What is a recession?
A recession is a period of economic decline. It is characterised by falling GDP, high unemployment, and declining consumer confidence. A Recession Stress can have a significant impact on personal and family finances. Economically, a recession is defined as negative GDP (Gross Domestic Product) growth, usually for three or more quarters.
Great answer, so what is a recession?
Yes, in everyday language, for some reason, like high inflation or high-interest rates, people and businesses reduce their spending, particularly their nonessential spending.
This decrease in spending impacts businesses of all sizes and are faced with declining sales and profits during recessions. They may implement cost-cutting measures, including layoffs or spending cuts on marketing, research etc., to try to prevent themselves from going bankrupt. Access to credit becomes more complex as lenders increase their criteria and interest rates, reducing spending. As interest rates go up, those with savings start to get a better deal, and those that already have funds are the winners in a recession.
The impacts of the recession on poor people are significant. Firstly, the unemployment rate rises, meaning fewer jobs are available. This makes it more difficult for poor people to find work and leads to reduced incomes and increased poverty. Additionally, during a recession, the prices of goods and services tend to rise, meaning that the cost of living becomes increasingly expensive for those on a tight budget.
As a result, poor people often have to go without essential items and services, which can hurt their health and wellbeing. Finally, when times are tough, the government tends to reduce its spending on social programmes which help poor people, meaning they lose out on much-needed support. A recession can be very tough for poor people and seriously worsen their situation.
When a recession hits, it can be tough on families. Money is tight, and everyone is feeling the pinch. But there are ways to ease the stress of recession and get through it unscathed. Here are our five tips for managing your finances during a recession.
5 Recession Stress Tips to Help:
1. Don’t Panic & Start Getting Organized
A recession doesn’t have to mean disaster for your finances, so don’t misspend energy stressing. Refocus on what you CAN DO. Getting organised is the first step to managing your finances during a recession. Know where your money is going and make a budget. Track your spending and make sure you are not overspending. Keeping a budget and tracking your income and expenses can help you to stay on top of your finances and make informed decisions about your spending. Having a plan for managing your finances during a recession can help reduce stress and keep you on track.
2. Be realistic & Start Making Cuts
During a recession, you may need to cut your budget. Cut back on unnecessary expenses and focus on essential needs. You may need to tighten your belt but making cuts will help you in the long run. These cuts need to be realistic and sustainable. This may not be your first economic downturn, so reflect on the expenditure you have increased recently, perhaps reducing eating out and, unfortunately, fewer concerts for the time being.
3. Save Money & Invest Wisely
Start saving money now, so you have a cushion in case of tough times. Put away extra money each month into savings or an emergency fund. This will help you cover unexpected expenses or loss of income during a recession. Think carefully about any investments you make during a recession. Only invest in what you can afford to lose, and be sure to diversify your investments.
4. Keep Perspective & Stay Positive
It may be tough but try to stay positive during a recession. This is a temporary setback, and it will eventually end. Focus on the positive aspects of your life and have faith that things will improve. Remember that recession is only temporary, and things will ultimately improve.
5. Stay Disciplined & Stay Informed
During a recession, staying in crucial need with your spending and sticking to your budget is essential. Keeping up with the latest news and information about the recession can help you to make informed decisions about your finances.
Writing this article in August 2022, all the indications are that with rampant inflation and the Bank of England increasing the base rate, all economists are predicting a prolonged recession not far in the future. Now is the time to start putting some of these ideas into action. Indeed, begin clearing any debt you can that has interest attached.
If things get tough, don’t be too proud to seek professional help, we’ve put a couple of links at the bottom, but I’m sure there are lots more. Feel free to add in the comments.
At one time in my life, when HMRC was assessing what assets they could take to cover my debt to them, reading ‘The Consolations of Philosophy” by Alain de Botton gave me great mental respite and positive well-being. A nugget that I remember which helped a lot, “assume the worse, but know it will never be that bad”. I took this nugget one step further and planned what action to take should the worse occur, but that was plan C. Plan A & B were to mitigate against the worse occurring.
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