Key Points and Latest News about the Recession:
Not sure how to prepare for the recession? Here are the key points and the latest news:
- Many Forecasters Predict A Recession Starting Sometime In 2023
- Inflation Is A Big Risk Factor For This Recession, With The Highest Levels In 40 Years
- Saving And Establishing An Emergency Fund Can Help Prepare For Financial Hardships
- Debt Management Can Help Lower Existing Financial Burdens
- Investment Help And Ideas For Growing Wealth During Economic Downturns
- Recession Preparation And Changing Your Mindset
Is a Recession Coming in 2023?
The key to not only surviving but thriving in the upcoming recession is to have a thorough understanding of what is happening and what it means for you personally. When searching for Recession 2023, Google includes things to know and what their search algorithms determine to be relevant, they list a likelihood of 96% and a timeframe of late 2023 to early 2024. Many forecasters predict it as early as the first quarter of 2023, but nearly all predict a recession sometime in the next two years, most likely this coming year of 2023. There are many ways to prepare for the recession.
The Conference Board predicts the likelihood of a recession in the United States at 96% within the next twelve months. According to the Organization for Economic Co-operation and Development (OECD), the main worries for the coming year are the large increase in fuel prices, the slowing of growth worldwide, and the continued problem of persistent inflation. Fannie Mae predicts that a recession will begin sometime in the first quarter of 2023. However, in a poll conducted by Reuters, 60% of economists suggested that the recession will begin sometime next year.
A report from March of last year from Harvard suggests that a recession in the next 12 to 24 months is historically very high, almost guaranteed. The added economic stresses of the war in Ukraine and the subsequent supply shocks also increase the probability of a recession and make it very difficult for the Federal Reserve to achieve a so-called soft landing in the economy. The report’s writers argue that the Reserve has only managed to successfully execute a soft landing to prevent a recession once in the past six decades. The situation was not as dire as it is now and did not include the added complexities of a major conflict in Europe. However, it is still important to prepare for the recession.
Additional Resources for Recession 2023:
How Inflation Could Lead to a Recession
One of the biggest differences between this recession and previous ones is inflation. The problem with inflation is not that it is new, but rather that its severity is the highest it has ever been. Inflation is a major factor in the economy now, and for the foreseeable future, so it is best to understand what it is and how to deal with it. Wikipedia defines inflation as “an increase in the general price level of goods and services in an economy.”
The Federal Reserve has raised the interest rate paid on reserve balances and seems keen to continue increasing the rate in the future. This will most likely result in a recession, as the higher cost of borrowing leads to households and businesses cutting back on spending and investment. It is possible that the Federal Reserve could lower inflation and still result in a soft landing for the economy. Still, it is not likely, and most analysts believe a recession is likely in the coming months.
Essentially, inflation is the erosion of the purchasing power of money- in this case, your money. One of the most important factors to understand is changing your mindset about money- specifically, the value of money. With the almost runaway increase in inflation over the past couple of years since the pandemic, $50,000 today is not worth what it was in 2020-far less so, in fact. If you want to prepare for the recession, you will need to understand inflation.
This is where understanding the concept of the Time Value of Money, or TVM, becomes critical to surviving the upcoming economic downturn. TVM is also sometimes called the present discounted value, but one can think of it as inflation in reverse. If a dollar is worth less tomorrow, the corollary must be that it is worth more today. This understanding is key to proper investment and necessary to maintain, if not grow, the buying power of your wealth for the future.
Additional Resources for Inflation and How to Prepare for the Recession:
Prepare for the Recession with a Savings and Emergency Fund
One of the best ways to help yourself during a recession or financial hardships is to save money. It may seem difficult, but with a little dedication and creativity, you can stretch your budget far enough to help you get through tough times. Start by cutting back on unnecessary expenses such as eating out and entertainment. Look for cheaper alternatives, like online streaming services! Saving is a difficult habit to get into. But, once it becomes part of your lifestyle, you’ll be surprised how much you can save when a recession hits.
A recent study shows that 47% of Americans couldn’t handle a $500 unexpected expense without trouble. That means that nearly half of Americans don’t have $500 in a savings account to be used in an emergency. That is a major problem. This is why Max Cash® has a variety of financial services on offer to help in a sudden emergency, including multiple credit cards designed to build your credit, but the purpose of this guide is to limit the reliance on such products in the future.
Another way to help yourself during a recession is to build an emergency fund. It’s important to set aside money in case of unexpected expenses or income loss. Start building it up today to make sure your emergency fund is ready when a recession hits. Aim to save a portion of your income each month and put it aside in a separate account. That way, you don’t make the mistake of using it for unnecessary expenses.
After establishing an emergency fund of at least $500, to put you in the better category of 53% of Americans that can handle such an emergency expense, a great way to begin making your money work harder for you is to pay down your debts to free more money for saving or expenditures. While an emergency fund is recommended to be able to cover around six months of expenses, this can be unrealistic and discouraging, according to Paul Golden, a spokesman for the National Endowment for Financial Education based in Dallas.
That is why it is best to start with a reasonable goal of $500 in an emergency fund and then move on from there, to say, $1,000 and continue snowballing your savings into more cushion to approach the ideal of several months of expenses on hand in case of emergency.
Additional Resources for Saving Money in a Recession:
Loan Questions and Answers
Can You Get a Loan During a Recession?
Getting a loan during a recession typically becomes more difficult, as lenders tend to tighten their restrictions during an economic downturn. But, it is still possible and may be necessary. While getting a loan during a recession may be harder, the steps to do so remain essentially the same.
This is why having and maintaining a good credit score is so important, especially during a recession. Learn more about building and maintaining credit scores on the Max Cash site today. Also, keep in mind that various loan products may be available to help you during hard times.
What are the Reasons to Get a Loan in an Economic Decline?
- Debt Consolidation: As discussed in this guide previously under the topic of debt reduction, a debt consolidation loan can save you money each month and help you pay off your debts faster and cheaper than just leaving them as individual payments. Learn more about debt consolidation through Max Cash to see if you can save money and make paying down your debt more convenient and manageable with a single monthly payment. This can be a great way to build your credit during a recession and stay on top of your debt.
- Home Repairs: Owning a home is very important and rewarding, but it does come with the responsibilities of maintaining and repairing your home as needed. The most likely suspects when it comes to unexpected repair bills are your home’s electrical, plumbing, and HVAC systems, with water and termite damage also being common issues for homeowners. Since many Americans struggle with coming up with just $500 for surprise bills, it isn’t surprising that home repairs can be a cause for seeking out a loan, especially during tough economic times.
- Large Purchases: While not technically a part of your house, large appliances and other large purchases can easily be a reason to need to apply for a loan, and those needs don’t disappear during a recession. In fact, a recession can often be the catalyst for just such a necessity. But with the variety of loan and credit offers available at Max Cash, we can help you find the right fit for you.
- Car Repair: It is an unfortunate fact of life that your car almost always waits to break down or need a costly repair around the holidays or some other inconvenient time. Title loans and other forms of credit can be used to get you back on the road again as soon as possible. Max Cash offers numerous financing services and options that can help cover the cost of unexpected car
- Unexpected Bills and Emergency Expenses: The most common unexpected bills are emergency medical expenses and veterinary bills, and they can be both expensive and cause a lot of worry. But such events are best handled in a timely manner, and a loan can help ease the worry about being able to afford them when the worst happens.
The Next Steps to Apply for a Loan in a Recession
You’ll need to provide some key information if you are pursuing a loan with most lenders. Some standard requirements for loan applications include the following:
- Personal Information such as proof of identity and address
- Proof of employment
- An income report and debt-to-income ratio
- Credit score and report, including repayment history
- Assets you have available to secure a loan
- Down payment information and how large a loan you need
Can I Get a Loan During a Recession if My Credit is Poor?
While lending restrictions may be tougher during a recession, there are still options with less than optimal credit. Max Cash offers one of the largest and widest selections of loan products, including title, installment, and personal loans as well as credit card offers with low-interest rates. Starting and maintaining good credit is important, but it is still possible to rebuild your credit even during economic downturns when loan restrictions tighten. It just may require shopping around and seeking out lenders that specialize in those with worse credit scores, and the largest issue may be a higher interest rate than you would otherwise get. But it is almost always better to have the money when you need it rather than go without it as you try to build credit. To better prepare for the recession, you will need to build your credit history.
Manage Debt and Prepare for the Recession
This idea of snowballing as a method for reducing debt has been proven effective and reliable! Reducing your debt is the best way to prepare for the recession. There are financial and psychological benefits for consumers to take advantage of. There are two main methods of using extra money available in a budget to help reduce your debt, the first being called the snowball method, and the second is the avalanche method. Both methods involve taking all extra available funds to put toward debt, they just differ in how debts are prioritized.
The snowball method prioritizes the smallest debt, so that once it is paid off, the excess and minimum payments can then be snowballed into the next smallest debt and so on, so that it builds momentum and pays off debts in a way that can be felt. This is very useful for behavioral finance and building a psychologically reinforced habit to pay down debts and increase savings. The downside to the snowball method is that it doesn’t prioritize the highest-interest debt first, but only the amount. However, all those that have used this method find it very effective, and the psychological impacts should not be ignored.
The avalanche method, in contrast, prioritizes the highest interest rate debt first over the sizes. This can lead to less overall interest paid and is often chosen when a person is shown a breakdown of total debt and total paid over time. However, it has a less psychological impact in that the debts don’t feel like they are going away as fast as with the snowball method. When shown the difference, most individuals will choose the avalanche method. But, this requires work and usually an outside perspective and a financial professional. In contrast, the snowball method is easy and effective for DIY.
Most examples forgo accruing interest for simplicity, but this is exactly where the avalanche method differs and improves on the snowball method, in that you pay less interest and fewer overall payments over time due to tackling the highest interest debt first. That is why combining the two can be the best method, depending on an individual’s financial needs and experience.
A recession can be an opportunity to become financially savvy if you take advantage of it. Look for ways to reduce debt, such as consolidating loans or negotiating with creditors. You can also use this time to learn more about budgeting and investing to better prepare for the future. Max Cash offers many loan products and services at competitive rates.4 5
Additional Resources for Debt Management: to Prepare for the Recession:
Investment and Growing Wealth to Prepare for the Recession
Investment strategies can also be helpful in maintaining the purchasing power of your wealth, even during a recession. With rising interest rates, many are turning to bonds and savings vehicles as they become more viable, and stocks become less attractive due to volatility and the likely drop in price during the coming recession. There are many online savings accounts and Certificate of Deposit (CDs) that offer competitive interest rates.
While stocks may not be the first choice, there are ways of investing and vehicles that may hold their value better during harsher economic climates. Exchange Traded Funds (ETFs) are a popular way to follow the market rather than try to beat it. If looking at purchasing new stocks, possibly buying into dips, one of the best ways to keep a positive long-term investment in a recession or volatile times is what is known as dollar-cost averaging. This is the method of buying a set dollar amount of anything you wish to invest in at set intervals, particularly useful in either volatile economic times or volatile investments to decrease anxiety and provide a more weighted average cost for the investment over time.
All these methods and more can help maintain and grow your investments and purchasing power of your money during uncertain economic times. None of this should be construed as specific investment advice but rather general tips. Always consult a financial professional before investing, as risk is an inherent factor for nearly all investment vehicles.
Additional Resources for Investments:
Prepare for the Recession: What You Need to Know About 2023
A recession is never easy. But, if you have a plan in place and are willing to make sacrifices, you’ll be better equipped to handle it. With this information, you can prepare for the recession! If you save money, build an emergency fund, and learn more about the economy as part of your recession plan, that can help ensure you’re better prepared in case financial hardship strikes.
Take the necessary steps to ensure you’re prepared for whatever comes your way. Recession can be difficult, but having a plan and being proactive can make it easier. Learn how to budget, save money creatively, and build an emergency fund that will last through any economic downturns. With dedication and creativity, you will be able to weather the storm of recession and come out stronger on the other side!
Remember, a recession doesn’t have to be a burden if you take the right steps. You have the tools to prepare for the recession!
With dedication and creativity, you can make it through the recession with minimal stress and come out stronger on the other side.