How to Survive a Recession
During times of economic chaos, it is really important that, depending on what type of financial situation you are in, you are either positioned to take advantage of the economic downturn or you are ready to financially batten down the hatches, so to speak.
During times of economic slowdown, events that you think may never happen to you, can happen to you, and leave you in a financial mess if you are not fully prepared.
What is a recession?
When a country is in a recession it means that the economic output is shrinking, defined by the economic output being in decline for two consecutive quarters.
This could mean a big impact on the labor market, one minute you could be sitting working in a comfortable job thinking it’s everything is fine. The next thing you know you you are made redundant because the company you work for has had to slash the workforce to cut costs when economic activity slows.
During an economic downturn lower-skilled and even some high-skilled jobs are harder to come by, as there are many other people all fighting for the same jobs which are on the market at the same time.
People are struggling to pay their bills and are desperate to do any kind of work they can, so the labor market is flooded with new applicants, meaning the chances of you getting another job decrease, which could in turn lead you fall into debt.
If you are not prepared financially for this economic slowdown, then it could result in you losing your home if you can’t keep up the repayments or it could send you into a spiral of financial stress, which we don’t want to happen.
But this can be avoided with a little preparation, making some tough decisions, and applying some knowledge of how to handle a recession, and even how to profit from one if you are correctly positioned, which I am going to ensure you are.
I am going to give you the advice you need to survive the economic and financial chaos and even how to profit from it right now and in future recessions too, as there will be more recessions in the future, take my word for it.
So what can we do when we face a recession?
With higher unemployment, high gas prices, real income reduced, a high unemployment rate, variable rate debts increasing, real GDP down, companies experiencing fewer sales, and reduced net income, it is easy to think it is impossible to survive it.
The World seems to be crashing down around you and the very word recession sends shivers down your spine.
But there are things you can do to prepare, survive, and even thrive during and after a recession, I am going to help you with the knowledge you need to get through it.
Here are the key steps you need to take to prepare for the next recession:
There are 2 key parts to surviving recessions and those are preparation and survival.
It is important that you prepare for the recession’s impact on the economy well in advance of any hint of a recession, this allows you to have everything in place well in advance and ensure you are fully prepared.
Key steps for recession preparation.
1. Live within your means
A great piece of advice not only for preparing for a recession but also generally in life is to live within your means.
Anyone can spend money on material things but it takes a special kind of discipline to avoid buying things we don’t need and instead divert this money into a savings or investment account.
A good bit of advice is if you want to make a purchase of something nice to have rather than a necessity, don’t buy it right away.
Think about it for 2 weeks, if you still want it, go ahead and buy it.
Many of the purchases we make we don’t care about a few days or a few weeks later, we think we want something at the time but in reality, it is just an impulse buy.
2. Have an Emergency Fund/stockpile savings
Another very important thing when preparing for a recession is to ensure you have an emergency fund that contains, at the very least, 6 months of personal expenses locked away in a savings account that you never touch.
Let’s say you lose your job tomorrow because of a recession. If you have 6 months of expenses set aside in an emergency fund, you can now survive financially, paying all your bills for up to 6 months while you find another job and get back on your feet.
Think of it as an insurance policy for hard times which everyone should have.
3. Clear Debts
Another way you can prepare for a recession is to ensure that your debts are paid off as soon as possible.
This includes credit card debt and any other variable-rate debt you may have.
You should be aiming to do this anyway but carrying high-interest balances into a recession is something that should be avoided.
Often recessions are caused in part by rising interest rates, this means any of your variable-rate loans, credit cards, or even your mortgage can increase dramatically if interest rates increase during a significant decline in the economy.
If you have high interest debt on a credit card you may be able to transfer the balance to an interest-free card for up to 24 months for a small fee of 2% of the outstanding balance.
If you can transfer to an interest-free credit card then divide your balance by the number of months you have for your interest-free offer on the card and pay that amount every month, this will mean you pay your balance off interest-free, then when you are done destroy the credit card and don’t spend on it again and try not to borrow more money if you can help it.
You can keep repeating this if you have multiple credit cards. Prioritize high-interest rates first then move down to the low-interest rates until all of your balances are cleared. This will ensure you don’t lose money to extortionate credit card charges.
4. Prepare for job impact
To ensure that you have financial security during a recession you need to prepare for job impact.
Some companies during a recession will be looking to cut costs and usually the first thing they cut costs on will be the staff, so its important that you prepare for this.
You can prepare for job impact by ensuring you have an updated and well-polished resume, making sure your LinkedIn profile is up to date and also by networking.
Networking is often overlooked but it’s one of the most important things you can do for your career.
Get to know people in your industry, get to know people who may be able to help you if you lose your job, and always try to keep in touch with old colleagues, they may be able to help you out or put in a good word for you if they are already working at the company you want to work for.
Preparing for job impact will ensure that if the worst does happen, you will be in a much better position to find another job quickly
5. Diversify your income
Another way you can prepare for rising costs and recession impact is to diversify your income by starting a side gig, I have another blog here that looks at the 7 different types of income the average millionaire has, you can check that out to see how you can create multiple sources of income.
Diversifying your income gives you more options and reduces the impact on you financially because you are not relying on a single source of income if the worst happens.
There is an old saying JOB stands for “Just over Broke” because if that job disappears you are just that…… broke! If this is your only source of income.
You can start a side business doing something you like, you could teach an instrument after work, you could give golf lessons or swimming lessons or create a blog or even trade forex for extra money if this is a skill you have.
You just need to find something else to supplement your main source of income so you are not left high and dry should the worst happen.
Key steps to survive a recession
Next, we are going to look at what you need to do when you are actually in a recession to switch to survival mode to ensure you make it out of the other end in one piece.
Key steps for recession survival.
6. Cut monthly expenses
When you are in the midst of a recession it is vital that you cut back to only essential expenses and try to save money by any means possible and this means cutting your discretionary spending wherever possible.
Look at your bank statements and create an excel spreadsheet to group all of your monthly outgoings and see where you are using money in places you don’t need to then try to cut back where you can.
Evaluate how much cash you have spare each month and see what you can live without, for example, if you spend $100 a month on coffee and going out for lunch then this is an easy place to start making savings.
Some other common areas to cut back:
- Eating out at restaurants regularly
- Subscriptions like Netflix, Spotify, Apple, Disney +, etc.
- Just Eat / Uber Eats etc.
- Buying posh coffee
- Unused gym memberships
- Material spending on things you don’t need.
There are lots of small changes you can make in your spending habits that will have a significant impact on your monthly budget, you just first need to evaluate your monthly spending and you will be surprised about how much money you are spending that you don’t need to.
It’s a good idea to do this exercise every 6 months during normal times so that you can ensure you are on top of your personal finance.
7. Investment Strategy
You may think that investing during a recession is a bad idea, but during a bear market when consumer spending is at an all-time low there are some bargains to be had in the stock market.
Probably the most recent and impactful economic chaos we have all lived through would be that thing that happened back in 2020, you know what I mean, I don’t want to say the name of it because it impacts rankings, but you know what I mean when the whole business world seemed to shut down.
Well, many people panicked during these chaotic times, markets were tanking, people were losing money, economic activity was at an all-time low, and wholesale-retail sales were through the floor.
I spoke to some of my friends who own financial companies, and they were saying it was an absolute bloodbath (financially speaking) and many of their clients were making terrible investment decisions that they were advised against.
What did these people do?
They started pulling their money out of their investments, to hold cash.
This is not what you want to do during a recession, you don’t want to make rash decisions, if you can afford to, the best course is to be putting as much money as you can into the stock market and investments so you can thrive afterward.
Markets and the economy work in cycles they always come back, look at every major event in the last 100 years, the markets always return as positive sentiment returns and good times return again.
During the downturn in 2020, while people were pulling money out of their investments and realizing their loss by cashing out, I was putting as much money as I possibly could into the markets.
I was buying at wholesale prices, while people were selling shares at a discount I was buying.
Some of the markets were down 30% during the worst days of this recession but I kept on buying, and what happened, the markets returned to their previous levels and rose even higher above those previous levels.
So, I made all of the gains from the low back to where they were previously, and more, I bought shares at a discount and benefitted from people panic selling.
One thing to note with investing and the stock market is that they are purely numbers on a screen, the only time you have lost anything is if you cash out when the shares you bought are lower than what you bought them for.
Over time the stock market returns 9% on average, some years it might be down 20% some years up 5%, some years down again then a couple of years up.
But on average over the long term (like 30-40 years) there has always been a positive return, so invest for the long term, harness the power of compound interest and ride the natural market cycles without panicking.
8. Get Educated
During a recession, there is a lot of uncertainty, and if you don’t have a strategy or game plan for how to deal with tough times then you are likely to make some mistakes.
I’m not saying that you need to be an expert in economics or finance, but you at least need to have a basic understanding of how things work and what the potential risks are.
One of the best ways to do this is to seek out help from people who know more than you.
This could be hiring a financial advisor, taking an online course, or reading a book on the subject.
The key is to educate yourself so that you can make informed decisions and avoid making rash decisions that could hurt you in the long run.
9. Create a Budget
One of the best things you can do during a recession is to create a budget and stick to it.
This will help you to keep track of your expenses, save money, and make sure that you are not overspending.
There are many different ways to create a budget, but one of the simplest is to use the 50/30/20 rule.
Under this rule, you would divide your after-tax income into three categories:
50% for essential expenses like food, shelter, and transportation.
30% for discretionary expenses like entertainment and dining out.
20% for investing and saving
10. Seek help if you need to
This one is really important, times can get really tough, we don’t know how tough things are going to get will they be as bad as the great depression, or are we going to have a V-shaped recession or something in between?
The important thing is that if you are feeling overwhelmed that you reach out and speak to someone who you trust, or you speak to a mental health charity that will be able to help you and give you the right advice you need.
Don’t bottle things up, and don’t bury your head in the sand. If you are struggling to pay your bills or pay for health care etc. it’s important that you seek help before your situation gets worse.
The longer you leave things, the worse they will get, the problem will not go away so you need to face them head-on, you will not be the only one experiencing this and the quicker you seek help the easier it may be to rectify your situation.
Some charities you can reach out to are:
National Alliance on Mental Illness (NAMI)
Take your survival plan to the next level
There are opportunities during a recession many people overlook, you can use this time to your advantage if you are prepared, you can take advantage while the economy is panicking, keep your cool and search for the opportunities which present themselves.
Here are some ideas:
Start a business – many people have lost their jobs, and starting your own business is a great way to create employment for yourself and others.
Invest in property – with interest rates at all-time lows, now may be a great time to invest in property. You can buy property at a discount and then rent it out or sell it when the market recovers.
Invest in the stock market – while all the stocks are at all-time lows it’s a great time to buy shares at a discount.
Final thoughts.
If you follow the steps outlined in this article you will be on your way to being recession-proof and will be able to survive any economic chaos that may come your way.
There are always going to be ups and downs in the economy, but by following these steps you can ensure that you weather the storm and come out on top.
So, the key is don’t panic, start saving, and invest for the long term. If you do these things you will be in a good position to survive a recession and profit during economic chaos.
