apps like Mint and paying close attention to your credit card bills can really come in handy. 

Even a few dollars put away consistently, month after month, can add up over time. So if you’re not much of a saver, there’s no better time to start than right now.

“Many people get impatient with their emergency budgets. They think, ‘I can’t contribute more than few a dollars a week, so what good will that do?,’ says Dvorkin. “But an emergency fund works for the same reason insurance companies make money off your premiums:  True emergencies don’t happen often. During the good times, you can sock away a small, regular sum that will add up by the time it’s needed.

“Don’t start an emergency fund today and expect to use it tomorrow. Start one now so it’s there for you next year – and hopefully, you won’t need it for many years.”




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Union Capital Financial Group Ltd, registered in the British Virgin Islands, does not provide investment services inside the United States. The company only provides consulting, advisory and educational services.