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

The central theses

• We’re not officially in a recession yet, but we’re probably heading towards one, with many economists predicting a recession in 2023.
• With a little preparation, you can be financially prepared when the economy officially enters a recession. Build your emergency fund, work on your resume and start diversifying your income.
• Many sectors are recession-proof, and despite the short-term pain, the economic slowdown is opening up new opportunities.

Many experts fear that an official recession is just around the corner. As inflation continues to rise, the Federal Reserve is likely to raise interest rates to further slow the economy. If the economy slows down enough, we could easily slip into a full-blown 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 only part of the economic cycle. While most of us will feel the queasy of a recession, there are ways to prepare for it. In this article, we look at how you can survive a recession so you can feel more secure in your finances as the economy continues to send us all 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 result in job losses or employment issues (no bonus, lower pay, etc.) as companies adjust to a drop in consumer spending. With less money in the economy, there is less demand for luxury goods, and people think twice before spending beyond the bare minimum.

The worst-case scenario for a recession is that unemployment could rise sharply. The Fed curbs spending, hiring and wage growth by raising the cost of borrowing. That means you could lose your income entirely or take away financial incentives at work. This is not encouraging news, but we cannot ignore the reality of the situation.

The good news is that this business cycle has not yet officially been called a recession. Some would argue that this is a stagnant economy and that a recession is imminent. That just means being prepared for the worst-case scenario, as there’s no telling how the fight against inflation will play out.

How do you survive a recession?

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

Here’s how you can survive a recession financially.

Start preparing for a possible job loss.

Central bank officials have made it clear that rate hikes could lead to economic despair in the form of job losses. We don’t want to scare you, but while the job market has been resilient, it’s important to consider the possibility that unless you’re in a recession-proof zone, you could lose your job. Companies will have no choice but to lay off if they are not generating enough revenue.

This means that you should start with the following steps:

• Work on your resume. If you haven’t polished your resume in a while, this might be the time to update it.
• Access your network. This would be the ideal time to update your LinkedIn profile and connect with friends in your network.
• Build your emergency fund. You must have saved money for a rainy day. If you’re still working, you should save as much as you can, just in case. An emergency fund is one of the most important tools in your financial tool kit.
• Look for new opportunities. If you feel like your business could be laid off during this economic downturn, keep your eyes open for other jobs you could apply for.

Learn a new skill

This could be the perfect opportunity to learn a new skill or try a career change. 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 you increase your income potential.

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

Look for ways to reduce costs

Necessity is the mother of all inventions, they say. While there’s nothing glamorous about going through financial struggles, 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’re prepared for any loss of income. You can start cutting costs by deferring a major purchase or bargaining. You might want to think about eliminating a fixed expense from your budget (a streaming service or another service you rarely use).

Try to diversify your income

One of the riskiest things you can do during a recession is to rely on a source of income unless your job is in a recession-proof industry. This is your opportunity to apply for a side hustle or to diversify your income so you can rely on some sources. I personally tapped into the gig economy this summer by using apps like Rover and Airbnb to earn some extra cash to top up my savings account. You can apply part-time or try something in the gig economy so you have some income streams to support you and your family.

Don’t panic with your investments

While many investors will liquidate to have 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 it. The problem with this is that you’re probably selling at a loss. It’s also not recommended to sell your stocks out of fear or temporary uncertainty. If you believe in the companies or funds you have invested in, you don’t want to make hasty decisions that will hurt you in the future.

In times of high inflation, stock markets dump and people start panic selling. Volatility causes wild swings when the market is scared. Any news, good or bad, could lead to immediate reactions. It will be difficult to resist, but unless you need the money for short-term expenses, you must do your best not to panic. Think back to the swings in stock markets that occurred at the beginning of the pandemic. Many investors panicked and lost astronomical gains just a few months later.

Should You Invest During a Recession?

A recession is a normal part of the economic cycle and not a valid excuse for not investing your money. Many industries are recession-proof (e.g., consumer staples, utilities, and healthcare), and not all industries will be impacted equally.

A recession is usually associated with high inflation and stock market sell-offs. This means you should have a balanced portfolio to protect yourself. To that end, take a look at Q.ai’s Inflation Kit for your long-term investable funds and continue to make smart, factual decisions with your portfolio. You can also activate portfolio protection at any time to protect your profits and reduce your losses.

Some economists believe an official announcement of a recession is imminent by 2023, while others believe the economy could narrowly avoid one. Either way, you must do everything in your power to prepare your finances (and your career) for even worse times. If we narrowly avoid a recession, you’ll rest assured that you got your finances in order and were ready to get through this challenging time.