As most of us know, it looks like we are currently approaching an economic recession. While it hasn’t been formally declared, the writing seems to be on the wall. Unfortunately, this means that many people are going to experience some tough times in the coming months. In order to help you navigate the rough waters that lie ahead, we’ve listed some of the major effects that recessions have on people’s personal finances.

Employees Lose Job Stability

Recessions denote a slowdown in spending, so companies often take a hit when it comes to their earnings.  This often leads companies to lay off large swathes of their workforce, or reduce the number of shifts that hourly employees work.  Those who had an otherwise stable job during good economic times might have the misfortune of having to look for a new job during a recession. 

Money Becomes Tighter

Those who are lucky enough to keep their jobs during a recession may face a much different problem.  Since company earnings generally decrease during a recession, that means that companies are less likely to give generous bonuses or raises to their employees.

This means those that rely on a large bonus or raise at the beginning/end of the year might not get as much as they expect.  People in this position who already live outside of their means may have to run a tighter ship as less money comes in.  This of course leads to cutting spending back to healthier levels.

Credit Card Debt Increases

As people lose their jobs or earn less money than expected, many have to use credit cards and personal loans to fund their day-to-day lifestyles.  This is evidenced by spikes in consumer loans during periods of economic downturn.

Dependence on unsecured debt leads many down a path of spending more than they make.  This, of course, is tremendously detrimental to people’s personal finance situations.  Ultimately, a significant amount of people will default on their credit cards and personal loans during recessions, leading to a rise in bankruptcies during recessions.

Making Investments Seems Scary

When you read a seemingly neverending stream of negative headlines during a recession, it may seem foolish to continue making investments regularly.  However, making investments during a recession is actually a great idea, as you’re buying assets for a discounted price. 

This may seem counterintuitive, but people who continue to invest during a recession, no matter how scary it seems, are often rewarded handsomely when things return to normal.  This means it’s important to continue making regular contributions to your 401k, IRA, and other investment accounts in both good times and bad.

What Can I Do To Recession-Proof My Finances?

If you’re worried about a potential recession, you should be doing everything in your power to “recession-proof” your personal finances.  This means saving up as much money as possible and potentially taking a second job.  This will not only help you earn more money but doing so will also provide a bit more financial stability, in case you get laid off in the coming months. 

In order to properly recession-proof your finances, you should also be working with a proven financial planner.  Urban Wealth Management has a proven track record and has been managing the assets of Southern California residents for over a decade.  To schedule a complimentary 30-minute consultation with one of our representatives, give us a call at 424-277-2260 or visit our website today!