No doubt you would have heard economists and financial experts discussing lately whether Australia is heading towards a recession. And you probably have heard that the United States is currently in a recession. Normally, talks of a recession can lead to uncertainty and strike fear in our hearts, especially if you’re considering purchasing a new house or car, starting a family or looking to retire. Before you hit the panic button, the team at I Want That Loan has done some research for you.
What Is a Recession?
The first step to understanding the economy is to understand what is a “recession”. Some finance gurus explain a recession is two consecutive quarters of negative GDP (gross domestic product) growth. The GSP is defined as “the total market value of all final good and services produced within the country in a given time”. Others institutions such as the National Bureau of Economic Research include other variables including personal income, employment levels, industrial product and whole-retail sales.
The other important factor to understand that all economies go through a cycle of growth and decline and some even say a recession is a necessary part of this cycle.
Is Australia heading towards a recession?
The million-dollar answer to this question depends on whom you listen to. Some of Australia’s leading financial market strategists say yes, however there those who believe that the economy is turning and looking positive for our country. It seems time will only tell.
Are there benefits to a recession?
Here’s the good news – a recession is not all doom and gloom news. Apart from the National economic benefits, there are some benefits for the everyday person. Here are some ways you can benefit.
Shares: yes, during a recession, share prices will drop but this is the time to pick up a bargain on the stock market. Even if you invest in small regular amounts, when the share market rebounds after the recession and share prices increase, you will benefit in the long term.
Time to Buy: who doesn’t like a bargain? During a recession, there are bargains to be had in almost every shop. Stores lower their prices and offer dazzling promotions to get you into their store and they are more willing to offer further discounts to beat their competitors and keep your business.
This can also be the time to make a big purchase such as a house or car and even a luxury item such as a boat or caravan. Many people do not budget for their mortgage to increase and unfortunately, are then in a situation where they need to sell. For the first homebuyer or those looking to upgrade, this can be the time to pick up a bargain. To ensure you are truly getting a bargain, check out www.onthehouse.com.au, which will tell you the sale history and expected price. The team at I Want That Loan can also help find you the best mortgage on offer to suit your needs.
Travel in Australia: the value of the Australian dollar drops during a recession, which makes travelling overseas more expensive. On the other hand, hotels and airlines within Australia drop their prices so now is the time to explore our great country.
Better budgeting: it’s not all about picking up a bargain during an economic downturn. It’s time to look at your home budget and to ensure you are being as financially savvy as possible. Write down all your income (including Government assistance, share dividends, investment property income, etc) and all your expenses – including that daily cup of coffee you buy. The golden rule is do not spend more than you earn. Look at how you can save on your expenses – can you take your own lunch or get a better deal on your insurance? – and consider how you can increase your savings for that next rainy day.
Perspective: without being too romantic, this is the perfect time to gain perspective on what is important in life. We can easily get swept up in the wants vs. needs. A recession forces you to be more careful with your money and to reduce financial waste. In turn, this allows you to realize what truly is a need vs. a want.
Whether Australia is declared in an official recession or not, it is always important to pay attention to your finances and to remain positive about your financial outcome.