Recession or not, be smart with finances
It seems the U.S. economy is on a slide toward recession—that is, if it hasn’t already started.
Face it: 2008 is off to a scary start.
But some local people don’t seem too concerned.
“I’m not worried,” said Megan Crawford, 21, of Janesville. “We’ll go through it and get out of it. Life goes on.”
One local business owner said his business hasn’t slowed, and a local salesman said he’s still making money—indicators that not all signs point to recession.
Frank Hengen, 48, of Janesville said he “trusts the economy” to bounce back.
But financial advisers say people should take a second look at their financial situation.
“There should be some concern that the economy could slip into a recession this year,” said Bruce Bittles, chief investment strategist for Robert W. Baird & Co.
He said the stock market and the housing market—“leading indicators” of the country’s economic health—falling on hard times is evidence that the United States could suffer from a recession in 2008.
So what’s a person to do?
Sit down with someone who knows what they’re doing financially, Bittles said.
He also recommends that people:
-- Distribute assets. A “defensive” asset allocation is 55 percent stocks, 40 percent bonds and 5 percent cash, Bittles said.
It’s about balance, he said. Not all markets react the same under the same conditions. When economic growth slows, for example, stocks fall, but bonds increase in value.
-- Save money. Not putting money away is a “big mistake,” Bittles said. Cash offers security when the markets are volatile. Relying on a 401(k) in case of emergency, for example, isn’t a good idea, he said.
Dave Witzack, 31, of Janesville, said he’s stopped contributing to his 401(k) because he’s “not making anything.”
Saving money the old fashioned way is a habit people should get into despite the threat of a recession, Bittles said.
Alice Figi, 79, of Janesville, said she and her husband “live fairly modestly” and already maintain a savings account that would keep them afloat should the economy take a nosedive—except for anything “serious.”
-- Reduce debt. Bittles said it’s a smart financial step to take even when a recession isn’t in the cards.
“Those two things alone (increasing savings and decreasing debt) will go a long way to avoiding any recession we might or might not suffer,” he said.
Bittles cautions people not to get into a tizzy over the economy.
“The economy is cyclical,” he said. “You don’t have to be a pessimist. You have to be an optimist. But you have to be a realist first and recognize that these markets are cyclical.
“You have to be patient with a lot of these things.”
What’s a recession?
A recession is a prolonged period when the economy is slowing. Such a slow-down is marked by decreasing consumer spending, dropping production, increasing unemployment and a declining stock market.
How do we know it’s a recession?
Most economists define a recession as two consecutive quarters in which the gross domestic product decreases. But the official word comes from the National Bureau of Economic Research, which doesn’t rely on the gross domestic product; instead, the bureau gives weight to personal income, employment rate, sales in manufacturing and trade and industrial production.
When was the last recession?
March to November 2001.
How do we get out of a recession?
The government often gives people tax cuts, which means there’s more money to spend. The Federal Reserve manipulates the economy, too, often by lowering interest rates.
What should we do to prepare for a recession?
Stay calm. Experts suggest starting an emergency savings fund to cover basic living expenses for a couple months and paying off debt, especially credit cards. It’s also smart to freshen your resume and keep an eye on who’s hiring in the event that you lose your job.