Inflation Was At 3.4% At The End Of 2023
Economic recessions are inevitable cycles that can impact personal finances, and right now, the job markets are not looking too hot.
In 2023, inflation reached uncomfortable levels with a high of 3.8%, which impacted individuals and businesses across the board, particularly those on fixed incomes.
Optimal inflation rates should be around 2%, and the Federal Reserve makes this number a target.
Along with that, central banks raised their interest rates to combat inflation, fostering slower economic growth in certain sectors.
Enough said, we must be prepared for the next recession!
How Can We Strategize?
Economic recessions can bring job losses, reduced income, and increased financial stress. So, being financially prepared helps mitigate the impact of these uncertainties, providing a safety net for both you and your family during challenging times.
i) Emergency Fund Building
- Establish and consistently contribute to an emergency fund that covers three to six months’ worth of living expenses. This fund acts as a financial cushion during periods of unemployment or unexpected expenses.
- Only 43% of Americans could cover an unexpected $1,000 expense using their savings (Bankrate). Building an emergency fund addresses this vulnerability and enhances financial resilience.
ii) Debt Reduction
- Prioritize reducing high-interest debt first so that there are limited financial burdens during a recession. Paying off credit cards and other high-interest loans frees up resources that can be redirected towards essential needs.
- By strategically reducing debt, individuals enhance their financial flexibility, where during covid, U.S. household debt reached $14.96 trillion!
iii) Diversify Your Sources Of Income!
- I have plenty of ways that you can earn additional income through side hustles to diversify your sources of income. This can provide stability in case of job loss or income reduction.
iv) Investment Portfolio Adjustments
- Reevaluate your investment portfolio so that it aligns with your risk tolerance and financial goals.
- Statistical numbers from the National Bureau of Economic Research show that diversified portfolios have historically weathered economic recessions more effectively than concentrated portfolios.
What Will You Do?
Now that you know how to prepare for the very possible economic recessions in the near future, what actions will you take?
Are you going to build an emergency fund? Or find a side hustle to diversity your income stream?
Let me know if you need help or have questions! Thanks!
