recession, recession. Everyone has been talking about this topic
lately. Some say a recession is almost here, others say it has
already begun. But, what is a recession exactly?
First,
lets get to the definition of a recession and then I will give you
some tips on how you could recession-proof your life.
Well,
technically, a recession is when the GDP or gross domestic product is
showing two consecutive quarters of negative economic growth. While
they are extremely unpleasant, recessions are a normal part of the
business cycle and typically, well, last for six to eighteen months.
What makes a recession noticeable to you and I is when it starts
affecting our wallets.
So
how can you spot a recession before it comes?
-
Watch
the Gross Domestic Product or GDP. If there’s a sudden drop in the
domestic product and production, there’s a chance a recession
might be coming. -
You
can also watch the value of the US dollar. If the value drops while
other currencies maintain their value or rise, it can sometimes mean
an impending recession. Obviously when you see a drop in the dollar
value, it is always in relation to other currencies. What we have
seen lately is the dollar moving down, and that is obviously a
precursor to the recession we are witnessing right now. That is
also a real good forward forecasting method to see if a recession is
going to be around the corner.
Recession-Proof
Your Life
Now,
the really important part…how to recession proof your life. It’s
all about planning ahead.
- Start paying off that bad debt. By ‘bad’
I mean those high interest credit cards and late fees. Combine all of
your debt into a much better scenario for yourselves. Find the low
interest rate possible, and you’ll have more success in
balancing those books further down the line. - Start a side business
that can help keep you afloat should the economy take a turn for the
worse and you’re laid off or have, you know, maybe your hours cut.
Obviously it is all about planning ahead. - Make sure you continually
invest in your 401K plan as much as you can. Think about it, stocks
are low and you get more for your money right now. Take that extra
money you have and put it somewhere you know it’s going to grow no
matter what happens to the economy. - Make sure to refinance your
mortgage and get a lower interest rate. This will help you save big
time during a recession.
So, what are you doing…
Good advice sir – good advice.
But um, that 401K, at this point I’d never advise anyone to add additional money as a source of recession-proofing their life. Right now all the markets are doing horrible. Most people have employer matches and that’s good – so your contribution of 100.00 is really 150.00 – problem is that when that money is invested, loses are going to happen, not necessarily gains. I’m seeing people lose thousands of dollars a month from their 401K balances. Because of the federal statutes, there’s not much that can be done in regards to pulling your money out. It’s really a bad situation. All people can really do is go to zero percent or wait until the enrollment period to decrease their percentages.
But I’m a young guy, you know, from the microwave generation. Who knows, maybe if people stick to keeping their money in their 401K when the economy is on the uprise, they’ll be good to go. But at what cost?
Actually, I’ve rebudgeted my life and even created a general ledger system for myself to analyze my spending/savings situations (I know…working in finance has it’s downsides). I’ve increased my actual savings to 44% of my net take home pay. Because I’m salary that savings amount stays the same for 12 months. I have it being automatically deposited into a savings only account. It takes discipline not to touch it. The reward for me is knowing that I won’t lose money, like I am in my 401K (which I’ve stopped by the way). In re-budgeting, I also have all the money necessary for my necessities and I do mean necessities (tithes, bills, groceries, debt payments, haircut, transportation, etc) going to a specific checking account which has no debit card, just checks. This makes bill pay a breeze. If I’ve over allocated for the month, that extra goes into that savings account.
For my regular play around money (which a brotha has to have) I have that going into a checking account with a debit card. It’s minimal, but that’s my allowance to enjoy life.
This has helped me tremendously. I have been able to save thousands this way and if I keep this up, I’ll have quite a proud nest egg in a few months.
So, I’ve:
1. Rebudgeted my ENTIRE life – everything gets approved based on what’s been allocated. If I don’t have the money allocated, it has to wait.
2. I automatically have money deposited into three different accounts. I do a monthly analysis to determine if I’m on point.
3. I live below my means.
4. I don’t touch my savings…plain and simple.
-DTW
My 401K statements are depressing to look at these days but I’ve been told by the more experienced investors not to stop contributing so I won’t.
Please explain why we shouldn’t, as DTW did, stop investing in our 401k in times like these.