How To Survive A Recession (Without Burning Through Savings And Selling Off Investments)

key takeaways

  • We are not officially in a recession yet, but we are likely headed for one, with many economists predicting a recession in 2023.
  • With a little preparation, you can be financially prepared if the economy officially enters a recession. Build your emergency fund, work on your resume, and start diversifying your income.
  • Many industries are recession-proof and there are new opportunities that will open up as a result of the economic slowdown despite the short-term pain.

Many experts fear that an official recession is just around the corner. With inflation still on the rise, the Federal Reserve is likely to raise interest rates to further slow the economy. If the economy slows down enough, we could easily get into a proper recession. A recession can cause a lot of pain for many people, from the job market to the stock market.

As stressful as the thought of a recession is, it’s important not to panic. This is just part of the business cycle. While most of us will feel the discomfort of a recession, there are ways to prepare. In this article, we’ll look at how you can survive a recession, so you can feel more confident about your finances as the economy continues to send us mixed messages.

How does a recession affect you?

Many people wonder how a possible recession could affect them personally. A recession is an extreme economic slowdown.

A recession could lead to job losses or problems with employment (no bonus, reduced compensation, etc.) as businesses have to adjust to a decline in consumer spending. With less money in the economy, there is less demand for luxury goods and people think twice before spending more money than is necessary.

The worst case scenario for a recession is that unemployment could rise sharply. The Federal Reserve slows down spending, hiring, and wage earnings by raising the cost of borrowing money. This means you could lose your income entirely or have financial incentives at work removed. This is not encouraging news, but we cannot ignore the reality of the situation.

The good news is that this economic cycle has not yet been officially called a recession. Some would say it’s a stagnant economy and a recession is coming. That just means you have to be prepared for the worst case scenario, as there’s no telling how the battle against inflation will turn out.

How do you survive a recession?

There’s no point in sugarcoating the impact of a recession because we’re all already feeling the effects of rising costs, from everyday purchases like groceries to mortgage rates.

This is how you can financially survive a recession.

Start preparing for a potential job loss.

Central bank representatives have made it clear that rate hikes could lead to economic despair in the form of job losses. We don’t want to instill fear, but even though the job market has been resilient, it’s important to consider the possibility that you could lose your job if you’re not in a recession-proof field. Companies will have no choice but to lay off workers if they don’t generate enough revenue.

What this means is that you need to start doing the following:

  • Work on your resume. If you haven’t polished your resume in a while, now might be the time to update it.
  • Get in touch with your network. This would be the ideal time to start updating your LinkedIn profile and connecting with friends in your network.
  • Build your emergency fund. You must have money saved for a rainy day. If you’re still working, you’ll want to save as much as you can just in case. An emergency fund is one of the main tools in your financial toolbox.
  • Look for new opportunities. If you think your company may experience layoffs during this economic downturn, you’ll want to keep an eye out for other jobs you could apply for.

learn a new skill

This could be the perfect opportunity to work on learning a new skill or try to change careers. They say the more you learn, the more you earn. You could use this financial downtime to focus on a new skill that could help you increase your earning potential.

If you don’t have the resources or time to go back to school, you can always consider working on an in-demand skill like writing or graphic design. Many skills make money even when the economy slows down.

Look for ways to cut costs

It has been said that necessity is the mother of all inventions. While there’s nothing glamorous about going through financial hardship, there are still plenty of creative ways you can save money to prepare yourself financially. During a recession, it’s imperative that you find ways to cut costs so you can be prepared for a loss of revenue. You can start cutting costs by delaying a major purchase or shopping for bargains. You might want to think about cutting a fixed cost out of your budget (a streaming service, or any other service you rarely use).

Try to diversify your income

One of the riskiest things you can do during a recession is to rely on one source of income if your job isn’t in a recession-proof industry. This is your chance to try to apply for a side job or seek to diversify your income so that you have some sources to rely on. I personally took advantage of the gig economy this summer by using apps like Rover and Airbnb to get some extra money to bolster my savings account. You can apply for a part-time job or try something in the gig economy to have some streams of income to protect yourself and your family.

Don’t panic with your investments

While many investors will liquidate for cash, you should think twice before selling your investments. When you see your investment portfolio losing value by the day, it will be tempting to consider selling everything to liquidate. The problem with this is that you are probably selling at a loss. It is also not recommended that you dump your stock due to fear or temporary uncertainty. If you believe in the companies or funds you’ve invested in, you don’t want to make rash decisions that will hurt you in the future.

In times of high inflation, stock market dumps occur and people start panic selling. Volatility leads to wild swings when there is fear in the market. Any good or bad news could provoke immediate reactions. It’s going to be hard to resist, but if you don’t need the money for short-term spending, you should do your best not to panic. Think about the stock market fluctuations that occurred when the pandemic started. Many investors panicked and ended up losing astronomical profits just a few months later.

Should you continue to invest during a recession?

A recession is a normal part of the business cycle and is not a valid excuse for not investing your money. Many industries are recession-proof (consumer staples, utilities, and health care, for example), and not all industries are affected equally.

A recession typically features high inflation and sell-offs in the stock market. This means that you will want to have a balanced portfolio to protect yourself. To that end, take a look at inflation kit for your long-term investable funds and continue to make smart, emotionless decisions with your portfolio. You can also activate portfolio protection at any time to protect your profits and reduce your losses.

Some economists believe that an official announcement of a recession awaits us by 2023, while others feel that the economy could narrowly avoid it. Either way, you should do everything you can to prepare your finances (and your career) for more desperate situations. If we narrowly avoided a recession, you’ll take comfort in knowing you got your finances in order and were ready to get through this tough time.

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