Luxury items 

How to survive a recession (without burning savings and selling investments)

Key points to remember

  • We are not officially in a recession yet, but we are likely heading into a recession, many economists are predicting a 2023 recession.
  • 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 new opportunities will open up as a result of the economic downturn despite the short term difficulties.

Many experts fear that an official recession is imminent. With inflation continuing to rise, the Federal Reserve will likely raise interest rates to slow the economy even further. If the economy slows down enough, we could easily go into a real 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. It is only part of the economic cycle. While the discomfort of a recession will be felt by most of us, 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 potential recession could affect them personally. A recession is an extreme economic downturn.

A recession could lead to job loss or employment problems (no bonus, reduced pay, etc.) as businesses have to adjust to lower consumer spending. With less money in the economy, there is less demand for luxury items, and people are thinking twice about spending money beyond the necessities.

The worst-case recession scenario is that unemployment could rise dramatically. The Fed is slowing spending, hiring and wage gains by raising the cost of borrowing. This means that you could lose your income completely or have financial incentives taken away from work. 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 labeled a recession. Some would say it’s a stagnant economy and a recession is coming. It just means that you have to prepare for the worst case scenario, because it’s unclear how the battle against inflation is going to play out.

How to survive a recession?

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

Here’s how you can survive a recession financially.

Start preparing for possible job loss.

It has been made clear by Central Bank officials that rate hikes could lead to economic desperation in the form of job losses. We don’t mean to instill fear, but even though the job market has held up, 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 staff if they are not generating enough revenue.

This means you should start doing the following:

  • Work on your resume. If you haven’t tweaked your resume in a while, now might be the time to update it.
  • Contact your network. Now would be a great 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 be experiencing layoffs during this economic downturn, you’ll want to keep your eyes peeled for other jobs you might apply for.

Learn a new skill

This could be the perfect opportunity to work on learning a new skill or trying to change careers. They say the more you learn, the more you earn. You could use this economic downtime to focus on a new skill that could help 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 earn money even when the economy is 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 to save money to prepare yourself financially. During a recession, it is imperative that you find ways to cut costs in order to prepare for a loss of revenue. You can start cutting costs by delaying a major purchase or by shopping at bargain prices. You might want to consider removing a fixed cost from 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 only one source of income if your job is not in a recession-proof industry. This is an opportunity for you to try applying for support or to consider diversifying your income so that you have a few sources to rely on. I personally tapped into the gig economy this summer using apps like Rover and Airbnb to bring in extra cash to bolster my savings account. You can apply for a part-time job or try something in the gig economy so you have a few sources 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 the value of your investment portfolio dropping day by day, it’s going to 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 advisable to empty your stocks 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.

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

Should you still invest during a recession?

A recession is a normal part of the business cycle, and it’s not a valid excuse not to invest your money. Many industries are resilient to the downturn (consumer staples, utilities, and healthcare, for example), and not all industries are affected equally.

A recession is usually characterized by high inflation and stock market sell-offs. This means that you are going to 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, unemotional decisions with your portfolio. You can also activate Wallet Protection at all times to protect your winnings and reduce your losses.

Some economists believe we must announce an official recession by 2023, while others believe the economy could narrowly avoid one. Either way, you need to do everything you can to prepare your finances (and your career) for more difficult situations. If we narrowly avoid a recession, you’ll be comfortable knowing you’ve got your finances in place and were ready to weather this tough time.

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