In love with a possible recession?

You: So you’re using the “R” word now?

Indeed.

You: Does this mean that you think we’re in a recession?

I don’t know.

You: Shouldn’t you?

Nope.

You: Why not?

A recession isn’t a personal finance concept. I know what I know and I’m happy to admit what I don’t. For example, I predicted Ryan Leaf would be a much better quarterback than Peyton Manning. See me blogging on NFL topics?

You: Thankfully not. So what exactly is a recession?

While there’s isn’t a universally agreed upon definition (Here’s a good article summarizing why), many media folks use “two consecutive quarters of decline in GDP.”

You: What does that mean?

Over a three-month period the country has produced less goods and services than it did during the previous three month period.

You: That sounds rather concrete.

It is.

You: So why don’t you know if we’re in a recession? Can’t you just look it up?

Laziness isn’t the reason I don’t know the answer. Truth is, by the common definition above, we don’t we’re in recession until way after it started, by which time, theoretically, we could be out of it.

You: That doesn’t sound very useful. So what am I supposed to do?

Nothing.

You: Nothing?

Nothing at all. In many ways, a recession (or the decent possibility of a recession) serves as both a good reminder and opportunity to do the things you should be doing anyway.

You: A recession as a reminder?

Sure, our current economic environment is a good reminder of the following:

• There’s a lot you don’t control, like the performance of your individual investments, the subprime crisis, who will win the next election, and inflation. If your last name isn’t Bernanke, don’t stress about these things. Instead, control what you can control, like the amount you save and how you invest. Keep your debt level sane.

• Like trees, no investment–not even your home–grows to the sky. Have realistic expectations. For those who used their ever-increasing home equity as an endless ATM for excessive spending, those days are over. But, you probably knew that already. More importantly: they’re not coming back. Ever. The hyper growth was insanity. Today’s significant declines are also unusual, but are only here because of the previous over-excitement. Steady low single-digit annual growth will return eventually to the housing markets, because that is what is normal.

• What goes around comes around. Eventually. It may take a while, but those who were the most aggressive with their spending and who had the least financial cushion are the first ones to get hurt during an economic downturn. (But remember, they didn’t cause or successfully predict the downturn any more than you did.) Big-time spenders are much more likely to pay a bigger price as a result of the changing economy. An emergency fund is personal finance 101 because it actually does come up whenever you have an emergency. By definition, an emergency is unplanned. Having the funds to deal with it, on the other hand, only will occur if you planned. You don’t have to be a rock star with a slow web site to appreciate the irony.

You: What kind of opportunities does a recession give me?

Don’t you mean possible recession.

You: But of course.

A recession (or possible recession) creates wonderful opportunities. Here are two of my favorites:

• A recession makes it easier to do the right thing. In good times, saving is very much not “in.” But when society is fearful, suddenly spending less on dinner or entertainment is acceptable. If you haven’t begun to notice this within your peer group, there are two possibilities. Either you’re all in denial or you’re part of a rare breed who spent less than they could have (during the good times) and therefore can lead the same kind of spending life during this slowdown. If you’re in the second group, please toast to your intelligence and good planning.

• Sales are everywhere. You can buy stuff cheaper during a recession. Obviously, don’t buy stuff you don’t need, regardless of economic climate. But if it makes sense, take advantage of the discounts on clothes, cars, big screen TVs, a house, or my personal favorite: stocks. Yes, even though stocks are off their recent lows, they’re also way off their recent highs. Buying stocks consistently over the long-term (via dollar cost averaging) is the absolute best way to maximize your investment return. You can get more for less when the economy is in a recession.

You: Or possible recession.

Indeed.

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What are you doing differently based on the economy? Anything? What are you doing the same, but now only more of? Do you think the recession is an opportunity?
“personal finance” “financial education”