Brace or build for a recession? YES!!
Sometimes I torture a perfectly good metaphor. I think I’m on to something, so hang with me. If I’m way off, feel free to leave a comment below. 😊 Most cooks worth their salt prepare for what they will serve to a certain number of folks on a certain date. They inventory the pantry and fridge. Do they have enough staples like flour, eggs and sugar? Do they have enough of the special spice in reserve for the delicious dessert? As the dinner party date approaches, it becomes even more important for their storehouses to be appropriately stocked.
Lots of events are happening in the financial sector on top of significant global unrest. The combination of these factors could bring about an economic recession on a worldwide scale. What does a recession mean? Lower economic activity – consumers conserving their resources; higher unemployment – businesses reducing costs by altering their workforce; and the businesses that are operating are slowing down production because demand is lower. The duration of the downturn varies from one cycle to another. According to a January 2023 Forbes magazine article, “recessions can last from a few weeks to several years.” It goes on to quote data from the National Bureau of Economic Research, stating, “between 1854 and 2022, the average recession lasted 17 months. But when you shorten the timeframe to between WWII and today, the average recession lasted just 10 months.” Average means it could be shorter or longer.
How long do recessions last? Forbes, January 2023
What does this mean for your planning? Just that, make a plan and implement it. How much do you have in savings? Think of this as the flour or eggs. For the next 6 – 9 months, do you need to divert income to bulk up on that account? If you are in a vulnerable industry (hospitality, entertainment, arts, food service) as an employee or business owner, you may consider increasing the reserves. I’m not coming for your Starbucks or subscriptions. You have to determine what the cut line is in your spending plan that enables you to save more aggressively. If you are in a more stable industry (legal, accounting, computer science), your strategy may be to continue contributing to your retirement accounts, but slightly decrease the contribution for a few quarters. If your company does a percentage match, keep the required match amount, then consider where to store the difference. Consider a savings account with a decent APY. Nerd Wallet is a great go-to for that information. This is the special seasoning. Don’t need much, but having some on hand is important.
I see the world mostly sunny side up, so these choppy economic waters could be just the catalyst necessary to ignite the creative juices. What skills, certificates, professional development, or services/products could you acquire to build your position as an employee and employer? Perhaps you have thought about making a change. Have the important conversations with your partner and family to talk through and weigh the options. A new pathway could be waiting for you! See the earlier blog entitled Financial Investigators Wanted! for some tips on a potential career pivot.
The challenge with a recession is that it never tells you the exact arrival date. Financial experts have been watching the indicators for months, and even they don’t agree with the approximate timing. It is incumbent on us to be an active participant in our financial lives. We cannot wait for things to happen to us and then adjust. Take the control that you can to brace and build up your resources. Even if we catch a huge break and the challenges we feel looming never come about, remember, no one ever complained about having too much flour in their pantry or eggs in their fridge.
Let’s act! The 50/70/100 principle. What is the 50% uncomfortable, the 70% incremental and 100% vital that you can think about and do? If you want to talk about it, drop us a note at letstalk@studiomfinancial.net. Until we meet…keep working on the change.