On January 28, 2021, the Washington Post ran a headline asking, Is The U.S. Still In A Recession?
And in February 2021, FoxBusiness.com ran a headline stating, US Economy Poised To See Historic Gains In 2021 After Covid. Yet another headline, this one from March 2021 on Yahoo!Finance, stating, The 2021 Recession Will Be Long And Lingering.
That’s a lot of worry in those headlines. There’s just one problem with skimming headlines like these–context is EVERYTHING. For example, the “long and lingering” recession mentioned in the Yahoo!Finance headline above? If you felt a wee bit of panic after reading that, know that this particular headline refers to AUSTRALIA’s economy.
And that is one reason why I continually advise people who worry about their finances in the troubled economic times we’re experiencing in 2021 to take a deep breath, avoid panic, and examine the facts.
Diversify Your Savings And Investing Plans
And what are those facts? Those who want to save money and secure their financial futures know or will soon learn that diversity in their economic plans is key. If you do not have a diversified financial plan for your income and debts, one that does not rely on a single factor or a small number of steady factors to maintain the status quo, you are at a disadvantage with or without a recession. What does this mean? Let’s examine the panic-inducing word “recession” first.
The National Bureau of Economic Research defines “recession” as follows:
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” In the context of this definition, a recession starts after a peak of activity and ends “as the economy reaches its trough.”
And what do people do when these economic conditions hit? They shift their priorities to being more frugal. Eating in restaurants drops in a recession, the interest in buying new vehicles and other high-dollar items diminishes…people simply start trying to hang on to their money. Why?
What It Means To Be In A Recession
According to the U.S. Bureau of Labor Statistics these measures are taken because consumer priority shifts in a recession to a conservation of cash. Scarcity of disposable income forces consumers to revise their indulgences, their long-term plans, etc. Manufacturers and consumer goods companies may hold off on investing in infrastructure and other areas as they wait out the recession and hope for rising sales in the future.
What should you do in anticipation of or in mitigation of a recession? The “don’t panic” advice is sound, as is all the other advice you have read on this blog about cutting corners, reducing indulgences in favor of long-term savings plans, etc. are all sound advice.
Don’t rush into brand new austerity plans for your personal finances–examine what you are doing RIGHT NOW and see how you can up your game from where you are currently at. It may make sense to revise your financial plans if you don’t really have them well thought out or organized, but if you are already following some saving advice, make sure you really need to alter that plan first–you may just need to add some tweaks.
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