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The word “recession” can be scary. Especially when it’s spread all over the news and is made out to be something out of a nightmare. TV Networks always scream about an upcoming recession and make you believe it until it hits.
And recessions are usually pretty bad. Inflation is up. The economy and stock market are down. And people are losing jobs. So what can possibly be good about a recession? Not much, but here’s the best I can tell you:
A recession can offer people the opportunity to look at their finances and really get their act together. If you plan it out well enough, in the span of 12-18 months, most people can completely change their entire financial picture and come out even better than before.
I know people are usually hurting during a recession but now is your opportunity to change that if that’s you. YOU are the only person who can fix your finances. That’s why I wrote this post. To help you fix your finances and get through whatever tough situation you’re going through.
So today, we’re going to talk about a few things:
- What’s a recession?
- 17 tips to bulletproof your finances and survive a recession.
- Whether or not we’re in a recession or headed for one.
- What happens during a recession
- And how you can fully prepare to take care of yourself during a period of recession.
If you’re ready, let’s tackle this thing head on. But first things first…
What is a recession?
A recession is a temporary period of economic decline in which industrial activity and trade decrease, and which is normally identified by a fall in the Gross Domestic Product of a country over a period of two successive quarters, or 3-month periods of financial activity.
So in short: a recession is when the economy sucks, trade and industrial activity slow down, and the value of goods and services decreases from people not buying as much stuff over a period of 6 months or more (2 successive quarters of the year). A recession simply sucks.
The last two recessions
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I remember the last two recessions pretty well. There also the only two that I really remember: the 2008-2009 “Great Recession” and the 2020 “Covid Pandemic Recession.”
The 2008-2009 “Great Recession”
The “Great Recession” of 2008-2009 lasted from December of 2007 through June of 2009. It was brought on by the housing market’s subprime mortgage crisis and it spread deep through the economy as the GDP shrank and unemployment hit 10% percent.
I was still in high school during this recession so this one didn’t hit me financially. But I do remember how bad it was for a lot of adults around me. My grandfather, who works in finance, said that it hurt investments tremendously, noting that his “401(k) now looked more like a 201(k).” I love that joke. This recession lasted longer than most others in history, at almost two years, but we got through it and had great prosperity for over 11 years.
The 2020 “Covid Pandemic Recession”
The last recession we had, brought on by the Covid Pandemic of 2020, was financially worse than all other recessions that the United States has had since the Great Depression of 1929.
After falling 5% percent in the first quarter of 2020, the economy took a turn for the worse and fell a record 31.2% percent in the second quarter of the year. The Covid Pandemic continued to take a toll, contributing to the loss of 20.5 million jobs, unemployment at 14.5%, and the Stock Market Crash of 2020.
However, the economy rebounded and my personal 457(b) investment account was up almost 20% at the end of the year. I don’t really remember this recession being as bad, though, because of how quickly the economy came back. But it was a tough couple of years through the Covid Pandemic.
Alright, so there’s your history lesson on the last two recessions. Let’s look at how you survive the next one. Here are my 17 tips.
How to survive a recession: 17 tips to bulletproof your finances
1. Don’t freak out
This first tip is for anybody who basically has the mindset of “the world is going to end.” Let me be the first to tell you that it’s not. As of 2022, according to the balance.com’s post here, the United States has had 18 recessions from 1797 to 2020. Since the very first one, America has flourished and the world has kept on turning. We’re now better and stronger than before.
So I didn’t expect anything different when a recession hit in 2020 and I don’t expect anything different in the future. With all that being said, recessions are painful, but there’s no need to freak out, panic, or stress over something that isn’t going to last that long. We will get through it.
2. Don’t withdraw investments
Let me say it again: DON’T WITHDRAW ANY OF YOUR INVESTMENTS! It’s not the time to freak out, stress, and take all of your money out of the market, especially when the market is down. It’s a terrible idea and you should RUN from anyone telling you this.
But why should I keep my money in the market…I might lose more? You won’t lose ANY of your money if you just keep it invested. That’s the common misconception that I want you to understand – if you take your money out, you lose it. If you leave it in, the value might go down, but it will go back up eventually. So if it goes back up higher than before, you never lost anything!
Let me break it down: investing is like a giant financial roller coaster. There are ups and downs. You’re terrified and then you’re happy. But you only get hurt if you jump off. If you stay on the roller coaster, you’ll soon get to the end after having one helluva ride. That’s investing in a nutshell.
So stay on the ride. Right now you may be in a recession dip. Your account might be down 20% percent like mine. But I’m staying in because it’s going to go back up. You should, too.
3. Continue investing
You know what you should do instead? Continue investing as normal. If anything, you should increase the amount of money that you invest. Why? Because everything is at a discount when the market is down! You want to invest as much as possible. Because when the market heads back up like it always does, your investments are going to shoot up like crazy.
So don’t take your money out of the market. Instead, put more in!
4. Get on a financial plan
There are hundreds of different “financial plans” out there. Some are pretty crazy but a couple of them can work. So if you’re in the middle of a recession, it’s hard to know which one to choose. But here are a couple of options:
If you need a good plan, even if there is a recession going on, I highly recommend the Dave Ramsey Total Money Makeover plan. This plan is simple and straightforward, which is why my wife and I love it. We’ve used it for a while now and we’ve managed to accumulate a $300,000 dollar net worth by 30 years old.
If you’d like to learn more about this plan, check out the book here on Ramseysolutions.com (not an affiliate link).
You can also check out my simple 10-step plan to get out of debt, build wealth, and bulletproof your finances. Check that out here: “How to Stop Borrowing Money: The 10-Step Guide to a Debt Free Life”
5. Get on a budget
The best way to control your money and become recession-proof is to create a budget. A budget allows you to control your money and designate exactly where it’s all going to go. You may not like the thought of a budget, but you have to have one. If you don’t use a budget, you’re going to inevitably waste away your precious hard-earned dollars and not use your money as effectively. So it’s important that you create this immediately
As for what kind of budget, you want to use a zero-based budget. This kind of budget takes your money and zeroes it out. It allows you to use every single dollar for something: whether saving, paying debt, or spending. Every dollar that you bring home has a mission. And you tell it what the mission is.
For an awesome post on why I love the zero-based budget, check out this one: “7 Ways a Zero-Based Budget is the Best Budget for Your Money”
You can also check out this post: “37 Ways to Give Yourself a Raise in Your Budget (#27 is Crazy!)”
6. Emergency fund
The emergency fund is SO important, especially when you’re going through a recession. But I want you to work the plan. Whether you’re doing the Ramsey plan or my simple 10-step guide to bulletproofing your finances, I want you to evaluate where you’re at. This is simple: do you have debt? Answer that question and this will determine what path you take with your emergency fund. We’re going to follow the plan, even if there’s a recession. But whether you have debt or not, you want to do the next couple of steps as fast as possible.
If you have debt, you’re going to want a $1,000 dollar starter emergency fund. You want to build this fund as fast as possible so that you can start paying your debt off. Do anything and everything you can to build your $1,000 dollars as quick as possible. I want you to do this in 1 month.
For more on building a $1,000 dollar starter emergency fund, check out this post: “How to Create a $1,000 Dollar Starter Emergency Fund in 1 month!”
If you don’t have any debt, you need to start putting together a 3-6 month fully funded emergency fund. This fund will have 3-6 months of your necessary monthly expenses in it. Whatever it costs to pay the mortgage, all bills, and groceries for the month is what you will multiple by 3 or 6. Build that up as fast as you can as well.
For more on the 3-6 month fully funded emergency fund, check out this post here: “How to Create an Epic Emergency Fund With Any Income”
7. Pay your debt off
The next step in the process of bulletproofing your finances is to get out of debt AS FAST AS POSSIBLE. Do this like your life depends on it – because it does. You want gazelle intensity. This post here on Ramseysolutions.com explain what that is.
Debt SUCKS. It robs you of your hard-earned money and doesn’t allow you to effectively use your greatest wealth-building tool: your income.
So here’s what I want you to do – list out all of your debts smallest to largest, attack the smallest debt with a vengeance, and pay minimums on the rest. Interest rate doesn’t matter. Once you pay the smallest debt, add that payment in to your debt snowball and start paying the next smallest debt. Continue on up the debt list until you knock out the biggest debt on that list. After that, you’re debt free! Next up is to build your 3-6 month fully funded emergency fund.
A recession doesn’t change how I want you to get out of debt. But it does promote the urgency. If you’re facing a recession, you need to fix your finances and get out of debt as fast as you possibly can. Because the better off you are, the more likely you won’t get hurt as badly through that recession. If you’re debt free with a fully funded emergency fund, a recession is only going to be an annoyance. That’s how I’m feeling right now as you read this.
For more, check out this post on my site: “47 Creative Ways to Pay Off Debt This Year.”
8. Live below your means
Surviving a recession doesn’t just mean doing the steps to get out of debt, but also the steps to stay out of debt. The first way you do this is to make sure that you’re living frugally or “living below your means.” All if this means that your expenses need to be less than your income. You need to spend less than you make.
Living below your means is a concept that’s pretty foreign to a lot of people these days. But this can be one of the most profound and transformative financial concepts in your life. I know it helped to change mine.
9. Cut expenses
The next thing you can do is to cut your expenses. This goes along with the whole “live below your means” thing. But after you create your budget, you need to take a hard look at your expenses. Do a deep dive and start cutting out everything that’s unnecessary. The goal is to free up as much money as possible, so that you can pay off your debts, and free up more money to continue securing your finances through a recession.
For a great post on this, check out this one here on my site: “101 Ways of Creatively Cutting Expenses to Save a Ton of Money.”
10. Sell stuff
Before you even start selling stuff, I first want you to stop buying stuff. Anything that is not a need or required for you to live needs to be cut out of your expenses/budget.
Once you can stop spending on stuff you need to start selling. Sell everything that’s not bolted to the floor. Keep kids, pets and at least something to sit on. I’m joking but seriously…SELL EVERYTHING. Use EBay, Mercari, Facebook Marketplace, consignment stores, yard sales and any other platform you can think of. You can even hit up yard sales, buy some stuff that might sell for more online, and then flip it for extra cash. My wife does that.
Every extra dollar you make goes to securing your financial future – from paying off debt, to fully funding your 3-6 month emergency fund, to simply having extra money in the bank for security during a recession.
11. Skip unneeded major purchases
If you’re facing a deep recession, unless your finances are secure and you have no debt, you need to skip large purchases for the time being. Anything that isn’t a complete necessity gets put on the back burner. If your fridge goes out, go buy a new one. Stuff happens. I get it.
If you have no debt, make sure you’re saving up and paying cash for anything you buy. If you’re in a recession, you might be able to get a deal on a lot of stuff.
12. Focus on making smart financial decisions
On top of all the things I’ve just listed, I want you to focus on making smart financial decisions through this recession. A recession is tough on everyone, but if you continue making smart financial decisions, it won’t matter how deep of a recession you’re going through.
13. Make sure you and your spouse are united on finances
This is HUGE in personal finance. This is even bigger when you’re facing a recession AND your finances aren’t in order. Now if you don’t have a spouse or significant other, just move on to the next tip. But if you and your spouse are trying to figure it out, here are my thoughts:
I understand that it’s insanely difficult to get on the same page with finances. Thank God that my wife and I were both frugal because it took me 7 years to get her on board with the financial plan. Finally, she did and it’s been game on ever since.
It’s important that you guys get on the same page because it’s hard to achieve goals together if your finances are separated. Maybe you each have your own goals. Maybe you guys can achieve them on your own. But you and your spouse are married. You said, “I do,” to be joined together as one couple. Why have seperate finances or separate bank accounts? No, you all need to be together on this or you don’t do it.
And if you can’t agree in the middle of a recession with poor finances, you may be in trouble. So try to get your spouse on board with fixing and securing your family’s financial future. It’s tough but it’s not impossible.
14. Think about your job/career
So with recession comes job loss. Not everybody will lose their jobs but there will be som people that have to unfortunately suffer through the sadness. Even leading up to a recession, we see people that have already lost their jobs. It sucks. I don’t want anybody to lose theirs but it will happen. So that’s why you’re working as fast as you can to shore up our finances.
If you still have a job, just keep on working and doing everything you can to get out of debt, save up an emergency fund, and continue working toward a solid financial picture. That’s the best thing you can do both leading up to a recession and during a recession. Also, look to see if your current job is going to be a career or not. If not, start looking for jobs that can pay you well, provide great benefits, and afford you a great career.
If you’ve lost your job, you’re going to go into emergency mode. This is a crisis that has to be fixed IMMEDIATELY. Hopefully you have at least your $1,000 dollar starter emergency fund to pay on rent or on your mortgage. Just a small buffer, I know. But here are the three things you’re going to do to fix this situation you’re in:
- Cut ALL expenses: you’re in emergency mode so cut out all unnecessary expenses until you get a new job and get your income stable.
- Sell EVERYTHING: until you can get that income stable, you need some money coming in. The easiest thing to do is sell your stuff. Whatever you’ve got to do to stay afloat for a month, do it.
- Make finding a job your full-time job: I mean it. Over the next couple of weeks, for 8 or more hours a day, work on your resume and start applying for jobs. If you do this every day multiple weeks, you will easily have another job.
I also recommend two books:
From Paycheck to Purpose by Ken Coleman – get it here (not an affiliate link).
The Proximity Principle by Ken Coleman – get it here (not an affiliate link).
15. Have another income coming in
On top of your normal full-time job, I highly suggest that you always have another income stream coming in. It’s very important for getting your debt paid off and for helping build wealth on the back end.
There are many ways, too, that you can have this 2nd income stream coming in. A part-time 2nd job is the easiest way to do it. However, you might not make as much since you’ll be an hourly employee. This can help you add about $15-20 dollars an hour doing this so still not bad.
A side gig or side hustle is another great way to add in extra income. This way is a little tougher, since you’ve got to put in the effort to get this going, but you can easily make $30-40 dollars an hour doing something like house cleaning or lawn care.
16. Learn new skills
If you don’t want to get a side hustle or stay at your current job, try learning a new skill. You could do anything from getting a degree in a field you’re passionate about, get IT certificates for technology, or just get a completely new job with a new skill set. I’d be careful in a recession, though. Might want to stick to something stable while the economy is down.
17. Stop watching the news
The final part of this tips section is to make sure that, even though a recession may be ongoing, you still enjoy your life. I know things may be crazy, but it’s going to eventually get better. Normal recessions last about a year and then we all recover.
I would highly encourage you to go on like normal, with the exception of working to fix your finances and make better financial decisions. If you’re stressing and struggling, one easy way to fix that is to turn off the news. Quit reading the internet and watching everything on YouTube. It’s all meant to get ratings and make you think the world is ending. It’s not. It’s going to get better. But in the meantime, work on doing better and staying sane through these times of complete insanity.
So are we in a recession today?
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As of the publishing of this post, May 29th, 2022, the United States is currently NOT in a recession. As of this date, the January-March Gross Domestic Product has dropped approximately 1.5% percent according to bea.gov’s post here.
Are we headed for a recession?
(This post will be updated accordingly)
As of May 29th, 2022, predictions and analysts are projecting an upcoming recession if the economy continues to worsen under the current administration and President Joe Biden.
The Gross Domestic Product of the United States was down in the first quarter of 2022. If the GDP is down again through the 2nd quarter of 2022, the U.S. will officially be in a recession.
What happens during a recession?
So we already know that a recession is a normal part of the economic cycle. And economies need this every so often. But why is a recession needed and ultimately good when all of the following happen? First, let’s look at all the negatives ⬇️.
Here are all the negative things that happen during a recession:
- The GDP trends downward as the value of goods and services goes down.
- Sharp decline in business sales.
- Businesses cut costs.
- There are massive layoffs and job losses.
- The housing market takes a turn and investors/buyers don’t buy houses at the same rate. This causes an increase in supply and the current increases in housing values slow down.
- Lenders become more stringent and require better finances to lend money to people. Less money is lent out.
- Foreclosures rise as borrowers suffer job loss or loss of income and they can’t pay mortgages and…
- Consumers have less money to work with overall.
But because of all of this, inflation slows down, value of goods and services goes down, and the economy naturally begins to get better. So it hurts during a recession, but things will get better!
How can I prepare financially for a recession?
Preparing for a recession will work the same as if you were in a recession. A lot of financial advisors will tell you to build up a huge pile of money in case the worst happens. But in reality, a recession isn’t going to be a huge financial emergency for most people. So here’s how you can actually prepare for a recession:
You can prepare for a recession by making smart financial decisions including getting on a plan to get out of debt, building up a fully funded 3-6 month emergency fund, cutting expenses, learning how to live below your means, and adding in another income stream to help with your finances.
There are a lot of things you can do to prepare for a recession. I’d encourage you to follow the complete list of things I’ve got in the 17 tips section and continue to better your finances every day.
How can I make my investments more resistant to a recession?
This one is tough. Because the economy is usually a wreck during a recession. So there’s not a whole lot you can do in the middle of a recession. Some people will tell you to pull your investment money out to keep it from going down anymore. Some will tell you to stack up cash. But how can you make your investments more resistant to a recession?
In order to make your investments more resistant to a recession, make sure you DON’T WITHDRAW YOUR MONEY from the market or you will lose all of the drop in value. You also want to diversify investments as much as possible and continue investing money, because with the market being down, stocks are “on sale” and those stocks will inevitably go back up!
How to take advantage of a recession?
There aren’t too many ways to take advantage of a recession but here are three ways that you can:
- The opportunity and insight to fix your finances: a recession can give you a real look at why you need to improve your finances. Poor finances can cause serious problems when recessions hit including house foreclosure, car repossessions and financial bankruptcy. Fix your money before it comes that.
- Buying houses for cheap: if you’re in a position to pay cash for a cheap rental house, or you’d like to sell and upgrade/downgrade your current home, a recession can provide very cheap opportunities. If you’re saddled with debt, get that paid off as soon as possible before messing around with purchasing a home.
- Stocks are cheaper: stocks, including mutual funds, index funds, and the like are technically “on sale” during a recession. Now this might be hitting your personal investment account at the moment, but you should keep putting money in. If you’ve got debt, get that paid off immediately so that you can take advantage of this investing!
How to make money during a recession?
Even though the times might be tough, there are still a lot of ways to make money during a recession. Here are all of the ways I could think of to make money during a recession:
- 2nd or 3rd part-time job: get an hourly wage job. This is easy but doesn’t usually pay a whole lot.
- Side hustle/side gig including: lawn care, house cleaning, dog walking, shoveling snow, babysitting, or anything else you can think of as a side hustle.
- Sell your stuff: sell EVERYTHING. Whatever you’ve got that you don’t want or need, sell it on EBay, Mercari, Facebook Marketplace, or whatever other selling platform.
- Yard sale flipping: buy stuff cheap at yard sales and sell for more online. Believe me, THIS WORKS.
- Use cash back apps: apps like Ibotta, Fetch Rewards, and Upside (formerly GetUpside) offer cash back on everything you buy.
- Uber/Uber Eats/or other delivery/driving service: these can be decent ways to make money but gas and car maintenance is tough.
- Anything else: whatever skill or service you provide, do it. We do suggest keeping it legal and moral, though.
Is it good to have cash in a recession?
Yes, it is very good to have cash in a recession. Whether it’s in an emergency fund, other savings account, or waiting as a down payment, it’s always good to have cash in the bank in the event of a recession.
We do encourage you to make sure you have a separate emergency fund that you only use for emergencies. We also want to make sure you get out of debt! If you have debt, get rid of it so that you can put together your 3-6 month fully funded emergency fund.
What should you not do in a recession?
So there are a few things that you should make sure you DON’T do in a recession. I will say, though, that these are things you shouldn’t do in normal circumstances. But they can affect you even more when a recession hits.
Here are some things you shouldn’t do in a recession:
- Spend more than you make to live above your means
- Overspend on everything
- Skip having a budget
- Buy new cars
- Use credit cards
- Take out loans
- Get a mortgage without at least 10% down
- Buy a house while you’re deep in debt
- Skip having an emergency fund
- Live without a plan or without paying attention to your finances.
All of those things will end up crushing you in a recession.
What’s the difference between a recession and a depression?
So we’ve already gone over what a recession is. But what’s the difference between a recession and a depression?
A recession is a period of economic downturn in which an economy’s Gross Domestic Product falls for two consecutive quarters, or 6 months or more. While there is no standard definition for a depression, some economists state that a depression is just a deeper form of a recession, but is characterized by those experts to be a period of TWO or more bad economic downturns within the same recession.
So in short, a recession is a short period of time. It could be as short as 6 months. Some often last around 6 months to a year. Depressions are long-term periods of economic downturn that last multiple years or more. For example, the Great Depression lasted for a little over a decade. That’s the only depression on record to this date.
You can read more about depressions and recessions here on The Federal Reserve Bank of San Francisco’s website.
Are we headed for a depression?
(This post will be updated accordingly)
As of May 29th, 2022, the United States is projected to be in a recession when the GDP numbers come in after June of 2022. If the economy continued on the same track for multiple years, we could potentially go into a recession. But because of modern politics and the modern strength of our economy, it’s very unlikely that the United States would go into another depression. But recessions are always a possibility.
The final word
Recessions suck. Let’s be honest. But they happen and they’re generally good for the economy because they’re a natural part of an economy fixing itself. And there’s really nothing you can do to not be affected by a recession. Because if a recession happens in your country, you’re going to feel it in some way. But you CAN do things in YOUR finances to make yourself more resistant to a recession. The better your finances, the less you’ll even notice. It may just be an annoyance. So get your finances together as soon as possible so that a recession doesn’t crush your wallet and set you back in your wealth building journey.
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