What is going on with the economy? Even a crystal ball does not know the answer to this question. With the rising debt levels and fluctuating markets, knowing how to survive a recession may be a handy tool to have.
This may predominantly affect millennials, who unlike Generation X and the Baby Boomers, did not provide for a household during the last recession. By 2020, Millennials (those born between about 1980 and 2000) are forecast to comprise half of the American workforce, and by 2025, 75 percent of the global workforce. The youngest millennials were only 13 years old at the end of the Great Recession back in 2009. For many of them, these initial years since have been relatively stable in every aspect. Interest rates have been low, stocks have been rising, and employment has been fairly stable.
A survey showed that 3 out of 4 economists predict a recession in the U.S. by 2021. Recessions are typically defined as a drop-in output or a slowdown in growth, although they have been caused by multiple reasons over the years. In the 1980’s the U.S. central bank tightened interest rates too fast, while the most recent recession was caused by asset bubbles. Even something small could have a domino effect and throw the country back into a financial hardship.
While the economy has more or less been upward since the Great Recession that ended in 2009, the expansion can’t go on forever. Are you ready to survive the fallout from a crashing economy? Here are some tips to help you survive the next recession:
Pay Down Your Debt
It’s crucial that you pay down your debt while the economy is still flowing. More often than not an economic downturn leads to job loss. If you are worried about losing your job, paying off debt is the last thing you will want to be thinking about. Student and high-interest loans can dig you in a deeper hole than you are now if money gets tighter.
Those who stay employed during the recession generally make it through the storm just fine. Even if you are not worried about losing your job, it is best to prepare for the unthinkable. This means having your resume updated, networking ahead of time, and knowing where you would apply for a job.
Beef Up Your Bank Account
With your job and income in jeopardy during a recession, it is important to focus on your emergency fund. Check your savings balance and ask yourself how long that money would last you. If the answer is under six months than it is time to start stashing away as much money as you can afford. If your hours get cut back, you lose your job, or your business is not making as much money due to the recession, an emergency fund will be the safety net you need.
Using credit as your safety net during a recession often haunts people for years afterward. You may not realize how much more money you will need to earn to repay the money you had to borrow during the recession. Chances are you will not be able to save during the recession, so it is best to start saving while you can.
Downsize to a More Frugal Lifestyle
Downsizing and picking up a frugal lifestyle while times are good is great preparation for a recession. That way you won’t find yourself struggling to adapt to a new lifestyle when the recession hits and it’s a necessity.
Living a more frugal lifestyle is not as difficult as you may think. It is mostly about staying aware of your spending choices and making cuts on unnecessary things. If you drive a car with low gas mileage, think about trading it in for a more fuel-efficient vehicle to help save on gas money. You can also look into downsizing your home, spending less on food, and scaling back your bills and subscriptions.
Diversify Your Income
Relying solely on one source of income has inherit risk, because if the economy tanks and you lose your job, you’ll also lose your only income.
If one income source starts to dwindle or stop completely, then having another will give you a way of paying the bills. Diversifying your income does not necessarily mean you must get a second job. To create extra income, you can rent out a room, sell your extra stuff online, or use a hobby as a potential money maker.
But if you have a fairly flexible schedule and have the time to spare, getting a second job can help your savings grow significantly. In this society getting a second job can be as easy as setting yourself up as an Uber driver, doing dog sitting, or delivering food in your spare time.
Diversify Your Investments
In addition to diversifying your income, it is also a great idea to diversify your investments. If you have most of your money tied up in the stock market, an economic downturn could have a big impact on your portfolio.
Go through your investment portfolio and make sure your investments are spread out across different industries and even different types of assets. Your investments may not be as affected and the decline in your portfolio could be reduced.
Continue Your Education and Skill Development
One of the best investments you can make is pursuing an education. With the unemployment rate rising during a recession it is important to be able to find work, and the more skills you have on your resume, the better. Try to choose an industry that will still be in high demand during a recession. According to a new report the most in-demand careers for 2019 are:
- Application Software Developer
- Medical Services Manager
- Registered Nurse
- Medical Technologist
- Construction Laborer
- Nursing Assistant
- Home Health Aide
Located in Truckee, CA, Pacific Crest Wealth Planning believes retirement & financial planning should be a highly personalized process. Effective planning may enable you to enjoy the freedom of your retirement years. Without it, it may take everything you have just to get by. As a fiduciary, we are obligated to put our client’s interest before our own. Please feel free to contact one of our CERTIFIED FINANCIAL PLANNER® practitioners at (530) 563-5250 or by email.
This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Please consult your financial advisor prior to making financial decisions.
John Manocchio (CA Insurance Lic#0H73423) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through. Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.