Just when you thought it was safe to go back into the (economic) waters, economists are warning that another recession may be on its way. While we’ve seen some notable recovery from the last recession, there are signs that some new troubled waters may lie ahead.
Willem Buiter, Citi’s global chief economist, cautioned investors last fall that it was not only “likely” that the world was facing a global recession, but that it may have already started. And while there isn’t an absolute concurrence among the nation’s economists, there is a significant number of experts that do agree. The major reasons?
- Slowed growth. While there has been an upturn in the housing industry and unemployment is lower than it once was, many financial experts believe our overall economic recovery has been slower than expected.
- Oil prices. While the general public is jumping up and down – and topping off their tanks – as oil and gas prices hit record lows, analysts argue that low oil prices are as bad for the economy as the high ones once were. Low oil prices hurt oil stocks, which drags down the rest of the market. Investors begin to worry – and people spend less of that money they save from those lower oil prices.
- The Chinese economy. China is experiencing an economic slowdown – with many experts believing the country’s growth is closer to 4 percent than the 7 percent that was reported. And since China is a leader in the global market, a Chinese slowdown creates a ripple effect throughout the world.
So the bottom line? It’s okay to be optimistic—just don’t bury your head in the sand. In fact, we hope the optimists win out and the economists are dead wrong. But our best advice is this — think like a Boy Scout and “be prepared.”
Here are 5 tips for survival — in case a recession becomes a reality.
- Understand your expenses. All of them – not just gas, groceries and keeping a roof over your head. And yes, that includes your daily Starbucks. Know what you spend every week or month. And then add up your occasional purchases as well. Where is the money going? Are all these expenses really necessary? Where could this money go?
- Make a budget. We won’t sugarcoat it — making a budget is no fun. But seeing real savings at the end of the month – or 6 months — well, that is fun! Make a list of the exact amount you pay each month on recurring bills. Don’t forget periodic bills (such as insurance payments). Then calculate the amount you’ll have left (if anything).
- Save first. Of course you need to pay your bills, but one mistake a lot of people make is paying bills and then squandering the rest on who-knows-what. Set aside a fixed amount in a savings account each time you get your paycheck. If an emergency – or recession – occurs, you’ll be glad you did.
- Pay off and eliminate debt. Pay as much as possible each month toward lowering – or better yet paying off – credit card balances and other debt. If you have major debts (e.g. medical expenses, etc.) talk to the creditor to work out a payment plan. And pay on time to avoid unnecessary late fees.
- Cut back. This is a good one to do before a recession hits and it’s too late. It can take many forms.
- Get a smaller, more fuel-efficient (maybe used) car. Consider moving to a smaller house or condo. Refinance your home to get a better rate.
- De-clutter. Do you really need 67 handbags or 3 lawn mowers? Have a garage sale, take excess items to a consignment shop or turn to craigslist or eBay to make money on those things you don’t need.
- No frills. OK, it doesn’t have to be no frills – but fewer frills can certainly make a difference. Can you cut back on premium cable channels – or do without cable entirely? Try packing your lunch instead of eating out daily. Cut coupons. You’ll be surprised at how much you can save by getting discounts on everything from groceries to clothes. Turn the heat down. And review your cellphone bill.
You can’t stop a recession from coming, but you can weather the storm by putting a few rainy day strategies in place now — while you still can.