Economists are warning of a recession. This post will help you prepare for a higher chance of unemployment, investment losses and general financial instability.
First: What is a recession?
A recession is a downturn in the economy. On a broader scale, this means that businesses lose money and industry produces less product for two quarters — or six months — in a row.
What does a recession mean for everyday people? Recessions are typically marked by higher unemployment rate, wages that do not go up, decreased housing prices, and downturn in stock market equities and other investments.
Is a recession coming?
The majority of economists surveyed expect the next recession by 2021, according to Business Insider:
The US economy appears poised to enter a recession in two years, a new survey of business economists found.
In the survey by the National Association for Business Economics, out Monday, 72% of economists predicted that a recession would occur by the end of 2021. That's up from 67% in February and according to data gleaned from more than 200 respondents.Business Insider
The richest people think the next recession is coming in 2020, according to this CNBC article:
More than half of the super-rich around the world are already preparing for a recession.
That is according to a UBS survey of 360 global family offices with an average family wealth of $1.2 billion. Results showed 55% of family offices see a recession by 2020, and to mitigate risks, 45% are already adjusting their portfolios, including shifting to bonds and real estate, while 42% are increasing their cash reserves.CNBC
How to prepare for a recession
Thankfully, you are not alone in a recession. Also: recessions are nothing new. Humans have survived recessions since the dawn of humanity, when our ancestors survived droughts and famines — not to mention the 2008 housing crisis.
Taking these practical steps today will protect you and your family if and when the economy takes a turn for the worse (pro tip: the economy ALWAYS eventually takes a turn for the worst, so these tips are best heeded all year, every year):
1. Live simply
One of the most important tenets of financial security is to live within your means—avoid debt, focus on saving and investing and general financial security. For most people, this means simple living.
What does ‘live simply' mean?
Simple living has untold benefits, including financial, environmental, mental/emotional (the less stuff you have, the less you have to clean, care for), and involves these habits:
- Minimalist living. This includes owning a home just big enough for you, and your family's needs. Your purchases are aligned with your values, which for most people do not include showing off for your neighbors/Instagram followers!
How to live simply and cheaply
Think carefully about whether your purchases and time spent bring meaning and joy to your life, family or community. Think carefully about the environmental impact of how you spend your time and money. These habits can include cooking at home, stop shopping for fun, drive a reliable car that you can afford easily and gets high gas mileage, and plan vacations that you can afford outright, and with ease. Other tips:
Declutter your home. Getting rid of things you do not want or need not only makes your home nicer to live in, you can sell these things for cash, donate them for tax deductions + good vibes, and reduce the amount of home you need!
Best places to sell clothes include local consignment shops, ThredUp online, as well as these places that will give you cash for your unused wedding dress (hey single moms, I'm looking at you!).
Fun fact: Gold prices historically skyrocket during recessions, and today, gold prices are nearing record highs. This means you might consider investing in gold, or, if you need cash, selling any gold jewelry or coins for a tidy profit. The most reputable online gold buyer that I feel comfortable promoting is CashforGoldUSA. You can learn more about CashforGoldUSA, and selling gold here.
2. Cut expenses
Aside from cooking at home, ceasing all unnecessary shopping, driving an affordable car, and other cost-saving changes, check out bill negotiation services, including TrueBill, which is the key to how to lower your bills FAST.
These services work like this:
- Create an account
- Connect your bank accounts and/or add a copy of your recurring subscriptions. These apps typically service:
- Cell plans
- Gym memberships
- Satellite TV and radio
- Electric / gas /power
I had a great experience with TrueBill, which lowered my monthly ATT&T cell phone bill by $16 while also securing a bigger plan, plus saved me $23.20 each month from my TimeWarner/Spectrum Internet bill.
For this, I was charged 40% of each savings for the first six months, or $6.40 per month for the AT&T bill, and $9.28 for the TimeWarner savings. After that, all savings are free.
TrueBill and other, similar services, also comb your bank accounts for recurring subscriptions, and ask if you would like to cancel them — and offer to cancel them for you, for free. Be honest with yourself: do you really use that gym membership? Are you actually reading the New York Times every day? Did you forget about those subscriptions — or avoided the inevitable pain in the arse of trying to cancel them? TrueBill will do that for you.
3. Create a financial plan
One of the biggest mistakes people make when planning for — or in the middle of — a tough financial time, is to sink into a poverty mentality and lose sight of the big picture: Your big goals, and long-term financial plan.
What is a financial plan?
A financial plan is simply a roadmap for achieving what you want, and outlining the steps you need to take to making your money work to make that happen. A financial plan can include:
- Pay off debt
- Emergency savings account
- Buy a home
- Renovate a home
- Have a baby
- Help your kids pay for college
- Start a business
- Invest time in a creative pursuit
- And more! This is your life!
How to make a financial plan
Ellevest is an awesome company solely dedicated to helping women build their financial futures, and close the wealth gap. It was started by an awesome feminist and focuses only on female clients.
Ellevest has a free financial plan template that will help you identify your goals and dreams, and outline the steps you need to take to get there.
4. Live within a budget
Before you can take any more steps, you need to understand where your money is going from now, and find ways to save money, and stay on track to reach your goals. That means creating a budget.
This is a great guide for how to create a monthly budget that you can stick to through a recession and beyond. One of our favorite tools is Tiller, a spreadsheet-based app that millions of people swear by to help them spend wisely — which usually involves ways to not spend money.
Then, when you cut all your expenses, you'll need a place where to put money so you don't spend it. In a shoebox in the back of the closet is not a good option — too easy to access, not to mention spend. Which brings us to the next way to recession-proof your money:
5. Save cash
You know you need a savings account for emergencies and peace of mind. $1,000 minimum is great, though three months' living expenses is excellent. Start small by opening a savings account with a high interest rate or money market account with a high interest rate, and grow it with automatic deposits each month.
6. Invest in bonds
Bonds are also a great place to park your cash. These are considered very safe investments, which may not get high returns during bull markets, but do typically earn more during than a CD, savings or money market account. Worthy Bonds pays interest rates of 5%, with a $10 minimum. You can also buy bond funds through Ellevest, for very low fees.
Note: This advice does NOT mean you should sell all your stock and move all your long-term investments into bonds. Stay the course. The biggest mistake everyday investors make is to try to time the market — in other words, sell when the market is down, and buy when it is high. There are trillion-dollar computers that struggle to beat the market, so curb your impulse to buy and sell like a day trader.
Instead, keep your investments where they are, slow and steady, and consider bonds to hold your cash for safe keeping + a nice interest rate.
7. Start a side-hustle to make money
If you are worried about being fired or laid off because of a recession or other economic downturn, starting a side hustle or side gig is a great way to earn more money, have some security should you lose your current job, learn new skills, open networking opportunities outside of your current profession— and maybe even start something that turns into a thriving, full-time business.
Thanks to technology and businesses' increasing appreciation for work-at-home employees, are countless opportunities for work-at-home, flexible and remote jobs and careers. Here some more side hustle ideas: 13 work-at-home careers that are great for moms — and how to find them
The first step in building a side gig, or side business, is to create a website or online portfolio. Do not invest a lot of money in hiring a designer. A clean, professional website is a huge asset to landing another full-time, salary position, too.
To start, buy a website name, and secure hosting services, which start at $3.95/month, from BlueHost.
More info on apps and tools for side hustles, including building a site, creating graphics for social media, cloud storage, accounting software, and more.
8. Pay off debt
A common question during tough financial times is: Should I pay off my debt first, or boost my savings account?
The answer is both.
First, make sure you have that $1,000 emergency fund.
Then, as you build a larger nest, work on paying off credit card debt, medical, auto and other loans (and then your student debt and mortgage).
9. Increase and improve your credit
A great thing to do now, no matter your financial situation, is to increase your credit limit. This gives you a cushion in the event you find yourself in a jam and need to make large charges. Improving your debt-to-credit ratio (the percentage of debt you carry, vs the amount of credit you have) also improves your credit score by showing the credit bureaus that you are responsible with your credit and don't come close to maxing out your cards.
In fact, calling your credit card company and asking for a credit line increase, or opening a new card with a larger credit limit, is one of the best ways to increase your credit score fast.
If you don't yet qualify for a higher credit limit, take steps to improving your credit score. A reputable credit repair company like The Credit People can help remove credit history errors, late payments, identity theft, repossessions, bankruptcies, and other credit challenges that stand between you and a secure financial future.
10. Do not skimp on important things
Living a financially wise life, and planning for tough times, requires a balancing act between living frugally, and protecting yourself.
It can be tempting to slash things like that extra car insurance, or life insurance, or retirement investments— things you don't need today.
Remember why you invested in those securities in the first place: BECAUSE YOU DO NEED THEM. Your chances of a car accident, untimely death, and old age are equal when you feel broke, as when you feel more abundant. Part of a healthy financial life, is being mentally healthy. Insurance protection is part of peace of mind. Don't under-value your own self-care.
If you're just getting started, educated yourself about the types of investment and retirement accounts, may of which will save you on taxes each year.
If you're already saving for retirement, or investing in the stock market via an IRA, 401(k) or a brokerage account — KEEP IT UP. Not only do you maximize any employer match (a.k.a. free money), but you are in a sweet potion to take advantage of buying stocks and bonds at discounted rates.
And if you don't already have life insurance, or are interested in decreasing your premiums, check out Bestow life insurance, which is backed by major, A+ rated insurers, and offers policies ranging from 2 years to 20 years, with premiums starting at $3/month, and payouts up to $1 million. Best part? Guaranteed no medical exam or lab report.
Emma Johnson is an award-winning business journalist, noted blogger, and bestselling author. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post's ‘Must Read” list.
Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.