What is recession and what can I do?
#1. An inevitable part of the business cycle
Recession is when the national economy shrinks for two consecutive quarters (three-month periods). Roughly speaking, we’ve had a recession per decade since World War II. Although the recession we’re staring at now feels unique and extreme … the truth is that recessions always feel unique and extreme.
#2. This one’s broad and deep
Traditionally, recessions hit hardest in a handful of specific industries. The knock-ons are felt in associated sectors and supply chains – and the impact multiplies. This one’s slightly different because the energy crisis is causing immediate and direct pain to all industries, suppliers, individuals, households …
#3. We have more control than it seems
We’ve lived through two-plus years of pandemic. Europe is at war. The country’s leadership has changed and we have, very sadly, lost the Monarch that served us for 70 years. It’s super easy to feel like things are all beyond our control, but that’s not entirely true. We can still control and manage our money.
Don’t panic
Recessions happen and we get through them. No one’s saying it’ll be easy, but recessions are usually (not always) an opportunity for the economy to recalibrate what it is, does and means as people, markets and patterns evolve.
Though change is afoot, the principles of good money management remain constant:
- Budget: look carefully at money coming in (your income) and money going out (your spending) and keep the former higher than the latter.
- Live within your means: look at your non-essential spending and assess whether you need to make cuts. Ditto your essential spending (food, bills, services) – you may want to explore alternative providers and products.
- Pay expensive debt: reduce any debt (if you can) that carries a high-interest rate, and try to avoid taking out new debt while times are volatile.
- Save money: it might not be easy, but try to keep building up your emergency fund so you’ve something to fall back on. And if you can afford to keep your long term savings (e.g. pensions) going – do.
- Measure twice, cut once: don’t make any sudden big financial decisions unless you feel you utterly comfortable that you aren’t exposing yourself to undue risk. If it’s a good decision now it’ll be a good decision in stable times too.
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