2020 Recession Fears: Steps to Stay Calm and Carry on
This Year has Heightened Financial Fears, but it's Possible to Move Forward Confidently
Although the year isn’t over yet, 2020 has certainly been one for the books. None of us could have predicted a pandemic, let alone the financial implications this health crisis has created for many people. It has changed the way we work, the way we interact with the people we love, and the way businesses serve their customers and clients. And, the COVID-19 pandemic plunged the U.S. economy into a recession.
While experts say all indications are that the recession is likely over now, many people are still feeling the fallout from the last several months. The possibility of a recession always heightens fears, and the reality of what we have recently experienced as a nation has many people wondering how we move forward when so much remains uncertain. Below, we’ll discuss the most common recession fears, as well as how to combat them.
Long before COVID-19 was on the radar of health experts, financial experts were predicting that 2020 could be a recession year for reasons completely unrelated to the pandemic. In fact, NerdWallet even conducted a pre-COVID survey of Americans and discovered that three quarters (74 percent) were harboring recession fears. Let’s review the most common concerns, and what you can do about them.
Fear #1: Inability to Pay for Necessities
The survey showed that an astounding number of Americans – 31 percent – are concerned about being able to pay for necessities without going into debt or tapping into savings when the economy dips. In fact, 22 percent even said they would have to go into high-interest credit card debt in a recession.
Combatting this Fear
For most people harboring fears about not being able to afford basic necessities, there are underlying concerns about an increased cost of living. So, cutting down on any ongoing monthly expenses is a good start at overcoming this particular fear. It’s not easy to reduce spending on necessities, but you can start by looking for any expenses that may be flexible. For instance, you need a cell phone, but is it possible you can find a cheaper plan? Similarly, car insurance is a must, but you may be able to price compare and find a policy that meets your needs while saving you a few bucks each month, too.
Of course, it’s also a smart move to review your discretionary spending. Now that we have lived through a very recent recession and felt the true impact in our day to day lives, it may be a little easier to stick to a more disciplined budget than it was in years past. This will give you more of a buffer each month so that another recession may not mean dipping into your savings or going into debt.
Fear #2: Losing Value in Investments
NerdWallet’s survey showed that three in ten Americans have concerns about the value of their investments going down in a recession. There is always a bit of volatility in the stock market, of course, but a recession tends to be a stark reminder that it’s not unreasonable to fear your investments dropping in value.
Combatting this Fear
This is a difficult one because, most often, the answer is to do nothing and simply wait it out. If your investments are dropping in value and you panic and sell them off, you’re locked into a loss. If you force yourself to remain calm and patient, your investments are likely to rebound – just like we saw happen earlier this year.
Long-term, it’s smart to reassess your risk tolerance periodically and make changes as needed so that your portfolio isn’t giving you sleepless nights, recession or not. If rebalancing your investments and preparing for another recession feels overwhelming, chat with your financial advisor for guidance. You’ll want to have a discussion about your short-term and medium-to-long-term financial goals so you can be sure not to overinvest at the expense of your cash reserves.
Fear #3: Job Loss
Before COVID-19 forced many parts of our country to shut-down, NerdWallet’s survey showed 14 percent of Americans feared job loss in a recession. That number is likely higher now since so many Americans were laid-off temporarily or permanently as the coronavirus spread. This wasn’t a typical recession, of course, but the possibility of losing your primary source of income is always scary.
Combatting this Fear
You know that emergency fund you’ve been slowly building? Well, it’s for a circumstance just like this. Job loss definitely qualifies as an emergency, so bulking up your cash savings in preparation is the best way to keep from panicking if the worst happens. Three to six months of expenses is considered ideal, but your personal situation may warrant even more savings. This can seem like an overwhelming savings goal, but you can help yourself along by cutting expenses to the extent you’re able and saving a few extra dollars wherever you can. When it comes to bridging the gap in an emergency situation, even an extra $500 can go a long ay toward giving you more peace of mind.
If you were forced to dip into your emergency fund during the recent recession, you might feel discouraged by how quickly you used those hard-earned dollars. Keep in mind that this is exactly the type of scenario that calls for using your emergency fund, and give yourself some grace. Start to slowly build your emergency savings again, and remember how comforting it was to have money at your fingertips when you truly needed it.
If you found yourself overwhelmed by financial fear as the COVID-19 pandemic sent our economy into a recession, you’re not alone. Still, the economy is cyclical and someday we will all face another recession. If you’d like to feel more prepared in the future, consider the steps mentioned above. Making small changes now can lead to less financial anxiety for the remainder of 2020 and into the future.
If you’d like expert assistance in planning for a recession or any other financial event, please contact us today. At Charles Carroll Financial Partners, we’re committed to providing personalized guidance based upon your unique needs, goals, and aspirations. We look forward to hearing from you!