A recession is a period where there is a slowdown in economic activities. During this time, there is usually a noticeable decline in all economic activities. There is a reduction in income, gross domestic product and employment. In addition, it affects the rate of manufacturing and sales of products. Anytime there is a decrease in income and employment opportunities, a country’s economic output is usually decreased. During this period, you will hear about a recession in the economy. When this happens, it spreads to all sectors of the economy and lasts for a while.
During a recession, there is usually a high rate of inflation, and many people struggle to survive daily. In the worst case, employment opportunities remain steadily slow. It is typically a dilemma because there is a general drop in all economic activities. However, a typical recession lasts for an average of 11 months. Some were shorter, while others were longer in their duration.
Mistakes you should avoid during a recession?
During a recession, there are some things you should never do. This is because you need to save your finances. If you want to survive during the downturn, ensure you read this piece till the end.
Here are the mistakes to avoid in order to save your finances during a recession.
Not building an emergency fund
The importance of an emergency fund cannot be overemphasised. Your emergency fund will be helpful when you are faced with uncertainty. This helps you to avoid bad debt in case you lose your job or if your business is not going as expected. In life, you need to be prepared for the unexpected financially. Unexpected financial blows often happen to people close to us. What makes you think that it cannot happen to you as well? There are times that people fall ill and cannot go to work for a while. During this time, you can take financial shelter from your emergency fund.
When planning a budget, don’t forget to include an emergency fund. Don’t forget that you will need something to fix your car if it should unexpectedly break down. If you have only a source of income, make this compulsory. If you are yet to start, begin now and build your emergency fund as fast as you can. Many people presently have a job that doesn’t allow them to enjoy unemployment benefits. If you find yourself in this type of job, please, build an emergency fund before something happens to the job.
Don’t pause your retirement contributions
During a recession, this is usually tempting to do. Your retirement fund is essential, and it helps you conserve a lot of cash. If you already have a retirement contribution, keep going, don’t stop because of a looming recession. Many people usually suggest stopping the contribution and continuing when the recession stops. However, the question is, “when is the recession going to end?” “what if it lasts longer than expected?” These are important questions that you need to consider before taking action. There are many reasons why you should begin to save for your retirement. One of such reasons is that it helps you to defer the taxes you owe on earnings that compound on your investment. As a worker in any company, ask questions and do your research. There are retirement plans that you can consider keying into. This will benefit you in many ways in the future. In case you don’t have that, you can consider opening a retirement account of your own. As a self-employed individual, you are not exempted from this. If you need more clarification on this, you can do comprehensive research or seek the counsel of a financial advisor.
Quitting the financial market
If you are an investor, one of the greatest mistakes to make during a recession is selling out of the market. For instance, the stock market is highly volatile. When a downturn occurs, don’t panic. All you need to do is devise a strategy for survival. Don’t sell your investment because you will likely make a huge loss. You will be paid an amount not up to your initial investment. It is usual for stock prices to plummet during a recession or crisis. However, this should not push you to make hasty decisions that will not benefit you in the long run. It is advised that all investors should diversify their investment options and have some money saved for emergencies.
Pay your debt
If you have a debt, it is best to pay it before a recession occurs. Before anything, you need to prioritise paying a high-interest debt. This will help you save more instead of trying to pay it off during a recession when the economy is generally slow. During a recession, it is challenging to pay off any debt and still survive.
Have an additional income source
An additional income means more money. It isn’t easy to live from paycheck to paycheck. If you have a job, develop a skill that can bring you more money or consider starting a profitable business. Extra income can be used to pay off debt, and there will be more for you to invest.
Finally, after a recession, the expansionary phase is next. This is because a recession usually causes a contraction in a country’s economy. Once the recession is over, the country’s economy will have to return to its initial state. Then, it began to expand and grow more than it was before the recession. In many developing countries, a recession has caused citizens to be depressed. This is because the recession periods last longer than they expected. A recession has a significant effect on the lives of people. This is why individuals need to take care of themselves and always have something to rely on. When the economy is good, and everything is going smoothly, don’t forget to save and invest.
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Recommended books for further reading:
- Building a story brand by Donald Miller
- Unshakable by Tony Robbins
- Influence; the psychology of persuasion by Robert B. Cialdini
- The psychology of selling by Brain Tracy
- The one thing by Gary Killer and Jay Papasan
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