The Federal Reserve's Wallet Says There's No Recession, But Personal Wallets Say Different
I’m always intrigued when I see commentary around the notion that we aren’t in a recession or that the GDP looks solid - so the water is fine.
You know when you’re watching the news and they tell you when there’s going to be a high tide or a low tide? You head to the beach when they say a low tide would be, thinking you would be relaxing and max-ing.
Cool.
But when you get there, you notice that the forecast doesn’t match the reality in which you see it when you get to the beach. Which is the opposite of bringing the sand to the beach.
Honestly, that analogy is how I view what’s going on in the economy. Many are saying that there isn’t a recession just because it hasn’t been declared.
Many forget that economic shifts were happening in 2008 but the recession wasn’t declared until 2009/2010. Also that period is referenced as the 2008 recession, go figure. So when I see people saying that one wasn’t declared, you have to understand how the economy is handling the wallets of the Federal Reserve differently than the wallets of you and me. The same way many Eurostepped the recession we had in February 2020 - in the middle of the pandemic - but here we are. One of the things that I’ve been adamant about is calling out how wallets are impacted the same.
While we haven’t seen one declared, there are people (maybe you) going through their own personal recession. The Federal Reserve is raising its own debt ceiling and going through its own lowering of credit utilization, the people are having the same thing happening. One of the things that I called months ago was that we would see stagflation happening before we see a recession across the board.
Let’s get into what this means -
Stagflation: This is when we notice that inflation is high/steadily increasing and the economy isn’t growing by much with a sprinkle of unemployment numbers being up. Even though we are seeing layoffs happen at a scary rate, the Federal Reserve is saying that job numbers and such are looking amazing.
Recession: This is pretty a toxic cycle that we see in the economy. So it shows a general decline in economic activity like spending or even the stock market. We (finance folks) most often watch to see what the GDP or Gross Domestic Product is. GDP is simply the measure of spending when it comes to goods or services within a certain span of time. You will hear the report about the GDP quarterly like earnings. Two consecutive quarters of negative GDP often mean a recession. But as we noticed in February 2020, when we did enter a recession - it didn’t show up much in the stock market or the Federal Reserve reports.
One of the harshest times we see when it comes to stagflation was seen in the 1970s/80s, honestly what we are watching in the economy now is legit almost a match for that time period. Linking back to my earlier thought around how people are going through their own recession more so waiting for a couple of negative GDPs or the Federal Reserve to call it. I talked about this very thing on LinkedIn and in my newsletter.
So when I see commentary telling where we aren’t in the recession but people are freaking out not only about layoffs or inflation, Zelle giving the people hell or even Wells Fargo snatching deposits - I would say that the personal recession continues to be the elephant in the room that people don’t want to talk about.
When I went through not only the 2008 Recession or my own personal recession, I noticed some things that I did that didn’t make things better for myself or my finances. It was bad, yall. But I did a zoom out watching what was going on in the pandemic (and still goes on honestly), there were some things that I noticed were identical to what I did in the past when it comes to hiccups for making headway through a tough season.
A lot of you don't have a lot of them, nothing to be ashamed of.
So what should you be not doing in the middle of your own personal recession? Here are a few:
Ignoring Your Emergency Fund: You’ve heard about not only them but sinking funds for years, yet haven’t thought about how that looks. To start off building yours, you have to determine how much your life costs monthly (fixed, variable cost) and build a plan to have a strong focus on building it. Start off with 1-3 months of expenses, then build to 6, 9. 12, etc. This would allow you to track your stacks more efficiently. Also, determine how that would look within your budget. Automate it into an HYSA account.
Not investing (At All): While the economy is a mess, it doesn’t mean you should stop investing. You should still be leveraging your efforts into funds that match your risk tolerance. I would highly recommend that you still invest but look into what industry will not be impacted (much) by the mess and funnel your investment funds into ETFs or Index Funds that align with that focus. Say for instance that you love investing in real estate-based funds, but you know that that’s going to be volatile, look into REITs that have been sound during economic shake-ups in the past. Stack cash for opportunities - to stay afloat and build a ship for the future.
Ignoring Where You Are With $: This time has been tough for each of us in some capacity. Ignoring it isn’t going to have it gone overnight. Give yourself grace, but also know that you can make it out of the current situation. You have the keys to start the car, you just need to know how to shift gears.
If you want to learn more about what 10 Recession mistakes not to make? Grab the freebie that gives more along with the ones I listed above, here’s the link.
Ignoring things will not allow you to be able to implement them when the time comes. We all get the act of being delu-lu or delusion but have that sentiment when it comes to setting up your funds and faith to handle any season you are faced with.
The typical formula that you hear about preparing for recessions demands a multifaceted approach. You should listen to the typical insights like establishing a robust emergency fund, ideally covering at least three to six months' worth of living expenses, to provide a financial cushion during lean times. But you should also diversify investments and income streams across different areas. Yet, you should know where you are currently with your money to handle any chaos that could come. Create a strong mindset to handle anything that comes your way, distinguishing between wants and needs, and embracing a sustainable lifestyle that can weather economic uncertainties. You might not find yourself laid off but notice that inflation is laying into your money. A personal recession looks different for each of us (why do you think you’ve seen richession being used now), so being able to handle the tide no matter what the forecasters say is a critical skill for you and your currency.
Need some visuals like my Bey-Hive fam, here’s a YouTube playlist to talk you through it:
No matter if there's a recession or not, there's someone going through some sort of personal recession. They are either laid off, don't have enough saved for retirement or inflation is deflation how the dollar shows up in their budgets/wallets.