We’ve all seen them. They scream at us. We’re just minding our own business admiring cute cat videos as we scroll and they ruin it. Those fear-mongering, anxiety-spiking headlines that desperately want you to click them, because, even though we’ve been here before, YOU haven’t been here before. And they know it.
Recession. It evokes plenty of negative emotions and fears on its own, but couple that with cleverly titled click-bait articles and they have you right where they want you – feeling dependent on whatever they’re selling so you don’t fall into financial ruin. Here’s a little PSA: The only one who can help you not only survive but thrive in a recession is YOU.
Don’t let the social media fear peddlers make you miss the opportunities that can help secure your financial future. Know the realities of a recession but understand there are options you can use to create possibilities for growth to give you financial freedom.
What Is a Recession?
A recession is “a marked slippage in economic activity,” according to the Bureau of Economic Analysis, that is marked by “monthly indicators” set by the National Bureau of Economic Research (NBER) “such as employment, personal income, and industrial production—as well as quarterly GDP (gross domestic product) growth.” Simply put, a recession is a downturn or contraction of economic growth for an extended period of time.
Many experienced the Great Recession of 2008 or even the Great Inflation of the 1970s. High unemployment. Never-ending price hikes. Astronomical interest rates. Personal distress. For most of the population, those are real fears. Statistics show that 61% of Americans are living paycheck to paycheck, and the average savings account of the Gen Z population is only $1,158. Those numbers seem grim, but it doesn’t have to be your reality in a recession or ever.
You were probably personally impacted by the economic downturn of 2020 caused by the COVID-19 outbreak. With the shutdown of key industries such as tourism, restaurants, retail, and even leisure outlets like gyms, parks, and casinos, the financial effects hit some harder than others. In fact, there were many who thrived as money was now allocated to online entities. However, several factors of the pandemic have affected or continue to affect your bottom line.
As the economy continues contracting with plummeting stock prices, interest rate hikes, and rising costs of commodities, there are predictions of a coming recession. Nevertheless, there are opportunities for you to build financial resiliency and be someone who uses a recession to create opportunities for growth.
How to Thrive in a Recession
One of the most significant factors of a recession is the decline in employment. As of right now, we are not experiencing increased job loss. In fact, some industries are begging for employees; for example, when was the last time you went out to eat only to see the restaurant was understaffed?
Now is the time to hustle and build income security. If you feel as though you’re nearing the chopping block at work, here are a few tips to make yourself more marketable:
- Update your resume in case of a potential layoff so you’re ready to start the job hunt if necessary.
- Find ways to make yourself an essential employee such as sharpening your current skills or learning another position within your company.
- Network with friends or colleagues to get your name and skills out there in a more casual environment.
- Find a part-time job. Restaurants, retail, manufacturing, and education are all industries experiencing hiring shortages. Take advantage of that opportunity to put cash into your bank account.
- Turn that hobby into a side hustle. Whether it’s flipping furniture, woodworking, health & fitness, or collecting old toy trains, find a way to turn that skill into a moneymaker.
Knock Out Debt
It is imperative that you’re working towards being debt-free before economic collapse. Whether you have student loans or credit card debt, securing cash flow by being debt free during a recession will be the deciding factor in whether or not you thrive or barely get by.
Start with credit card debt and work diligently to get it paid off. Low-interest rate personal loans can help pay down the high-interest rate credit cards. Here are a couple of other ways to knock out that debt. Also, prioritize your spending or use that second job you’re thinking about getting to pay down credit cards and free up cash flow. If you’re one of the millions of millennials or Gen Zers suffering from student loan debt, work towards getting those paid down as much as you can.
Stop Spending Your $$$
Get your spending under control! But shouldn’t I stimulate the economy? To some extent, but mindlessly clicking “Buy Now” on Amazon while sipping your $5 Starbies isn’t doing your budget any favors. Prioritize paying down your debts, spending money only on essentials, and allocating a set limit on special purchases.
Cash Is King
Save. Save. Save? Yep. Building up your savings account during a recession gives you freedom from financial uncertainty and prevents you from accruing unnecessary credit card debt. Not sure where to start? Well, you might not like it because, frankly, the truth hurts. But that mantra that all those financial sages have been chanting is actually 100% correct. “You need an emergency fund. You need an emergency fund. You need an emergency fund.” Prioritize saving money and stash away 3-6 months' worth of income to cover expenses in case of an emergency or job loss. It’s not easy but saving money must be intentional:
- Set up an automatic deposit through your employer for a portion of your paycheck to go straight into your savings account.
- Save your excess cash from paying off debts and living more frugally.
- Deposit that extra money from your side hustle or second job into your savings and watch it grow.
Ante Up…If You Can
Although recessions can be a scary time to invest, they can create more opportunities for the average person. Jaspreet Singh, an entrepreneur and licensed attorney comments, “Recessions make more millionaires than any other time.” Why? Because bear markets, when the market loses 20% of its value, are always followed by bull markets, where stock prices begin to increase. By taking advantage of this time, you can start investing in your long-term financial goals. When looking to invest, always ensure you’re working with a trusted advisor who listens and works to meet your individual needs.
Is being completely recession-proof even possible?
Yes and no. No one can predict exactly how a recession will impact every individual, but you can take steps to safeguard your financial stability. Don’t be led astray by all the click-bait articles hoping to capitalize on your fear. Look at the potential recession as a means to start a responsible financial plan so you can come out ahead. Following these steps of working to pay off debts so you can build wealth and invest in your future are not only practical for these uncertain times, but they give you the jumpstart you need to not be confined to living paycheck to paycheck and experience real financial freedom.