How to Survive a Recession

A recession can be an incredibly scary time. Your investments decrease, your job may be affected, and prices are likely to increase. It’s enough to make anyone panic. But before you do, read this guide on how to survive a recession. It will give you an easy framework to protect yourself from feeling the impact of the recession too much and help you to feel more confident.

Here’s how to survive a recession.

What Is a Recession

A recession is a period of 6 consecutive months or longer where the economy declines considerably. It affects the entire country, not just a single industry; therefore, people all across the US feel the pinch.

In the last 30 years, the US has had 4 recessions, the most recent one being during the Covid-19 pandemic. On average, recessions last 10 months. It is worth noting that the economy may not have fully recovered when the recession is officially considered finished. Sometimes, it can take months or even years for the stock prices and unemployment rate to stabilize. So, when considering how to survive a recession, you are preparing for longer than just the average 10-month recession.

Why Do I Need to Prepare for a Recession?

Preparation can take the fear out of a recession. It is a time of great uncertainty, so by being prepared and feeling confident in your ability to survive a recession, it is easier to stay calm. Suddenly, the recession doesn’t seem quite so scary because you know what to expect, and you have strategies in place to help you survive a recession.

Here are some other benefits of preparing for a recession:

• Reduced financial impact – A little bit of preparation can reduce how much a recession affects you, even if the worst were to happen. You will survive a recession because you have enough savings, lower debt, and a plan for what you will do when the next recession happens.
• Better overall financial stability – The strategies that will help you survive a recession will also put you in a stronger financial position in general. They will help you to take steps towards your financial goals instead of living paycheck to paycheck. In the long term, your worries will pay off.
• The ability to capitalize on a recession – Once you are more financially stable, you may even have the extra liquidity that will help you take advantage of lower asset prices during a recession. You may decide to purchase shares or even property during a recession to improve your overall financial situation once the economy stabilizes. This should never be done at the sacrifice of your financial stability (your emergency fund and debt repayment come first.)

Most importantly, preparing for a recession means that you are in charge of your finances through good or bad. The recession (or any other circumstances) does not dictate your overall financial stability. You have the framework in place to continue to work towards your goals, improve your financial education, and not only survive a recession but come out the other side stronger than ever. Let’s discuss the 7 steps of how to survive a recession.

Step 1: Stay Calm

The first step in how to survive a recession is to stay calm. You can’t make good decisions from a place of panic. Recessions can be scary, but they are a normal fluctuation in the economy. You have likely already experienced multiple recessions already.

A great way to stay calm is to focus on what is within your control. There will be a lot going on that is not within your control, but you can focus on actions that will help you to survive a recession. That will look different for everyone; we will discuss some examples in the following steps.

Staying calm will help you to take stock of the situation and decide what actions would be the best path.

Step 2: Take Stock of Your Finances

The second step in how to survive a recession is to review your finances so that you understand your situation.

This is something you should do now so you can decide what you need to work on to survive future recessions better. It is also something you should do when a recession hits so you can decide if there is anything you need to do.

Take a look at your finances to find out the following information:

• The amount of your essential monthly expenses
• The amount of your non-essential monthly expenses
• How much money you have saved and accessible
• How much money you have invested

This will give you a clear picture of how much money you will have to hand in a recession and how many months you can survive a recession if you lose your job.

Step 3: Create a Budget

The third step in how to survive a recession is to create a budget. Having a budget helps you to manage your finances and ensure your money is going towards achieving your financial goals. When a recession hits, you can review your budget and update it as needed so that you are deciding how you want to budget your money instead of your panic dictating your budget.

Your budget should cover:

• Necessary expenses (rent/mortgage, bills, gas or transport, and gas.)
• Any other expenses
• All sources of your income
• Savings
• Investments
• Debt repayments

Your budget will give you a lot of information about how you can improve your financial situation in general and how to survive a recession. It will be clear how much debt you have, how much you are putting towards savings and investments on a regular basis, and whether you need to either reduce your expenses or increase your income. Armed with the information of what you need to work on, you can identify areas where you need financial education.

Step 4: Build Your Emergency Fund

The fourth step in how to survive a recession is to start an emergency fund. An emergency fund will keep you afloat if you lose some or all of your income during a recession. Ideally, you would have an emergency fund that covers at least 3-6 months of your essential expenses to give you plenty of time to find additional income, apply for assistance, or whatever else you need to do. It may even help you to survive the entire recession if your emergency fund is big enough.

Having an emergency fund will help with step 1, staying calm. It is a lot easier to stay calm when you are already in a strong financial position, and you feel confident you will be able to survive a recession.

Step 5: Don’t Liquidate Your Investments

The fifth step in how to survive a recession is to hold your investments. It can be tempting to sell your investments as prices drop to avoid losing money. However, selling your investments means you will lose money.

It is best practice to hold onto your investments through a recession because, most of the time, the investments will bounce back post-recession. It may take a few months after the recession has ended, but you are more likely to be better off holding rather than selling. When the stock prices return to normal, you’ll be glad you didn’t sell and lose money.

Another thing to consider when planning how to survive a recession is to put extra money aside to take advantage of the lower stock prices. Stock prices (and sometimes house prices) fall during recessions; it can be a great time to bag yourself a good deal. After the recession, the stock prices will increase and you will make money on the stocks that you bought.

Step 6: Pay Off Your Debt

The sixth step in how to survive a recession is to pay off your debt. Your debt repayments are an extra monthly expense that grows the longer you have it. If you are unfortunate enough to lose your income source during a recession, debt can make the situation more stressful.

Your emergency fund is higher priority than paying off your debt. Wait until you have at least 3 months of expenses saved in an emergency fund to start aggressively paying off your debt.

Take stock of what debts you have and which ones you want to prioritize paying off. Identify which debts:

• Are important to your life (it would affect your life significantly to default on the loan and face repossession.)
• Have high interest rates.
• Have assistance programs if you need help during a recession.

This will help you to prioritize which debts you want to pay off first. You should still pay the minimum repayments on the other debts.

Investing time in understanding which are the recession-proof businesses can provide additional security and opportunities during economic downturns.

Step 7: Look at Your Job Options

The seventh step in how to survive a recession is to look at your job and career aspirations. This has the added benefit of reviewing your career to decide what your next step should be.

One of the most stressful impacts of a recession is the risk of losing your job. Consider whether you feel like your job is stable. Is your role central to the organization’s profitability? Is your company financially stable?

You should take the opportunity to review your resume to update it. It may help to write down your achievements, accreditations, awards, and the projects you have worked on. That list will make it easy to update your resume when you are job hunting. If you lose your job, it is already stressful enough, so having that information written down will help you survive a recession.

Think about whether it is time to look for a promotion or switch companies to get a higher salary. Reviewing your job options will help you to see your career progression clearly so you can make the necessary changes. A higher salary will help you to build an emergency fund and pay down debt faster, too!

While reviewing your job, it may also be beneficial to consider whether you want to start a side hustle to earn a little bit of extra cash on the side and increase your skills. It is a great way to dabble in different types of work, save a bit of extra cash, and keep your options open. Many people have leveraged a side hustle into a business or a new career path.