There’s a lot of chatter about the recession these days. Furthermore, while no one can predict whether the country will enter a recession—an official recession isn’t declared until it has already begun—there are a few things to be aware of in times of economic instability.
For starters, avoid incurring new debt if possible, including cosigning on a loan with someone else. If you’re worried about a recession, these are five things you shouldn’t do.
What exactly is a recession?
The first step is to comprehend what a recession is and what produces it. When GDP decreases for two consecutive quarters, it is considered a recession. Nevertheless, this is not the official definition.
The Business Cycle Dating Committee of the National Bureau of Economic Research says that a business cycle is a big drop in economic activity that happens everywhere and lasts for more than a few months.
When economists try to predict a recession, they look at the job market, how much people and businesses spend, how much money they make, and how much industry is making. There are no specific criteria for detecting a recession, but these are the factors that are taken into account.
What Should You Avoid Doing During a Recession?
Whether we’re in a recession or just about to go into one, changing economic conditions usually require a close look at your current and future goals.
Don’t ignore your interest rates.
Increasing interest rates are sometimes associated with recessions, so be cautious about your debt. Whether you have debt, such as credit cards, an auto loan, or a mortgage, make sure you pay it on time, every time. Companies that can raise your rate due to a late payment will seize the opportunity when interest rates climb.
Strive to pay off any variable-rate debt you have. Credit cards are frequently the largest problem here, so put any extra money you have towards paying off credit card debt. If you have an adjustable-rate mortgage or a home equity line, that should be the next item on your to-do list.
Don’t incur new debt.
In times of economic instability, avoid incurring new debt. Don’t take on any adjustable-rate debt in particular. If you must obtain a new loan or mortgage, make sure it has a set interest rate.
Also, keep an eye on interest rates so you can refinance if they fall again. If you must open a new credit card, seek one with a 0% APR promotional offer for the first six months.
Cosigning for a child or someone else is one way to avoid taking on new debt. If you cosign a mortgage or other loan, you are equally liable for the debt as the individual who took out the loan.
If they are unable to pay, the lender will come after you, charging whatever interest rate was agreed upon when the loan was issued.
Don’t be a slacker at work.
Recessions affect both businesses and consumers, and enterprises are frequently forced to slash costs. During a recession, layoffs are likely, so make sure you’re not the first person the manager thinks of when they need to let someone go. Going above and beyond for the company will improve your value and, hopefully, lower your chances of being laid off.
The best-case scenario is that you keep your current job, but you should also be ready for the worst-case scenario. Maintain your résumé and network in case you are let off. That way, you’ll be ready to seize any new possibilities that arise.
Don’t chase the next big investment opportunity.
This is not the time to increase the level of risk in your investment portfolio. Make sure your investments are spread out enough so that you don’t have too much money in one company or industry, and think about moving some of your money from riskier investments to safer ones.
Beware of investments that seem too good to be true. They normally are, and this is especially true during difficult economic times. Desperate people will do desperate things to make a buck, even if it means exploiting others. Conduct your research on any potential investment opportunities to ensure they are legitimate.
Don’t Forget About Cash
When it comes to investing returns, cash has been the poor stepchild for numerous years. But as interest rates rise, cash becomes more appealing, and banks compete for their share of this flight to safety.
Putting some money into cash can protect you not only against the low market returns that are frequent during a recession, but it can also help you take advantage of rising interest rates.
Also, if you are laid off, you will have a cash cushion to help you until you can find another job.
Where Should You Store Your Money?
Look for the best interest rate available, which could be a high-yield savings account or a money market account at an online bank.
Certificates of deposit, or CDs, are another acceptable alternative, but you must designate how long you will leave the money at the bank. If that doesn’t appeal to you, seek out a no-penalty CD, which allows you to take your money before the end of the term without incurring a penalty.
Recessions, while never pleasant, are an unavoidable aspect of the business cycle. Making wise financial decisions during times of recession or economic instability will help you weather the storm and plan for brighter times ahead.