During a recession, the unemployment rate normally rises because there is a lack of demand for products and services, which leads to a lack of need for employees.
As a result of state and local governments implementing stay-at-home orders in reaction to the COVID-19 epidemic, the unemployment rate rose from 3.5 percent in February 2020 to a record 14.8 percent in April 2020, triggering the most recent U.S. recession.
The exceptional loss of 22.1 million jobs between January and April 2020 triggered this massive increase in the unemployment rate. However, the economy quickly recovered, and the COVID-19 recession was the shortest on record.
Prior to the epidemic, the United States had been experiencing its longest era of expansion in history. The Great Recession, which began in December 2007 and concluded in June 2009, was followed by a protracted period of rising economic activity.
During the Great Recession, the worst economic slump in the United States since the Great Depression, the unemployment rate progressively increased from 5% in December 2007 to 9.5 percent in December 2009. (June 2009). However, the unemployment rate did not reach a peak until October 2009, when it reached 10%.
As the United States suffers economic challenges, the Bureau of Labor Statistics recorded a 3.6 percent unemployment rate in April 2022, with 5.9 million individuals unemployed.
What should you do to prepare for a recession?
Taking efforts to prepare for an economic downturn, whether or not one occurs, is one method to improve your financial health. Here are some money-saving techniques to help you weather the storm of a future economic crisis.
- Reduce the amount of money you owe on your credit cards.
There are several options for reducing credit card debt and getting your amounts to zero. You have the option of paying off each loan individually or consolidating them into a single monthly payment.
You could wish to use the debt snowball or debt avalanche methods to come up with a payback strategy.
The debt snowball approach starts with the smallest debt and works its way up. You’ll need to make the minimum monthly payments on all of your other obligations and then apply any additional funds to the lowest bill. As each obligation is paid off, the funds used to pay the previous loan are “snowballed” and applied to the lowest debt. You may keep doing this until all of your debts are paid off.
- Make a financial plan.
Consider creating a monthly budget and tracking your expenditures if you want to save money. The 50/30/20 rule budget is a simple approach to manage your finances without having to establish complex budgeting buckets. Rather, you allocate 50% of your after-tax income to necessities, 30% to desires, and 20% to savings or debt repayment.
- Cancel any subscriptions that aren’t essential.
Small monthly membership costs — which may include gaming applications as well as music and video streaming apps — may quickly pile up. Take some time to review your bank or credit card transactions to identify monthly subscription expenses that aren’t worth the money.
- Auto insurance might be cheaper if you shop around.
You don’t have to wait until your existing insurance carrier sends you a renewal letter to start looking for a new coverage. It’s a good idea to look for auto insurance at least once a year to ensure you’re receiving the best deal possible.
- Avoid paying interest on your credit card.
Carrying a load can be pricey, with the average credit card interest rate being 14.56 percent as of February 2022. Your credit card debt grows while you hold a balance. And that debt may be crippling.
Credit card balances are estimated to be over $840 billion, according to the Federal Reserve Bank of New York’s Household Debt and Credit Report for the first quarter of 2022. If you want to avoid paying interest on your credit card, pay it off completely. Between the purchase date and the payment due date, most credit card issuers allow you at least a 21-day grace period. You won’t be charged interest on new purchases made during this period if you pay off your balance in full and don’t have any outstanding cash advances.
- Make an emergency fund for yourself.
An emergency fund is a savings account where you can put money in case of a financial emergency, such as losing your job. If you lose your job, you should have enough money in your emergency fund to cover three to six months’ worth of expenditures. Consider increasing your savings if you believe it will take longer to locate another work. You may move slowly toward your goal if you set aside a tiny amount each payday.