A recession is coming!! Heck, it might be here already!
That sounds scary, right??
I’m going to show you how to prepare for a recession, so you’re ready when it does happen.
The important thing to know is that recessions come and go. Some are worse than others. It’s a natural cycle of our economy, and it can be a terrifying time if you’re not prepared for it.
Nobody can predict when a recession will happen and, because of how we classify a recession, once it starts, it’s already too late!
But don’t worry, you’re going to prepare for a recession starting now so you don’t have to panic when it happens!
We’ve had 13 recessions since the Great Depression. Most notably, in recent history, it was the Great Recession around the 2008 market crash.
Recessions can have a lasting impact on many people. Some people are still struggling to recover from the 2008 recession.
It can be a turbulent economic time with a lot of uncertainty.
That’s why it’s essential to prepare yourself now before the next recession hits.
Recommended Resource: Control Your Finances With The Right Tools
What Is A Recession?
Recession is a scary word.
Your imagination probably gives you thoughts of high unemployment rates, stock markets tanking, housing markets crashing, and struggling to make ends meet.
It’s scary because a recession can lead to all of those things but it becomes a little less scary when you understand what a recession is and how to prepare for one.
So what is a recession? Do you even know what that means?
A recession is generally described as a decrease in Gross Domestic Product (GDP) for two or more straight quarters.
However, the National Bureau of Economic Research labels a recession as any significant decline in economic activity spread across the entire country that lasts more than several months. They use GDP, Employment Rates, Income Levels, Industrial Production Levels, and several other statistics to determine a recession is occurring.
We’ve talked a lot about GDP, but what is GDP?
GDP is a monetary value of products and services made in the country and is used to determine the size of the economy. It’s like a snapshot of our countries financial status.
A rising GDP means the economy is expanding, and the markets are good. A falling GDP means goods and services are losing value, and the markets are usually dropping.
The one thing to keep in mind about recessions is that they can start before we even realize they are happening. Remember, it takes at least 6 months actually to determine we are in a recession.
On the other side, they can end before we know it too. You have to see two-quarters of economic growth to call the recession over!
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Key Signs Of A Recession
At this point, we’ve defined a recession, so we know what it means, but how do we spot one?
What are the key signs of a recession that you should be looking for?
Inverted Yield Curve
One of the key factors analysts use to predict an upcoming recession is the yield curve for Bonds. It’s basically the interest rate for a given bond term length.
Generally, in a healthy market, a long term bond has a better interest rate (yield) than a short term bond. It looks like an upward slope.
However, when the interest rates for short term bonds are higher than long term bonds, the yield chart is considered inverted (downward sloping) and is a warning sign of an impending recession.
Gross Domestic Product (GDP)
If the economy is slowing down and contracting, the GDP is shrinking. Remember, a significant drop in economic growth or a decline in GDP for a couple of months is a bad sign!
If you want to check GDP frequently to see if there’s a downward trend, you can track that right here.
Are Copper Prices Moving
Copper is widely used in the construction and manufacturing industries. Many economists believe there is a connection between strength in the economy and the price of copper.
If copper prices are high, generally, the economy is strong. If copper prices are dropping, watch out!
Purchasing Managers Index for Manufacturing
Manufacturing makes up a large portion of the economy. Economists use the Purchasing Managers Index (PMI) to rate the strength of the manufacturing industry.
If the PMI is below the middle point score of 50 on the scale, that could be a red flag that a recession is coming. Lack of confidence in the strength of the manufacturing industry can lead to this.
If you’d like to see our current PMI, you can check it out here at Investing.com.
Watch Trends In Gold Prices
Just like Bonds are a good sign of impending recessions, you should watch trends in gold prices. When gold prices are lower, it means the economy is strong.
If gold prices are starting to rise, it could signal a lack of trust in the economy, and a downward trend is coming. There’s always a market for precious metals in rough times, and gold is the standard.
Learn How To Prepare For A Recession
Now that we know how to spot a recession as it begins. How do you prepare for a recession?
What steps can you take to ensure that the next recession doesn’t throw off everything you’ve been working for?
So many people lost everything in The Great Recession of 2008. That’s not going to be you, though.
The next time a recession rolls around you’re going to be ready!
Prepare For A Recession
Here are the 4 areas of your life you should evaluate and make changes to prepare for a recession:
- Create Financial Peace Of Mind
- Evaluate Your Living Situation
- Create Job Security
- Make Yourself Marketable
It sounds simple, right?
When you look at it that way, it seems easy to prepare for the recession.
Let’s break down each of those bullet points to make sure you’re ready for anything.
Create Financial Peace Of Mind
When it comes to preparing for a recession, finances are the first thing you’re probably thinking of.
How do I make sure my finances are ready for an economic downturn? Where do I even start?
The first place you want to focus your efforts in this preparing phase is building an emergency fund.
Are You Saving Money
If you’re saving money before a recession happens, KEEP SAVING!!
This is a critical step to preparing for a recession. You shouldn’t change your saving strategy just because the economy took a dive.
Try using the app Acorns to save money. Apps like Acorns make saving and investing super simple! Once connected to your debit or check card, it rounds all your purchases up and takes the extra change and puts it into investment accounts.
It’s a great way to help you start building your emergency fund!
>>> Give this amazing app a try!
What Is An Emergency Fund
Nobody likes to think about emergencies happening, but eventually, you’re going to have one. Wouldn’t you want to be prepared for it when it does?
Creating an emergency fund is essential to preparing for a recession. When you build up a 6-month fully-funded emergency fund, the idea of job loss or wage cuts isn’t as scary because you’ve got that safety net.
I recommend starting with a $1,000 emergency fund, but ideally, you should aim for a 6-month fully-funded emergency fund. Start your emergency fund in a CIT Bank Money Market Account to take advantage of the high-interest rates!
If you need help determining how much money to save in your emergency fund, check out this awesome tool. It has everything you need to determine how much you need in your emergency fund and track the balance of it.
>>>Check out our CIT Bank review here!
Strengthen Your Budget
Creating a healthy budget is going to help you take control of your finances. There are many different ways to budget your money.
Our two favorite ways to a budget are the Cash Envelope Budget System and the Zero-Based Budget System.
With the Cash Envelope Budget System, you’re building your budget around using cash for everyday spending. It’s a great way to control spending and save more money.
A Zero-Based Budget has you create a budget where you balance your income, expenses and saving so that it all equals zero at the end. Essentially, you look at your income, subtract your expenses, and the rest goes towards savings.
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Reduce Your Debt
Now is the perfect time to start thinking about how much debt you have and how to reduce it.
If you’re trying to prepare for a recession, you need to be thinking about reducing your debt. Just because the economy takes a nosedive, doesn’t mean you won’t have to pay off those student loans or your credit card.
The best way to take control over our debt is to organize it and then create a plan to pay it off. Having the right tools makes paying off debt a whole lot easier!
Here’s how you can reduce your debt faster:
- Make extra debt payments each month
- Consolidate your loans to get lower interest rates
- Use the Debt Snowball method to pay off debt
- Find a side hustle to make extra cash
- Sell unused items around the house for cash to pay towards debt
If you’re debt-free, a recession isn’t so scary.
Use our Destroy Your Debt Super Bundle to help you track your debt balances and organize how you pay it off!
Invest Wisely
If you fear a recession is coming, it might be time to look at your investing strategy.
We invest quite aggressively right now. We’re young and have lots of time to recover if things take a dip. However, you might not be that risky.
If economists are signaling a recession, you might want to adjust your portfolio to be a little more conservative. I’d recommend making sure you’re not investing too heavily in stocks.
This way, you won’t be as heavily impacted by the economic downturn. The last time we had a recession, the stock market took a big nose dive.
If you do dabble in the stock market, you’ll want to wait until things bottom out in the recession and then buy-in. It’s a great way to get low price stock with a high value. Choosing and trading stock has never been easier than with Webull.
Whatever you do, don’t pull out all your investments during the recession. Most people that left their money in during the 2008 recession, have earned it all back or even doubled where they were at!
>>>>> Learn more about Webull here!
Create A Stable Living Situation
It can be really tempting to buy a house at the top of your budget or rent that condo with a killer view of the city, but is that high monthly payment putting you at risk?
When preparing for a recession, you should evaluate where you are living and how much it’s costing you.
Are you living comfortably, or are you house broke?
What’s house broke, you ask?? It’s when you’re living in a house that stretches your budget. You probably got a house at the top of your budget, or you’re renting a place that might be a little too fancy.
Either way, you’re not left with a lot of extra cash after making the rent payment and paying bills to keep the lights on.
How Much Should I Be Paying For Rent
Your rent or mortgage should not exceed more than 25% of your monthly income. For example, if you make $5,000 per month, your rent payment shouldn’t be more than $1,250.
The reason I want you to evaluate your living situation is because what happens if you have to take a pay cut or your spouse loses their job?
All of a sudden, your income is reduced drastically.
If you’ve kept your living expenses low, it might not be a big deal. If you were house broke before the income loss, you’re going to be in a bad financial spot.
I’m not saying you should move or sell your house tomorrow, but you need to think about your living expenses and how you’ll continue to pay the bills if you have to take a pay cut.
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Reduce Your Living Expenses
Aside from evaluating how much your house costs you every month, you should also look at your other expenses.
Take a look at every bill you have and everything you spend money on in a month. If you need help tracking all that, check this out.
I bet that, after writing down everything you’re spending money on, you’ll see areas you can reduce your monthly spending.
Reducing your spending is a great way to prepare for a recession. If that’s not enough, though, try finding ways to make a little money on the side.
I know right now that if I had to take a pay cut, we would be okay because we’ve built this side hustle that covers all our monthly living expenses. It’s something we can do from home if necessary.
Do You Love Your Job
Take a look back at the Great Recession of 2008. During the time following the collapse, unemployment rose to 9.5%!
It’s not a secret that during tough economic times, companies are forced to cut costs, and one of the quickest ways to do that is to layoff employees.
It’s not a good scenario, but it happens.
If that time comes, you should make sure you’ve done everything you can to give yourself job security.
Here are 4 ways to improve your chances of avoiding the layoff:
1. Create Supporters
During your time at work, you need to build strong relationships with your coworkers, manager, and other managers in different departments.
Get to know them and teach them about what you do for the company. Show them that you provide value on a daily basis that would be hard to replace.
When the time comes for a company to make cuts, you’ll want as many people as possible saying “we have to keep her around, she’s not someone we can afford to lose.”
Having good interpersonal skills will be crucial to building supporters!
2. Deliver Results
One of the best things you can do to secure your job during a recession to ensure you can deliver results. Companies will be looking to keep people around that can provide a lot of value consistently.
Make sure that you are more than capable of doing your own job as well as show the potential of doing other jobs.
3. Maintain Integrity and Trust
If you know as someone who can always be trusted and is a person of integrity, you’ve got a good chance of being kept around.
During tough economic times, companies will want someone they can trust to stick around. They need good employees, and they’ll be looking to keep the best.
4. Change Is A Good Thing
Many times in the workplace, you’ll meet people that are resistant to change. It could be something as small as changing meeting schedules or as big as changing departments they work in.
Whatever the change is, you don’t want to be known as someone who fights change. If you’re going to secure your position, ensure you are capable of embracing change.
If your company has to lay people off, a lot will be changing. Make sure you are seen as someone adaptable.
If you want to keep your job during the next recession, focus on these tips to create job security.
Make Yourself Marketable
Sometimes there’s just nothing you can do to protect yourself from job loss during a recession. No matter how hard you try, the company you work for has to make tough decisions.
That doesn’t mean it has to be the end of the world for you, though. You’re going to prepare yourself just in case that day ever comes.
You need to make yourself marketable just in case you find yourself in the job-hunting world again. Remember, during a recession with increased unemployment, finding a job is going to be tough.
Not for you, though, because you’ve been preparing!
Honestly, it’s essential to make yourself marketable whether a recession is coming or not. You want companies to be fighting to hire you, not you struggling to have them hire you!
Here are a few things you can do to make yourself marketable in a competitive job hunt:
- Gain new certifications in your industry
- Focus on training and continue expanding your expertise
- Keep your resume updated
- Keep a running diary of all your accomplishments
- Brush up on your interviewing skills
- Update your professional profiles
- Start networking with others in your industry
I said it before and I’ll say it again, nobody can predict when a recession will happen.
You need to prepare for the recession, so when it happens, you’re ready for it.
Now that you know how to prepare for the recession, is there anything else we missed? Leave a comment below!
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