Last Updated on May 21, 2024 by Kel Ashley
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What is a recession?
A recession occurs when a region’s economy declines over several months or even years. During these periods, the region’s gross domestic product (GDP), or the total value of the goods and services it produces, drops. At the same time, dramatic changes may occur in the price of commodities like oil or gas. Previously profitable industries may suddenly become less valuable. Consumers may see increased inflation or higher-than-normal levels of unemployment. As a result, consumer confidence also suffers, meaning that people may be less willing to spend money than they would usually. I know this is a huge problem for all of us. But don’t worry our free resource will help you.
What happens in a recession?
During periods of recession, companies make fewer sales, and economic growth stalls or become nonexistent. To cut rising costs, organizations may be forced to lay off large portions of their staff, resulting in widespread unemployment. At the same time, hiring slows down, making it difficult for the newly unemployed to find another job.
Investments like stocks and real estate tend to lose money, meaning that retirement and other savings accounts can suffer. Lenders may also respond to the increased financial uncertainty by raising their lending requirements, making it much more difficult for people to qualify for new credit accounts.
Recessions are an unavoidable part of any economy. But you can weather the storm by anticipating challenges early and preparing for the future. In this article, I talk about how can we prepare ourselves for the recession.
Are We Going Into a Recession?
Recessions are kind of like hurricanes. It’s hard to predict when they’ll hit and how much damage they’ll cause. But instead of downed trees and smashed houses, the damage from a recession usually looks like this: lost jobs, a tanking stock market and bankrupt businesses.
Now, you might not personally feel the effects of a mild recession (though you’ll definitely hear about them in the news 24/7). But a moderate or severe recession will definitely get your attention. If this is your situation, don’t worry our free resource below will help you.
How to Prepare for a Recession
With inflation up and our retirement accounts down, a recession feels more real now than ever. Having concerns right now is valid. But it’s important to not give in to all the fear out there. You should instead focus that energy on making sure your finances are where they should be. These 8 steps will help you to prepare for the recession.
1. Reassess Your Budget Monthly
Evaluate your budget every month to see what expenses could be kicked to the curb. Are you spending too much on clothes? Cut them out. Only buy what you need and opt for generic over name-brand products to save a couple of extra dollars.
2. Contribute More Towards Your Emergency Fund
After cutting out unnecessary expenses, increase your savings budget as much as you can. Ideally, 20 percent of your income should go to your savings, and 30 percent to “extra” expenses like your subscriptions and memberships. After slimming down your extra expenses, set up higher automatic payments to your emergency fund. If you lose your job or have car troubles, you’ll have your emergency fund there to help out.
3. Focus on Paying Off High-Interest Debt Accounts
Track each debt account you have using our app to see how much you owe and your various interest rates. Focus on contributing more of your income to debt that holds the highest interest rates. While doing so, consider paying off tax-deductible debt accounts, like educational loans, to get cash back during tax season.
4. Keep Up With Your Usual Contributions
Whether you already have a 401k set up or not, try to maintain your budgeted contributions. It can be intimidating to put money in while a recession is looming, but keeping up with these can benefit you in the long term. During volatile times, try to avoid checking your performance each day to stay at ease with your future goals in mind.
5. Evaluate Your Investment Choices
Whether your investments are doing well or not, avoid making emotional money decisions. If the market takes a turn for the worse, consider riding it out for any upswings. Reach out to a trusted financial advisor before making any huge changes.
6. Build Up Skills On Your Resume
Use free online learning platforms like YouTube, expert guides, LinkedIn courses, and assessments to boost your resume. Show off your skills during meetings to show your employer your value. Add every certificate you earn along the way to your resume — this will help prove your eagerness to learn. Increasing your skills could, in turn, increase your value and earning potential.
7. Brainstorm Innovative Ways to Make Extra Cash
Whether things are heading towards a recession or not, consider starting a passion project to bring in supplemental income. Invest time in creating an ebook, online course, or blog on a skill that you’ve mastered and could use to earn passive income. Directly deposit your side hustle earnings into your savings account for an extra financial cushion.
8. Prioritize Online and In-Person Networking Events
Master your digital and in-person networking skills by attending networking events each month. Meet with industry professionals to offer your skills, learn from them, and establish long-lasting business connections. Down the road, these connections could open up career opportunities or expert-level business advice.
Conclusion
Taking steps to prepare your wallet for a downturn when times are good can help take away some of the stress and worry surrounding recessions. And rest assured: Even if economists can’t predict recessions, they almost always know when the U.S. economy is in the middle of one.
Still Need Some Extra Help?
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