Usually, when we observe low food prices, high employment, and high incomes, and on TV they tell us about the country’s strong economy, we consider this a great achievement and hope that this will always be the case. It won’t. Sooner or later, there comes a moment when inflation makes itself felt, prices rise, the Central Bank raises the key rate, and loans become less profitable. Is it really so scary and how to save money in such a situation using Payday Depot?
What are business cycles?
Everything in nature is cyclical. The economy is no exception. Business cycles are periodic rises and fall in business activity. It is impossible to predict the duration of each cycle, but it is important to understand that there is no growth without a fall and no fall without growth. Phases of the economic cycle: boom, peak, recession, and depression. It works like this:
1) During the expansion phase, employment, output, and consumer and industrial demand increase. New investments come to the country, and the Central Bank supports the economy with low rates.
2) The peak phase is coming. Investment, demand, employment, etc. at highs. Inflation reaches dangerous levels, so the Central Bank focuses on fighting it, for example, by raising rates. This is what we are now seeing in the US, Europe, and beyond.
3) The recession phase is the complete opposite of the expansion phase. That is, if then “everything grew”, now “everything falls”.
4) When “everything stops falling”, the depression phase begins. Output, real GDP, and employment are minimal.
How can a recession be useful?
- The difficulties faced by businesses during a recession will show which companies are strong enough to survive the crisis, and which are unworthy of occupying market share. A company with prudent risk management may be able to take part of the market from competitors.
- Inflation, as a rule, decreases with the sound actions of the Central Bank. In the future, this may lead to lower prices.
- The crisis makes it possible to buy cheap what was recently expensive. For example, in the mid-1930s, it was possible to take on entire businesses at bargain prices.
How to save money during a recession?
The first step is to analyze the expenses. Reducing them (if possible) will help save a small amount of money. Secondly, it will be useful to pay attention to the stock market. Stocks of companies traditionally fall during recessions, but some of them may be more resilient to problems in the economy. In addition, the fall will provide an opportunity to buy them at low prices.
If financial difficulties caught you by surprise, using the services of Payday Depot will help you in the most difficult situation with proper planning of future income and expenses.
A recession in the economy is not the end of the world, but quite normal. The world economy is constantly evolving. Sometimes it needs to “cool off” a bit and gain strength for new growth. Always pay attention to risks. If you plan your investments wisely, you will turn a “terrible recession” into a time of opportunity!