What is a recession?
According to the Chartered Professional Accountants of Canada (CPA), a recession is described as "two fiscal quarters of decreased economic activity." This economic activity is measured by the Gross Domestic Product (GDP) of a region. Many factors can contribute to a region's GDP decline. The most notable of these factors are
- High interest rates
- Reduce consumer spending
- Reduction of public spending
- The reduction of capital investments (real estate and technology)
- Increase in imports and decrease in exports
- rising inflation
There are many theories about how these factors manifest themselves. Some think it is due to structural changes in industries (such as rising oil prices), and others think a recession may be due to global events like the Covid-19 outbreak. However, there are no concrete determinants.
How do recessions affect you?
Price increase
Recessions can affect anyone. A recession leads to an increase in the price of goods and services, as well as an increase in unemployment. As a result, consumers will be less willing to spend their money as they normally would. As consumers spend less, there is an oversupply of goods, leading to layoffs , further reducing consumer spending.
Focus on basic needs
During recessions, consumers will tend to focus all of their spending on basic necessities. In terms of entertainment, consumers tend to gravitate towards activities they can do at home; these are usually the least expensive options. For this reason, the restaurant, retail and hospitality sector will feel the impact of a recession more than other sectors. Students and recent graduates will have a harder time finding work, whether full or part- time .
More hardship for vulnerable people
Recessions do not affect everyone equally. In general, people who are already financially vulnerable will feel the effects of a recession more than wealthy people. Additionally, people who have invested in stocks, real estate, or other assets may end up with a negative return on investment. Mortgages can be more difficult to pay, since many people will be late on their payments.
Because recessions can cause a big change in the way people live their lives, they can also bring about changes in mental health. Fortunately, there are things you can do before a recession hits that will help you survive.
What you can do to survive a recession
Analyze your finances and identify your priorities
One thing you should always do, even if you don't fear a recession, is to look at your financial situation. Take stock of every penny that goes into your account , as well as every penny that goes out. Next, write down all your expenses and try to figure out which ones you could do without. Make a list of all your needs and create a priority list.
Save
Even if you don't feel like you need to cut back, if you think a recession is imminent, you should focus your energy on saving before it happens. In particular, you will have to save money.
Since recessions typically last around two quarters, you should set aside enough money to last three to six months. It is a safety net in case of job loss or unexpected expenses.
If you don't have three to six months of cash, set that financial goal before the recession hits. To do this, you'll need to create a quote (or edit an existing one).
Focus on paying your debts if you can
If you have debt, you should try to pay it off (or pay off most of it) before the recession hits. This way, you can make sure your money is spent on all the things you need instead of on your debts. When prices go up, the money you can spend on necessities goes down. So you don't want to make it difficult to buy the things you need by spending a large chunk of your paychecks on debt.
Also, if you lose your job during a recession, you will have no way to pay your debts, which will cause your credit rating to drop or your debts to be sent to collection agencies. When you're in financial difficulty, the last thing you need is to worry about being harassed by debt collectors.
Ask for help
If you are having trouble paying your debts, contact your creditors as soon as possible . Let them know your situation and see if you can work out a payment arrangement. The sooner you tell your creditors, the more likely they are to be lenient with you. If you cannot reach an agreement with your creditors, contact a licensed bankruptcy trustee. An LIT can help you reorganize your budget and find solutions to your debts that are perfectly adapted to your personal situation.
Have a backup plan in case of layoff
Since recessions lead to higher unemployment, you should consider having a backup plan in case you get laid off. To do this, optimize and update your CV and try to expand your professional network. If you don't already have a LinkedIn account, now is the perfect time to create one. LinkedIn is an easy and accessible way to connect with potential employers and employees who work in the same field as you. Many recruiters also contact people through this professional network for job opportunities.
It can also be useful for learning new skills. There are many tools online that will allow you to do this for a fairly low price. Udemy offers courses in a wide variety of different fields, including web development, digital marketing, data science, Photoshop, and graphic design. These are powerful tools and skills that you can further develop in your spare time. You could even do some freelance work if you're looking for some extra income.
Create and control a budget
When the economic situation is unfavorable, it is crucial to create something that will make your condition more stable. At this point, the budget plays an important role. The budget allows you to control the money that goes in and out of your account.
Start by counting all the income you have, whatever they may be (employment, additional income, parallel activities, etc.), then all expenses. If your expenses vary from month to month, consider looking at previous bank statements and averaging all your expenses over the past six months. This will give you an idea of what you need to reserve each month. It is also important that you try to see if it is possible to reduce expenses, in order to save more money.
If you are heavily in debt and can no longer afford your expenses, call a licensed debt manager. A manager will be able to help you in your goal of getting rid of all your financial debts at once. Their goal is to ensure that you no longer have to deal with the stress that comes with debt. You will start again.
.png)
