How to Beat a Recession in 2022 is paramount to understand in order to ensure your finances are safeguarded. It is commonly understood that the average person suffers badly during recessions. If all the recession talk in the media and the rising cost of, well, almost everything, has left you feeling stressed out and worried, then you are far from alone.
Recessions are indeed very problematic for the person in the street. Most people are forced to make do with less as living expenses soar, and many end up struggling just to get by each month.
The average person typically has less money at the end of each month during a recession, since all prices increase while earnings rates frequently stay constant.
A full-blown recession is not a certainty yet, experts say, but it is increasingly likely. However, panic and worry never solve anything, so, as hard as it might be to stay calm and focus, making some changes now, is a much better course of action to take in 2022.
How to Beat a Recession in 2022
What is a Recession Anyway?
A significant, pervasive, and protracted decline in economic activity is referred to as a recession. A common rule of thumb is that a recession is defined as two consecutive quarters of a country’s Gross Domestic Product (GDP) declines. Recessions frequently last six months or more as a result.
Recessions typically produce declines in economic output, consumer demand, and employment, none of which sounds good for most people. Even though they are a regular occurrence in the economic landscape, recessions have become less frequent and shorter over time. The International Monetary Fund estimates that between 1960 and 2007, 122 recessions impacting 21 advanced economies occurred nearly 10% of the time.
The decreases in economic output and employment that recessions bring about can spiral out of control because they signify a sudden reverse of the generally prevalent rising trend. For instance, the layoffs brought on by less consumer demand reduce the income and spending of the recently unemployed, further weakening demand.
Similarly, the bear markets in stocks that sometimes accompany recessions can reverse the wealth effect, curtailing consumption predicated on rising asset values and increased net worth. If lenders pull back, small businesses will find it difficult to keep growing, and some may go bankrupt.
How to Beat a Recession in 2022
Recessions are cyclical, and they do end. The average consumer can’t do much to influence how and when that happens, but they can do things that affect their own lives and financial situations that will help them weather the storm better than those who do little more than worry (or complain) about what’s going on.
How to Beat a Recession in 2022
Check Your Savings Situation
One of the most frequently repeated pieces of advice given to individuals is that they have a savings buffer in the form of an emergency fund. Most people understand that is a good idea, and then, according to a number of research sources, only about 40% of South Africans actually follow through and save the three to six months worth of expenses that experts recommend.
In some ways, this is understandable, as removing a chunk of your available income and squirreling it away does seem very hard to do at times. However, as recession looms, you should make an effort to save as much as you can.
If you want – or need – more discipline in order to do so, consider having part of your salary deposited into a good interest-bearing savings account before you receive your pay. This is usually easy to set up, ensures that money does get saved, and makes the process less painful as it’s harder to miss what you technically never had in the first place.
How to Beat a Recession in 2022
Change the Way You Spend Money
Even if you already do the right thing and have a semi-formal budget in place, it’s time to review it. The unfortunate fact is that during a recession, it’s almost inevitable that cutting back is the smart thing to do. After you have subtracted that automatic savings amount (see above) then it’s time to take what’s left and review that budget (or actually finally make a budget) and start looking for sensible places it can be cut.
We say sensible, as there are some things that should not be cut. Food is an obvious one, although you should look at ways to save on grocery bills. Choosing generic over brand name foods, eating out less, trying out meal planning etc. are all good ways to do that.
Reducing fuel consumption – and the prices at the pump are particularly painful right now – by cutting down on unnecessary car trips will help too, and walking to nearby places you usually drive to will be good for your health too.
You should also not overlook ‘little’ expenses, as they add up. Make sure you know how many services you are subscribed to, and cut some of them. Make coffee at home instead of buying it on the way to work. Go old school and pack a lunch to take to work rather than hitting the fast food place. These and other ‘small cuts’ can make more of a difference than you think.
How to Beat a Recession in 2022
Avoid Taking on New Debt
Another great tool for surviving a recession is avoiding taking on more debt. That means reducing your spending on credit cards, delaying that new car purchase, and maybe even delaying a home purchase if you were thinking about becoming a first-time home buyer soon.
Debt can take other forms too. Medical debt can be a huge problem in a recession if you get ill or are injured unexpectedly, which is why cutting out safeguards like a medical aid policy is not a good idea.
Yes, that may reduce your monthly outlay, but not that much, and the impact of medical debt it could have helped you avoid would be far more problematic. In fact, if you don’t have a medical aid plan in place, consider adding one. It is a good idea to protect yourself against huge unexpected medical expenses and help ensure that you can continue to afford essential medications and treatments.
How to Beat a Recession in 2022
Don’t Panic About Investments
If you have been getting into investing to help you secure a better future, it can be tempting to stop doing that too. Investing during a recession can be scary, but experts suggest that sticking to your investing plan during an economic downturn is critical to its success.
The best course of action is to meet with a financial advisor and let them guide you in the best ways to stay on track with your investment goals so that you can not only weather the storm of recession but maybe even come out ahead when it’s over.
The most pertinent advice we can offer you about How to Beat a Recession in 2022 is to speak to one of our Professional Independent Financial Consultants, be wise at this time and survive the recession.
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