As we prepare to flip the calendar for another year, many financial experts around the world are beginning to try and predict what the year will have in store. Unfortunately, some of the most famous experts have predicted that a recession or depression could be headed our way.
But what does this mean for humanity? And what proof do they have of their claims? Keep reading to find out.
Why Do Experts Think a Recession is Coming?
Ever since the COVID pandemic of 2020 and 2021, the economy around the world has been in a precarious balance. Not only was a lot of money printed during these years to keep people afloat, but the way they spent money changed.
During the pandemic, people were using their recently printed money for bills which included large amounts of spending at the grocery store as opposed to restaurants because restaurants were closed. Additionally, many companies began to invest in equipment to keep their employees at home rather than spend money on a physical office space. Above all else, government spending on healthcare increased astronomically as they tried to prevent COVID from spreading.
Not only that, but because people had to spend more time at home and less time out, many people purchased a new house or apartment with more space. While this kept the housing market booming, it also increased the inflation rate of houses and the materials used to build houses.
As a result of these changes in spending, inflation has been out of control, causing the US government to raise interest rates in an attempt to slow it. So far, it hasn’t helped nearly as much as they had hoped. Therefore, many experts have begun to warn people of the further recession and even depression that they believe is coming.
Is a Recession Coming?
Unfortunately, the experts are likely correct this time around, as a recession has already started. One thing that people didn’t consider as economies recovered from COVID times is how short-lived the after-effects would be.
Look at it this way, the average person schedules a vacation at least six months, but usually closer to a year in advance. Thus, when shutdowns began to happen in March 2020, many people received credits for their travel plans which included flight and hotel vouchers.
When most COVID19 restrictions were lifted at the beginning of 2022, people began to book these trips, creating an increased demand in the tourism and travel industries as not only were people redeeming the vouchers they had, but they were also purchasing new trips.
As a result of this increased spending, many tour and travel companies began to hire more staff and report better earnings as they both redeemed vouchers and took on new passengers. But the problem was that demand wasn’t really there; rather, it was inflated.
So now, as almost everyone has redeemed the COVID trip vouchers, the numbers the airlines and tour industry are reporting are falling, causing these companies to report losses as they try to continue paying the employees they recently over-hired.
This brings us back to what the experts have seen, and that is the fact that the tour industry is the first of the industries to begin having a cash flow problem, but it is expected that other industries will follow. This means, based on what has happened, that it is highly likely that some sort of recession is headed our way. While we won’t give into the fear-mongering and claim a depression, it is possible that economic markets could stop rising in 2024.
What Should You Do to Prepare Financially?
Of course, the prospect of a depression, or even just a recession, is scary. But it’s important to know that as a whole, humanity always manages to climb out of economic depressions. Although they can be scary, there isn’t a need to panic, just a need to approach financial matters more carefully.
Below are the steps you should take to evaluate your finances as a recession looms.
1. Re-Evaluate Your Income
Is your income based on performance? Or are you salaried? If it’s the former and you expect there to be fewer customers in the future, it might be a good idea to start saving more (and scaling back your budget) now. If your job is salaried, look at your position in the company and consider whether or not you are at risk of being laid off. If you are, scale back your spending now.
2. Re-Do Your Household Budget
Once you know whether or not you need to scale back, it’s time to take a look at your household budget and make some cuts. Do you really need all the subscription services you currently pay for? Or can you get rid of some? If you are struggling to make cuts, here are some areas we suggest looking at below.
· Cook at home instead of eating out.
· Skip some weekend activities like movies or shopping and head to a park instead.
· Go down to just one subscription service.
3. Save More Aggressively
After you have made some cuts, it is likely that you will have some extra cash in your accounts. Don’t spend this money. Instead, you’ll want to save it just in case you need it to make ends meet in the coming months or replace part of your income which could become unstable.
4. Lower Investment Risk Levels
Here at MintDice, we always recommend long-term investing. Therefore, while it might seem like a good idea to pull investments out of the market, don’t do it. Rather, we recommend swapping some high-risk investments for some lower ones. For example, instead of investing more in Bitcoin, maybe swap your investing to the Dow ETF or S&5 500 ETF.
This doesn’t mean you should sell your Bitcoin, just that you should consider whether or not you will need that money soon, and some places to put it where you won’t have to withdraw it at an enormous loss in an emergency.
Overall, it can be difficult to prepare when you know tough financial times may be ahead but as long as you keep a cool head and don’t panic sell everything, chances are you will be just fine. Just remember to be patient, plan ahead, and that all recessions end at some point!
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