What Does It All Really Mean?
There is a lot of information going on about inflation and interest rates right now. In this episode I talk about what a recession is, how this may possibly impact you, and what you could do during this time.
Audio Version:
We can define recession in a few ways:
-Definition 1: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
-Definition 2: A recession can be defined as a sustained period of weak or negative growth in real GDP (gross domestic product / our output) that is accompanied by a significant rise in the unemployment rate.
-Definition 3: A recession is a downward trend in the business cycle, one that is characterized by a decline in production and employment. This trend lowers household income and spending, which consequently causes many businesses and households to delay making large investments or purchases.
How Does This Affect You?
Right now due to inflation, we are paying more than the average of the actual cost of an item. This could be because of a shortage of labor or a supply chain issue.
This means the cost of goods are going up and gas prices are sky rocketing.
For some people this means your discretionary income each week may be lower than usual.
For some people living paycheck to paycheck, this may mean a potential negative deficit in their finances.
Raising The Interest Rate
When the interest rate is low, borrowing money is "free", or at least has a very minimal cost to you. We use this to make large purchases or invest because the interest is so low.
As they start to rise, our monthly payments will start to increase.
This may mean something at a low interest rate that was in your budget, may not be affordable at a higher rate.
With the cost to borrow higher, this could mean those larger purchases may now be out of reach.
Affecting Businesses
Many business expenses are raising due to inflation, even basic necessities such as utilities.
This can affect a businesses choice to expand, hire new employees, and even give out raises.
This can stunt economic opportunity for us because they aren't expanding and may even result in possible lay offs. This could force people to take job opportunities they don't necessarily want so they are able to pay for their basic needs.
We Will See A Change
Fear starts to creep in and people start pulling back on their purchases.
Our unnecessary goods may be put on hold. We may not go on vacation this year.
The Federal Government is trying to help us by raising the interest rates, which will decrease demand, hopefully allowing the supply chain shortages to catch up.
We do not need to be afraid, the world is not over due to the high rates.
We need to reset our expectations and reset our new normal. Hunker down and spend some quality time with your loved ones.
While This Is Happening...
There are always ways to make money in the stock market, even during a recession.
While you wait for things to cool down, join us at Power Trades University and see what you could potentially earn during this challenging time.