I am not an alarmist, nor am I suggesting that it’s time to push the panic button. But, private economists, the Federal Reserve, and business leaders today predict a recession in the coming months. A recession is a significant decline in economic activity evidenced by low retail sales, negative gross domestic product (GDP) for two consecutive quarters or several months, elevated unemployment, and other factors. While I will not take this time to engage in some academic or intellectual definition of a recession, I believe a working description or understanding would be of value. Assuming economists are correct, one critical forward-thinking question should be, how does one prepare for this event, and is there anything one can do about it? Those questions lead to a laundry list of additional questions: should I invest or sell, where to invest during a recession, and how much should be in my emergency fund? Should I downsize? What’s the plan if I’m laid off? And the list goes on and on.
One of the leading indicators of a recession is high unemployment. The problem is that unemployment is low, based on the most recent jobs report for May 2022. This seems like a false alarm because anybody who wants a job can get what they want for the desired salary and benefits. That cannot continue when inflation is out of control. Some parts of California are already charging $10.00 a gallon for REGULAR GAS! Salaries are not keeping up with the rise of inflation which could affect your job.
Since unemployment is high during a recession, now might be the time to consider acquiring some additional certification, taking some extra classes, or strengthening your credentials. Why? In a typical recession, higher unemployment is associated with lower levels of education. The flip side of that education coin is, will you have to incur additional debt to sure up your employment skills? The other factor is that this is not a one-size-fits-all call to action. Some industries or careers are more resilient than others during a recession. Think through how your industry or employer will respond to recession factors. Is this the time to change jobs before a recession when the last man in could be the first man out (LIFO)? As you contemplate these questions, perhaps now is the time to activate or develop your social media contacts and connections from business relationships, referrals, employers, etc. This could provide an edge in a tight employment market during a recession.
Pay Off Dept
Heading into a recession would not be the ideal time to incur additional debt. Instead, it’s time to identify all those monthly bills on auto payments coming out of your bank account and determine which ones can be paid off completely. The reality is that the interest rate on your consumer debt or revolving debt is about to increase thanks to the Federal Reserve and raising the interest rates.
Another reason to pay off those credit card debts is that during recessionary times credit card companies may lower your line of credit if you are carrying debt balances. They are allowed to do this without any warning during a recession. After all, they don’t want to be over-exposed when it comes to outstanding balances during a recession. The bottom line, your credit score could be impacted.
I only identified two of the many recession preparation areas and ideas to consider before the economy changes. But the list is long as always and should include currently evaluating and reassessing your portfolio, evaluating debts for which you are a co-signer, improving your financial literacy skills to make better choices, and the list goes on. The most important thing to do at this moment is to develop a plan.
Today’s what’s up is about tax refunds. Well, this is not a refund in the traditional sense. But if you used Turbotax software to prepare your returns, you might be the beneficiary of a rebate because of a lawsuit. If you used Turbo Tax “free edition” for periods 2016 through 2018, you are eligible for $30.00 for each year you paid to file your returns using the free edition as part of a lawsuit settlement. If not, you’re out of luck! And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.