- We’re not officially in a recession yet, but we’re likely heading for a recession, and many economists predict a recession in 2023.
- With a little preparation, you can be financially ready should the economy officially enter a recession. Build your emergency fund, work on your resume, and start diversifying your income.
- Many industries are resistant to recession, and new opportunities will open as a result of the economic slowdown despite the pain in the short term.
Many experts fear that an official recession is right around the corner. With inflation still rising, the Federal Reserve is likely to raise interest rates to slow the economy even more. If the economy slows enough, we could easily enter a proper recession. A recession can cause a lot of pain to many people, from the job market to the stock market.
As stressful as the thought of stagnation can be, it’s important not to panic. This is just part of the economic cycle. While most of us feel uncomfortable from stagnation, 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 all the mixed messages.
How does the recession affect you?
Many people wonder how a possible recession could affect them personally. A recession is a severe economic slowdown.
Recession may lead to job loss or problems with employment (no bonus, reduced compensation, etc.) as firms have to adjust to lower consumer spending. With less money in the economy, the demand for luxury goods decreases, and people think twice before spending any money other than necessities.
The worst-case scenario for a recession is that unemployment could increase dramatically. The Federal Reserve slows spending, hiring, and wage gains by increasing the cost of borrowing money. This means that you may lose your income completely or get financial incentives at 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 been officially called a recession yet. Some would argue that it is a stagnant economy and that a recession is approaching. It just means that you have to be prepared for worst case scenarios, as there is no telling how the fight against inflation will end.
How do you survive a recession?
There is no sense in addressing the impact of the recession because we are all feeling the effects of rising costs already, from everyday purchases like food to mortgage rates.
Here's how you can survive a recession financially.
Start preparing for a possible job loss.
Central Bank representatives have made clear that raising interest rates can lead to economic desperation in the form of job losses. We don't want to be drawn into fear, but even though the job market has been resilient, it's important to consider the possibility of losing your job if you're not in a recession-proof field. Companies will have no choice but to lay off workers if they do not generate enough revenue.
What this means is that you should start doing the following:
- Work on your resume. If you haven't polished your resume in a while, now might be a good time to update it.
- Connect with your network. This would be the perfect time to start updating your LinkedIn profile and connecting with friends in your network.
- Build your own emergency fund. A must have money saved for a rainy day. If you're still working, you'll need to save as much as possible in case this happens. An emergency fund is one of the main tools in your financial toolbox.
- Look for new opportunities. If you feel your company may be experiencing layoffs during this economic downturn, you'll want to keep your eyes open for other jobs you can apply for.
Learn a new skill
This could be the perfect opportunity to work on learning a new skill or try to change career. They say the more you learn, the more you earn. You can use this economic downtime to focus on a new skill that can help you increase your potential income.
If you don't have the resources or time to go back to school, you can always consider working on a required skill such as writing or graphic design. Many skills bring in money even when the economy is slowing.
Find ways to cut costs
It has been said that necessity is the mother of all inventions. While there is nothing magical about going through financial struggles, there are still many creative ways you can save money to prepare yourself financially. During a recession, it is essential that you find ways to cut costs so that you can prepare for the loss of income. You can start cutting costs by delaying a large purchase or entering into a shopping bargain. You may want to consider cutting one fixed cost out of your budget (a streaming or other service that you rarely use).
Try to diversify your income
One of the most dangerous things you can do during a recession is to rely on a single source of income if your job is not in a recession-proof industry. This is your chance to try applying for a side business or consider diversifying your income so that you have some sources you can rely on. I personally took advantage of the temporary job economy this summer by using apps like Rover and Airbnb to bring in some extra cash to boost my savings account. You can apply for part-time work or try something in the temporary jobs economy so that you have a few sources of income to protect yourself and your family.
Don't panic with your investments
While many investors are liquidating for cash, you should think carefully before selling your investment. When you see the value of your investment portfolio declining day by day, it will be tempting to consider selling everything to liquidate. The problem is that you are most likely selling at a loss. It is also not recommended to dump your stock due to fear or temporary uncertainty. If you believe in the companies or funds you invested in, you don't want to make rash decisions that will hurt you in the future.
During times of high inflation, dumps happen in the stock markets, and people start selling out of panic. Volatility leads to extreme volatility when there is fear in the market. Any good news or bad news may lead to immediate reactions. It will be difficult to resist, but if you do not need money for short-term expenses, then do your best not to panic. Think back to the stock market volatility that occurred when the pandemic first started. Many investors panicked and ended up losing astronomical gains after only a few months.
Should you continue to invest during a recession?
Recession is a normal part of the economic cycle, and it's not a valid excuse not to invest your money. Many industries are recession-resistant (basic consumer goods, utilities, and health care, for example), and not every industry is affected equally.
A recession is usually characterized by high inflation and selling 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 Q.ai's Inflation Kit to get your investable money in the long run and continue to make smart and unemotional decisions with your portfolio. You can also activate wallet protection at any time to protect your gains and reduce your losses.
Some economists believe a formal recession is due to be declared by 2023, while others feel the economy could narrowly avoid one. Either way, you should do everything you can to prepare your money (and career) for more severe distress. If we narrowly avoid a slump, you'll be relieved to know that you've prepared your money and are ready to go through this tough time.