There is speculation that our country is headed for an economic recession, but what exactly does that mean? In my lifetime as a millennial, the United States has had four recessions:
- July 1981 – November 1982
- July 1990 – March 1991
- March 2001 – November 2001
- December 2007 – June 2009
I wasn’t the one financially in charge during the first two, and during the third, I was still trying to find my way in life. However, if another recession occurs in the near future? I want to be prepared. During the fourth recession, I cannot say that I was financially ready. But this time around, I know that I need to have a plan in place. And that includes learning how to save money during a recession.
The Great Recession of 2007
So this may seem like a common sense thing to do, right? But why is it so important? Let’s take a look at some lowlights (as opposed to highlights) from the Great Recession of 2007 (information cited from the Bureau of Labor Statistics).
- In December 2007, the national unemployment rate was 5.0 percent, and it had been at or below that rate for the previous 30 months. At the end of the recession, in June 2009, it was 9.5 percent.
- In the months following the recent recession, North Dakota, Nebraska, and South Dakota had the lowest unemployment rates (5.2 percent or lower) among the 50 states. Nevada, California, and Michigan had some of the highest jobless rates (above 10.0 percent).
- By the end of the recent recession, the U.S. unemployment rate was higher than the rates in most other industrialized countries.
- The employment decline experienced during the December 2007–June 2009 recession was greater than that of any recession of recent decades.
- After a dip in late 2006, employment of young men trended upward and then remained fairly stable until late fall of 2008, well into the recent recession. Young men’s employment declined from late fall 2008 until June 2009.
- Employment increased in education and health services during the recent recession. In fact, employment has increased in education and health services for more than 30 years, regardless of the business cycle.
- During the recession, the number of job openings decreased 44 percent, while employment declined 5 percent. Since the end of the recession, the number of job openings has trended upwards.
- During the recession of 2007–2009, the increases in the wages and salaries of private industry employees slowed to 1.3 percent in December 2009 from a year earlier. This was far below the 3.6 percent increase from March 2006 to March 2007, after the recovery from the 2001 recession.
They have a more detailed pdf article available for reading as well.
Defining an Economic Recession
Now, let’s take a look at what an economic recession is (defined by the Bureau of Economic Analysis):
In general usage, the word recession connotes a marked slippage in economic activity. While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy.
But what does that mean in the simplest of terms?
A recession is a significant decline in activity across the economy, lasting longer than a few months.
Should we be concerned about another recession in the future? Well, it’s always good to be prepared just in case.
7 Ways to Prepare for an Economic Recession
Plan your purchases.
By planning your purchases, you’re effectively planning your expenses. This will help eliminate the danger of impulse buying and unnecessary spending. Try to look at the bigger picture when it comes to your basic needs.
Plan for a week’s worth of groceries, for example, so you’ll have an idea of which items you truly need (and want) and which items you can do away with. To make sure that you maximize your planning efforts, consider incorporating items on sale into your planning. If there are foods on sale that week, for example, why not plan your week’s menu using what’s currently on slashed down prices?
Implement the ‘B’ word.
Budget, that is. If you want to be able to save money during a recession, learn to discipline yourself and your family. Using your plan as a reference, come up with a weekly or monthly budget and then stick to it. If you must overshoot it, you should have a very good reason to do so. Otherwise, don’t spend.
Keep an eye out for bargains and discounts.
Learn to monitor stores for seasonal sales. You’ll save a lot of money by buying items on sale than in their regular prices. During a recession, that’s considered wise spending. Check out store or newspaper ads and don’t be shy about asking for cheaper alternatives, getting store rebates or using discount coupons. Consider buying at discount stores as well. Each dollar you don’t pay is a dollar you save.
Buy in bulk.
If there are items in your house that are often in use (paper towels, canned beans, yogurt, etc.), consider buying in bulk. Many stores offer items in packs, which means you’ll save money in the long run if you buy them instead of paying for individual items.
Put off bigger purchases.
A good rule of thumb is, if you can’t afford it, don’t buy it. If, for example, you have enough money for a down payment on a new LCD TV but will have to borrow money off your credit card just to tide you over for the next few weeks, it would be really insane to make a purchase. Wait until you can truly, comfortably afford something. The worst you can do during a recession is not just failing to get money saved but also going into debt.
Practice prevention, not cure.
If you look closely, there are many things you do in your home that are siphoning precious dollars from your wallet. Simple steps such as repairing and maintaining your home and appliances, using more efficient equipment and cutting down on unnecessary consumption can do wonders for your wallet and piggy bank. And what better way to treat a recession than to be prudent?
Earn extra money.
If, after all your efforts, the money you have saved is still not enough, don’t let recession get the better of you. There are times when your efforts are just not sufficient – mostly because you don’t earn enough. Instead of asking for a raise that might never occur or waiting for a promotion to drop on your lap, consider finding other means with which to earn (and save) money.
Consider getting a part-time job, work extra hours, do selling on the side or offer your skills as a freelancer. The extra income you earn, along with your recession-powered money-saving plan, will help you make enough until after the tough times are over.
Recession is a word that fills people with dread and bad visions. It’s a time people consider bad for finances, a time capable of magically shrinking a dollar’s value overnight. It also automatically increases the cost of basic living.
But if you are prepared, a recession doesn’t have to be quite as overwhelming as it could be.