As of this writing, the Dow has fallen another 1,400 points due primarily to the continued economic fallout from our global Coronavirus health crisis and more recently the oil price war escalated by Saudi Arabia.
CNN Business points out that the longest economic expansion in American history has survived an unprecedented trade war, a catastrophic tsunami in Japan and a fast-moving coronavirus. This severe crash in oil prices now poses the most recent test.
“This crisis threatens to dim the brightest part of the United States, if not the world, economy: American wallets.”
Resilient spending by consumers is the only thing that kept the United States out of recession during the height of the US-China trade war last year. Manufacturing collapsed. Business spending shrank. Yet Americans kept on shopping.
“The American consumer is the firewall between an economy that’s growing and one that’s not,” Mark Zandi, chief economist at Moody’s Analytics, told CNN Business. “If the American consumer loses faith, and the coronavirus is a real test of faith, then a recession is going to happen.”
What is the average U.S. household to do?
Other than taking well-publicized precautions to preserve your health, you may need to take additional measures to preserve your financial well-being.
One of the most important things you can do to survive an economic downturn is to make sure your income is derived from different sources. Income diversity can protect you when one source of income fails. Your personal income needs to come from more than just your business or your day job. Look for ways to shore up your income. At the very least, put yourself in a position where your household could generate more income if needed.
Build up your savings and forego those discretionary or unnecessary expenses. Think about where you might keep your assets. Seek out higher interest saving accounts or other low risk higher yield investment accounts. Know what additional measures are available to you if required. Examples of this would be common household budget items such as having groceries delivered as opposed to making time to visit the supermarket. Eat out less often and/or wait for that movie that you want to see to come out on a streaming service rather than attending the movie theater. Coincidentally, these suggestions may also help you to avoid becoming ill as it is recommended that we avoid spaces with large public gatherings.
By making a list of what you consider to be non-necessities and then thinking about what you would cut back on and how much that would potentially save, you are taking the first steps toward controlling your financial situation. Then at the appropriate time, implement secondary measures as required by your financial circumstance and longer-term goals.
All will be well if you keep your priorities straight, focus on savings and capital preservation, minimize risk, diversify income streams and most importantly, keep your emotions in check. This too shall pass.