Guest post: Recession in 2023? How to Protect Our Money in 6 Steps
Guest writer Andrei Buruiana shares his six-step recipe to protect personal finances in case of recession.
Romania Insider · Journalist
· Updated · 4 min read
Guest writer Andrei Buruiana shares his six-step recipe to protect personal finances in case of recession.
Let me start this article with the definition of recession and why this is important.
A recession is a significant, widespread, and prolonged downturn in economic activity. A more simplistic definition is that of two consecutive quarters of negative GDP growth that mean recession, although more complex formulas are also used.
Recession is important because it generates declines in economic output and employment, which in turn affect consumer demand. For example, declining consumer demand can prompt companies to lay off staff, which affects consumer spending power, and can further weaken consumer demand. And so on.
There is a quasi-consensus among analysts from major financial groups that much of the world will be in a recession sometime in 2023. For example, BlackRock predicts a recession, as it expects central banks to excessively tighten monetary policy in an attempt to curb inflation.
UBS also foresees 41% and 80% probabilities of a recession in the US and Europe, respectively.
The US, Europe, and most emerging countries are therefore expected to be in recession, with the exception of China.
Come recession or not, here are a few steps to take, in order to be prepared when it comes to personal finances.
Step 1
Take a close look at your spending habits and create a plan to increase the amount saved.
Ahead or during a recession give up shopping for expensive clothes or dining at exclusive restaurants.
If you don't have time to cook, opt for popular restaurants or pre-cooked meals.
Watch your must-see movies on streaming platforms and then take a break from your streaming subscriptions. At least for a while.
All this “freed” money should go into savings.
Ideally, the percentage going into savings, out of your salary, should be somewhere around 20%.
Step 2
Building up an emergency fund will prepare you for future expenses in the event of even a temporary loss of your main source of income (your salary at work).
The emergency fund should be the equivalent of 6 salaries. If you are a couple, then multiply the sum of your salaries by 6.
The emergency fund should be kept in liquid instruments such as savings or deposit accounts (short-term deposits of a few months’ maturities).
