Right now, you might be hearing a lot of news about a potential recession, but what does that mean to Kansas individuals and families? As you financially plan for yourself and your family, we’ve compiled this blog to help you understand what a recession is and how it might impact your finances.
What is a recession?
The term “recession” refers to a time of significant economic decline that can last several months or years. Officially, a recession is declared if there are two consecutive quarters of declining gross domestic product (GDP). The National Bureau of Economic Research is generally considered the authority on determining when a period of recession starts and ends.
What causes a recession?
Many things can cause a period of recession. However, a recession is considered to be a natural and healthy part of our economy’s rhythm; there will always be times of growth and contraction.
The following factors have previously led to an economic recession:
- A sudden economic shock, like a pandemic or social crisis
- Excessive debt by a significant amount of individuals or businesses
- Asset bubbles by an inflation of the stock market
- Rapid inflation
- Rapid deflation
- Technological change
What happens in a recession?
First, the economy slows down. This means businesses are producing less, consumers are buying less, and there may be a need for fewer employees. This can lead to layoffs and budget cuts. Second, interest rates rise and the stock market declines.
How does a recession affect me?
A period of recession can affect every person differently, largely depending on their financial and work standing before the period. Everyone will see an increase in general expenses, meaning budgets might need to be tighter. You may personally experience job loss or a pay cut. Additionally, any investments will go through a period of decline.
For those applying for loans, lenders are more likely to hold higher standards for applicants, and interest rates will be higher.
How can I be prepared for a recession?
While financial situations will look very different person-to-person, you should consider reviewing the following to prepare for a time of recession:
- Review your financial plan: Take a look at your short-term and long-term goals, as well as your investments and retirement accounts.
- Review your budget: Check in on where your money is going regularly and what purchases are essential and nonessential.
- Fund your emergency savings: As a rule of thumb, it’s good to have at least three months’ worth of bills in your savings in the event of a layoff.
- Pay down debt: Focus on paying off high-interest debt and improving your credit score.
- Update your resume, network, and earn additional income : Your professional network will become your greatest in the event of a layoff. Side gigs and freelance work are also helpful in creating multiple lines of revenue and security.
To prepare even further, read more about these recession preparation steps in-depth to get your budget and finances in shape.
Secure Your Financial Future with Landmark National Bank
As your work to prepare yourself financially, partner with a financial service that with banking solutions you can depend on. Recognized by Bauer Financial with their highest 5-Star rating for financial strength and stability, we’ll be there for you in all financial seasons. Find a Landmark National Bank branch location near you in Kansas today!The content