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What does recession mean to you?

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These questions are urgent for Americans after the Federal Reserve raises interest rates again to combat high inflation, and the latest GDP reports show that the economy has slowed for the second consecutive quarter. I did. But at the same time, the employment and housing markets are still strong, albeit a little cold.

It created many mixed signals. The White House and other government leaders say the economy remains healthy.However, some economists say a recession is likely to occur in the future. Moon-if one It hasn’t started yet.

Here’s how it will affect your finances in the event of a recession, and what steps you can take to protect yourself.

Over the last two years, the labor shortage caused by pandemics has given employees a lot of bargaining power, coupled with the structural shortage of fewer young workers replacing retired workers.

As a result, unemployment and headcount reductions are at or near historically low levels.

“We are in a period of very low layoffs and labor shortages. Companies are hesitant to let go,” said Andrew, senior vice president of global reemployment support firm Challenger Gray & Christmas. Challenger says.

It’s starting to change, Challenger said. Layoffs are increasing in some industries such as mortgage banking, fintech, construction and automotive.

In the event of a recession, layoffs can be higher and more widespread. And the employer may withdraw employment.

However, not everyone is at equal risk. If you’re in high demand for your role, such as a front-line worker, IT engineer, or top-level executive, you’re most likely to get a job, continue working, and see salary increases and bonuses along the way. ..

Buying and selling a house is different

Housing market It is unlikely to be hit hard by the recession, such as the 2007-2009 Great Recession caused by the housing and credit crisis.

Mike Fratantoni, chief economist at the Mortgage Banking Association, said this does not mean that the market will be completely unaffected, but especially if layoffs increase.

How to take advantage of rising interest rates
But after double-digit price increases and a fierce bidding war With the rise in mortgages, home sales are slowly beginning to return to normal pace. Fees, which make the home more affordable for the buyer.

In the future, Fratantoni said, “Unemployment is expected to rise to small and medium-sized businesses, and demand is expected to decline, coupled with affordable challenges. [for homes].. “

This means that homeowners will not be able to set a price that is 15% higher than the price that their neighbor’s house just sold. They need to be prepared to accept the contingency of the buyer with a housing offer. And they should expect their home to take longer to sell.

Oh, and appearance becomes important again.

“Get a little tidy up to get ready for the list …. you’ll be back in a place where it’s important that your home is in good condition,” Fratantoni said.

“It’s going to be a much better experience,” he said, compared to the overwhelming frustration of the last few years for homebuyers. Borrowing a mortgage will become more expensive as prices go up, but buyers will be less competitive with each property. And when it comes to deciding whether to make an offer, “they may take days to think about it, not hours,” Fratantoni said.

How to buffer yourself now

You have no control over the business cycle, but you can take some steps to mitigate the potential negative impact of a recession on you.

Secure cash in an emergency: Jamie Lima of Woodson Wealth Management, a certified California-based financial planner, recommends that single-person households have 12 months of living expenses in case they lose their jobs.

For double-income households, he recommends 6 months, as both income earners are unlikely to be dismissed.

These are the keys to a successful 401 (k) in a declining market.

If you don’t have that much right now, cut out some non-essential costs and add the money you would have spent on your kitten.

If you own a home, Lima says, consider getting a mortgage loan facility before interest rates rise again.

Stress test of your financial plan: If there is a recession, you may come out of it unharmed. But you can’t assume that in advance. According to Lima, all you can do is figure out the resources you need to handle the worst-case scenarios such as unemployment and illness.

“What would it look like if you hadn’t worked for a year? What is your emergency response plan? … Now is the time to think about” what do I do? “,” He said. Told.

Improve your chances of staying employed: It may not be as popular as the cybersecurity specialist that every Fortune 500 company wants. However, if you make it an integral part of your current job, you can probably reduce your chances of being dismissed in that regard by taking on additional tasks.

Alternatively, you can consider a new role that is less susceptible to layoffs when the economy is shrinking. Lakshman Achusan, co-founder of the Institute for Economic Cycles, said: For those who think there is a real risk, the recession may be longer and deeper than most people would expect.

If you run a small business, watch your cash flow carefully. Small business owners should keep their spending as flexible as possible, said Ben Johnston, chief operating officer of Kapitus, a small business lender.

The idea is to protect yourself in the event of a drop in demand in the coming months.

“This may mean [negotiating] More flexible payment terms with vendors. ” Alternatively, it may mean avoiding long-term commitments to new costs.Therefore, instead of buying new equipment or hiring full-time To take advantage of today’s new business opportunities, staff should consider renting equipment or bringing someone in as a contractor.

“If you don’t know how strong the economy will be in the coming months, consider a temporary expansion rather than a permanent one,” Johnston said.

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