If you’ve read the news lately, you’re probably getting the sense we’re in a recession. Well, that’s because nearly all of the mainstream media is telling us we’re in a recession, so how could it not be? Truthfully, there is no “rule” that determines a recession, but rather a set of conditions that make it “more likely than not”.
According to Forbes, experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time. What is an extended period of time? We’ll call it more than six months.
Don’t get too freaked out by this. There is a good chance you can slide through a recession with little-to-no impact, personally. Keep reading and I’ll share my top tips on how to accomplish this.
1) Trim your expenses immediately
Before doing anything else, you should take a look at your budget, or develop one if you don’t already have it, and find areas for improvement. See if you could downgrade cell phone plans, eliminate an unused streaming service, or possibly sell a third vehicle (used vehicle prices are at an all-time high!). By improving your overall budget, you’ll certainly be better-prepared to outlast a recession.
2) Keep some money in savings
I’m not going to tell you to develop a full-fledged emergency fund. I don’t have one at all, and to tell you to have one would be hypocritical. With that being said, it’s not a bad idea to have a few thousand dollars sitting in a savings account at the same bank as your checking account. For us, we keep $5k in savings to cover unexpected rental expenses, miscellaneous home projects, etc. It’s not an emergency fund worth 6 months of expenses, but it is something, and in a recession, something is better than nothing.
3) Avoid unnecessary purchases
We all like buying nice things. But during a recession, buying that 2022 Mercedes may be the expense that breaks your budget. Maybe that 2001 Honda Civic can grind out a few thousand additional miles and save you the big purchase expense. I know, this is a pretty big purchase and probably unrealistic for most scenarios. But it also applies to smaller purchases like cell phones, TVs, off road vehicles, luxury vacations, boats, campers, etc. All of these things can crush your budget. Try to avoid them during a recession, if possible.
4) Keep contributing to retirement savings
Just because the stock market appears to be in turmoil and a recession is looming is no reason to abandon your investment strategy. In fact, if you’ve lost 40%+ right now, it’s likely because you’re investing in individual stocks or sector funds that have major fluctuations and a high-level of risk. You should try a total stock market or S&P 500 index fund, which mirrors the total market and S&P 500 indices, respectively.
Moral of the story: instead of slowing or stopping your investments during a down market, you should increase your investments to continue buying at a lower price. Consider it Black Friday, but for stocks!
5) Remember, nothing lasts forever
It’s really easy to get your mind in the gutter when it comes to money issues. This is even easier when there are countless news articles about unemployment, negative GDP, plummeting stock prices, inflation, the war in Ukraine, etc. etc. etc. No matter what all of these “reports” state, one thing is for sure, and that is: nothing lasts forever. The 2007/2008 housing crisis was terrifying for people, but those that stuck to their plan and avoided knee-jerk reactions profited greatly. Don’t make a rash decision.
Keep your eye on the ball
This is taught to every kid learning baseball, but it’s worth stating for personal finance as well. Don’t take your eye of the ball just because you got hit by a pitch. Ignore the noise, keep grinding, and you’ll likely see positive results in the mid-long term. Rome wasn’t built in a day.