Is the inevitable recession? How to prepare your personal finances for possibility
Recent headlines about the US economy have been quite gloomy, with a variety of key indicators showing a slowdown in overall economic activity. These events have led many financial experts warn of the possibility of a severe economic downturn in the near future, some predict a deep recession in 2008. While headlines often focus on the effects of this possible recession in the commercial interests and on Wall Street, consumers also feel the pain of poor economic conditions. With growing signs of a possible recession on the horizon, the average consumer would do well to pay attention and prepare a financial defense against potential economic difficulties to come.
Much of today’s financial news focuses on the turmoil that has been created in the economy by the collapse of the housing bubble, the subprime foreclosure crisis, and the resulting credit crunch. These events have had far-reaching effects on the economy of the United States, in addition to impacting the economies of many other nations. Many investors in mortgage-backed securities, ranging from large investment banks, hedge funds and pension funds to the individual investor, have experienced huge losses as they increase the foreclosure rates, which spreads confusion all over the financial world. Personal bankruptcies are on the rise, as are corporate bankruptcies, especially in the mortgage loan industry. When these factors are combined with other economic data, such as rising oil prices, rising inflation, stock market volatility, and the falling value of the US dollar, there is the potential for significant economic challenges to emerge in the future. the following days.
Today’s consumer has much to fear from the recent troubles in our economy. Many experts predict that the typical American family will feel the squeeze of this recession, if it takes hold, more than any other in recent history, since its roots are in shock that has occurred in housing markets and credit, affecting individuals more directly than most other economic sectors. Of course, homeowners have been found amid the wave of foreclosures and bankruptcies have already felt the pain, and many of those whose mortgages adjustable rate should be adjusted in 2008 and 2009 soon will follow. Even homeowners who are not in danger of foreclosure have been affected by this crisis, with home values falling at record rates, and the downward pressure on home prices is unlikely to ease any further. the near future, as high foreclosure rates continue to affect housing. market.
The typical consumer these days has a lot of debt and little savings has a very vulnerable position if experts predict the recession prove to be correct. Credit card debt is extremely high among Americans, with 2007 figures showing that the average consumer owns nine credit cards, and debt on those cards averages about $ 8,500 per household. The statistics of the Bureau of the Census of EE. UU. They indicate that 70 percent of mortgage houses occupied by their owners are mortgaged. Of those owners, approximately 23 percent have a second mortgage or a home equity loan on their homes, and a very small percentage of them, 0.4 percent have a second mortgage and home equity loan.
The savings rate among average Americans is at an all-time low, negative 1.2 percent at the end of 2006, down from negative 0.5 percent in 2005. To add a bit of perspective to those figures, the last time the savings rate It was recorded in negative numbers during the Great Depression, and the 1984 figures reflected a savings rate of 10.8 percent. Negative savings rates indicate a population that lives beyond its means, spending more money each year than it earns.
However, the average American can take steps to help protect their finances from recession. The first thing to achieve is an immediate commitment to live within your means and refrain from incurring further debt, if possible. Developing a spending plan will help steer your household funds in the right direction. The next thing that should be a priority and on the budget plan is working to pay off existing debt.
When making a debt reduction plan, it is wise to prioritize debt. Obviously, the debt associated with keeping the roof over your head should come first. While many may feel like car payment should be next in line, it’s worth a second look. In some circumstances, it may be more practical to forgo a new, expensive, fuel-consuming vehicle and purchase a more affordable used vehicle instead. Once the living arrangements and work transportation have been worked out, then focusing on the debt that carries the highest interest rate may be the smartest step in restoring financial health and security.
While it can be tempting in some cases to take on loan consolidation debt, that’s something that needs to be thought through very carefully. Credit counseling can help you manage your financial situation without incurring more debt. The appeal of debt consolidation loans is often that the loan will have a lower interest rate than the loans that are used to pay off. That may be true in some cases. However, it is also true that in many circumstances it is possible to negotiate a lower interest rate with creditors, and sometimes those creditors will be willing to eliminate the interest in the hope of ensuring repayment of the principal.
Once progress is made towards debt reduction, efforts, however small at first, must be made to increase savings. As the amount of debt decreases, ideally, the amount of savings should increase. As you decrease the principal of the debt, so does the total amount of interest paid and the monthly savings can be saved to become a nest of savings grows gradually address the economic challenges that may arise on the horizon.
The reason dealing with debt is an important part of protecting personal finances against recession is because in unstable economic times, personal situations can change suddenly and drastically. Layoffs and other job interruptions are common as companies struggle to maintain their own financial well-being and profit margins. Creditors are likely to become much more aggressive in collecting debts as more consumers fail to comply, which increases the possibility of legal action, as the recovery of property or asset freeze against those with outstanding balances. Therefore, working to reduce debt, improve credit ratings and savings increase staff levels now, while revenues are relatively safe, it makes sense. That way, if something happens to change your financial status, like a layoff, there will be less debt pressure to manage.
Financial news is important news for the average consumer. Taking headline cues now to reorder financial priorities and move toward a fiscal position that offers some protection – if indeed the recession-predicting analysts are right, it can only deliver long-term benefits. In other words, even if the recession doesn’t come, reducing debt and increasing savings is smart fiscal policy that will secure your financial future.
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