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Economic growth is a process of constantly changing economic conditions in a country. Every country hopes that the country’s economic situation will improve with signs of economic growth for a while. In addition, by knowing the sources of economic growth, the head of state can determine development priorities. The occurrence of the economic recession had a domino effect on various economic activities, such as B. a fall in investment that led to a fall in commodity production numbers

 

What is an economic recession?

Economist Julius Shiskin, quoted by Forbes on July 15, 2020, defines an economic recession as a decline in the gross domestic product (GDP) that occurs for two consecutive quarters. This is usually caused by months or even years of contraction in economic activity. Simply put, an economic recession is a situation that indicates sluggishness in the economic sector.

The occurrence of the economic recession had a domino effect on various economic activities, such as B. a fall in investment that led to a fall in commodity production numbers. Not only that, but the economic recession has also led to a decrease in people’s purchasing power as a result of the rising unemployment rate. If not addressed immediately, the economic recession can prolong and lead to an economic crisis that can have fatal consequences for a country’s economy.

 

So what are the things that trigger the occurrence of an economic recession?

The following are the things that trigger the occurrence of an economic recession, namely:

  • The imbalance between production and consumption causes problems in the economic cycle. If the high production rate is not followed by an increase in consumption, this can lead to a build-up of inventories. On the other hand, if the high consumption is not followed by an increase in production, this leads to a shortage, so companies have to import goods.
  • The high number of imports compared to exports affects the government’s financing deficit.
  • Shocks to the economy are unexpected and come suddenly. For example, the COVID-19 pandemic has weakened the economic sector of every country in the world.
  • Excessive debt without regard to ability to repay or wealth.
  • The emotional nature of investors when investing creates irrational excitement that inflates the stock market. Therefore, when the bubble burst, panic selling ensued, which in turn devastated the stock market and caused a recession.
  • The inflation rate is too high. To get around this, the government usually raises interest rates to suppress economic activity.
  • Deflation or uncontrollable fall in prices from time to time.
  • There are new inventions that help increase productivity and help the economy in the long run. Some economists worry that the presence of artificial intelligence (AI) and robots could lead to the loss of certain jobs, leading to increased unemployment.

How do you prepare finances in the face of an economic recession?

The effects of an economic recession in a country are very far-reaching. It will affect not only the industrial, commercial, and investment sectors that support the country’s economy, but also your finances. Therefore, you must recognize the signs of an economic recession to prepare your finances early.

Here’s what you can do to prepare your finances for an economic recession:

 

Prepare the spending budget

This is the most important thing you should do as long as you earn an income, regardless of your profession. The spending budget serves as a guide for spending the funds available to you. Creating a spending budget allows you to focus on allocating the funds you need to meet your needs. A spending budget also prevents you from overspending the funds you have.

 

Reduce shopping consumption

One of the efforts you can make in the face of an economic recession is to cut back on spending or consuming sparingly. Reducing expenditure consumption as referred to herein means cutting unnecessary or non-urgent expenditure. The goal is to allocate more money to save or save. To be able to appropriately and effectively reduce expenditure consumption, you must first know the monthly expenditure items.

 

Reduce shopping consumption

One of the efforts you can make in the face of an economic recession is to cut back on spending or consuming sparingly. Reducing expenditure consumption as referred to herein means cutting unnecessary or non-urgent expenditure. The goal is to allocate more money to save or save. To be able to appropriately and effectively reduce expenditure consumption, you must first know the monthly expenditure items.

 

Increase the capacity of the emergency fund

In the previous step, it was mentioned that the purpose of reducing cost consumption is to provide more funds to save and save. The purpose of this statement is to increase the emergency fund you have. You never know what will happen in the future during an economic recession. Therefore, as a precaution, you need to set up an emergency fund. So that if you need more money, your savings or even your assets are not completely used up.

 

Increase overall income

If you think that reducing spending consumption is less effective, you can also increase the amount of income. In this era of technological advancement, it is very easy for you to get information about side jobs or part-time jobs. The internet can also be used to increase your understanding and expertise in an area that supports your part-time job. But if you choose to focus on your work, you can work harder to get a promotion from the company. If you are an entrepreneur, you can also increase the income fund by taking advantage of market needs during an economic recession.

 

Prioritize high-interest debt payments

Are you a credit card user? Or do you still have outstanding installments, such as a house or a vehicle? If so, then first allocate your income to pay your bills before creating a routine consumption budget. Delaying high-interest debt payments will swell your expenses even more. In particular, when there is an economic recession, bank rates will generally rise.

 

Start investing

Alongside an emergency fund, make sure you always use your income to invest. There are different types of investments that you can choose according to your needs, such as gold, savings, deposits, insurance, to stocks. You can even invest through various official websites guaranteed by the Financial Services Authority just through your mobile phone. It’s a good idea to start investing early, well before the economic recession approaches, as a proactive step.

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