It has been five years since COVID-19 shut down businesses and the economy. According to the National Bureau of Economic Research, the United States entered a recession in February 2020. And even though the repercussions lasted much longer, the recession ended in April 2020. This made it the shortest recession on record, dating back to 1854.
Aside from the 17 million adults who suffer from Long-COVID health issues, the other lasting effect has been the rise of inflation, mainly caused by the shortage of goods and supply chain issues. Despite inflation, the U.S. economy grew as unemployment dropped to historic lows and stock markets hit record highs.
However, since January of this year, the talk of tariffs and trade wars has sparked new “uncertainty” about the economy’s future. On March 19, Federal Reserve Chair Jerome Powell stated, “The hard data shows that growth and consumer spending are moderating but still at a solid pace. Unemployment is still at a low of 4.1%, and job creation is at a healthy level. Inflation has started to move up in response to tariffs, and there may be a delay in further progress during the course of this year. Overall, it’s a solid picture.”
Powell continued by saying the soft data provided by surveys of households and businesses “show a significant rise in uncertainty and concerns about downside risks.”
The combination of hard and soft data has resulted in the Feds holding the lending interest rate between 4.25% and 4.5%.
Today, newspaper headlines and TV talking heads are warning of another recession on the horizon. If it happens, the depth and duration of this recession are unknown. However, unlike the unexpected COVID pandemic, which had swift and unpredicted consequences, these current warnings provide innovative businesses and individuals with a small window of time to prepare.
At the top of the preparation list, economists advise consumers not to panic and adopt the following prudent financial habits. These habits will ease the effects of a downed economy and strengthen their financial position when it is good.
Do Not Panic
The cautionary advice not to panic is key. Fear can be a powerful motivator to take drastic measures. Acting impulsively or becoming overly emotional may trigger irrational decisions that could impact your life.
It is important to realize that the GDP is a backward-looking indicator. While headlines may report monthly, weekly, or daily losses, it’s possible that the economy will emerge from a recession before we even learn one has officially occurred.
Gina Bolvin, president of Bolvin Wealth Management Group, stressed that long-term investors should keep buying assets to take advantage of lower prices. “The only change to your portfolio should be to confirm it’s diversified and you can weather the storm in good or bad times.”
Stockpile ready cash and increase savings
It makes no difference if you own a business or work for hourly wages; financial circumstances can change with each swing of the economy. Having a rainy-day fund to support six to eight months of essential business and living expenses is important.
During tough economic times, businesses often delay paying invoices by sixty to ninety days. Offering 30-day payment discounts can convert accounts receivables from long-time customers into cash. Another growing business trend is working with a factoring company, such as Business Finance Corporation, that will purchase the receivables and deliver immediate cash.
Establish a backup to your emergency fund.
For businesses, having access to emergency money can mean the difference between continued operations and closing the doors. It is better to establish a line of credit before it is needed.
Review your budget and limit non-essential purchases
Consumerism fuels the U.S. economy, and purchasing goods and services accounts for two-thirds of domestic spending. However, much of consumerism is funded by debt.
Closely examining your budget may not be the most enjoyable task, but it is essential. Separating your budget items into needs-vs-wants categories helps identify what items may need to be on the chopping block during a reduced or lost income period.
Knowing exactly what you need each month helps determine the optimal amount of cash to keep readily available versus what you can comfortably deploy in long-term investments that earn a greater return.
Limiting non-essential purchases creates the opportunity to pay down some of the debt and stockpile additional savings.
Another way to pay down debt is to reduce the interest paid. The average credit card interest is around 20%. However, some credit cards offer an introductory 0% interest on the transfer of funds for the first year.
Improve your job skills.
Martha Callahan, CPA, CFP, a portfolio manager at FBB Capital Partners, told Business Insider that it’s important to keep investing in your career during periods of economic stress.
Learning and refining new skills tied to your career can help protect you against inflation and make you more marketable when searching for employment.
“Your skillset can be one of your best defenses against inflation. Wages tend to rise over time, and the more your skillset is in demand, the greater your chance of growing your income and outpacing inflation,” Callahan said. “Becoming an expert in your field can also make you one of the last to get laid off.”
Don’t panic sell or try to time the market.
Many investors sell when the stock market experiences extreme dips during a recession, telling themselves they’ll jump back in when the economy improves. One way to resist a panic move is to take advantage of “dollar-cost averaging,” which means investing the same amount of money regularly regardless of the market’s ups and downs. With this strategy, you buy fewer shares when the share price is high and more when the share price is low.
Your saving and investing goals should be objective and based on your cash needs over the next year or so. There’s an element of sanity and well-being in deciding how much you have in savings, but it’s a choice best made when you’re not under duress.
Regardless of economic conditions, Business Finance Corporation (BFC) has funds available to purchase qualified accounts receivables. Don’t wait until you are out of cash; call BFC to prequalify your business and receive cash for your accounts receivable within 24 hours, anytime you need it. Visit https://bfc.vegas/ or call 702-947-3800.
Let’s talk!
Your Partner in Success,
David Cabral