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You might have heard rumblings that a recession is looming. Recession. Just hearing that word can cause some people to clench their teeth, clutch their chest, and run to the bank.
But we’re here to tell you how you can be ready but not frantic. So, relax. You don’t need to build a bunker, you don’t need to stuff all your cash under your mattress, and you definitely don’t need to wear a tinfoil hat on your head.
Bottom line? Don’t freak out!
Here is how we recommend preparing for a recession.
What Is a Recession?
Be honest: You were thinking it. If it’s been a hot minute since you’ve been in an economics class, allow us to get you up to speed.
The National Bureau of Economic Research says a recession happens when there is a “significant decline in economic activity spread across the economy, lasting more than a few months.”1This shrinking is measured by the GDP (gross domestic product), which is otherwise known as all the goods and services made and produced by the American economy.
Still with us? A recession is just a big word to describe when the economy stops growing. And instead of things eventually hitting an upward swing, the economic growth continues to shrink for two quarters (that’s six months, folks).
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And when that downturn starts looking like a continued trend, people tend to get . . . uneasy.
When Is the Next Recession
Well, let us consult our crystal ball and tell you—oh wait, that didn’t work. The truth is, nobody knows when the next recession will hit. You can listen to all the talking heads from every news outlet out there, but until a recession actually happens, it’s all just speculation and best guesses.
Remember, in order to call it a “recession” you need to see an economic downturn for six months or two consecutive quarters. We haven’t even seen that for one quarter yet! You can tell the government, the nightly news, and your Aunt Edna to go ahead and calm down now.
"It's not the end of the freakin' world. What matters is what's happening at your house." — Dave Ramsey
How to Prepare for the Next Recession
We get it. Talk of a recession on the rise can be scary. But it’s important not to give in to the fearmongering out there, and instead, focus that energy on making sure your own personal economic standing is where it should be.
At the end of the day, you need to have your own house in order. That’s going to matter a lot more than what’s happening on Wall Street or at the White House.
Recession or not, our proven plan remains the same: Live on a budget, pay off debt, save for emergencies, invest, and live and give like no one else.
If You Have Debt . . .
Don’t let rumors of a looming recession be the boogeyman that keeps you from paying off debt. Maybe you’ve been slowly chipping away at your debt and haven’t made too many big sacrifices so far. Now could be the time to really go out of your way to get rid of it even faster than you were planning. Instead of paying off that car loan in the next three years, maybe it’s time to sell the car outright, pay off that debt, and drive a basic (but paid-for) car.
If You’re Saving . . .
Keep saving! Having an emergency fund is never a bad idea. Think of it this way: If a recession were to happen, you could rest easy knowing you have your emergency fund in place. Your emergency fund is the buffer you need between you and life all the time, not just when there’s talk of a recession.
If You’re Investing . . .
When you hear the word recession, you might think you need to sell your stocks and step away from investing. But hold on, take a breath, and don’t do anything out of fear. Dave says it time and time again: Investing is a roller-coaster ride, and you don’t want to hop off the coaster while it’s still going! Instead, wait. Ride it out. Stocks rise and fall all the time.
Don’t pull your stocks because some dude on the news (who you’ve never heard of before) told you to do it. If you’re feeling stumped when it comes to investing, connect with a trusted SmartVestor Pro who can help you make good investment decisions and talk you through your options.
Get Your Own Personal Economy in Order
Remember, a recession means the economy as a whole is in a slump for six months. And at this point in the game, that hasn’t happened yet. But what is happening is your life. The money decisions you make every day impact you more than anything an “economic expert” could predict.
What have the last six months been like at your house? Think about it. Have your finances been in a recession of their own? If you’ve had a downtick, now is the time to turn it around. Don’t wait for a recession to get your money in order. Get intentional about how you handle your money now.
If you follow the money principles we teach in Financial Peace University, you can be successful in both the good economic times and the bad. You will be okay.
It’s time to stop freaking out about a recession and start taking care of your own personal economy. You got this!