Surviving a recession requires more than just cutting back. Here is top 5 best recession tips to survive and save yourself from Economic Recession & Economic Depression.
Recent estimates from the Federal Reserve’s GDP tracker indicate a 2.1% decline in real GDP growth in the second quarter of this year, suggesting the US may already be in recession. However, economic cycles can be difficult to predict, so it is important to always have a plan to weather future economic downturns.
In the midst of a recession or simply an economic downturn, consumers tend to panic and make poor financial decisions. Instead, follow these expert-approved tips to successfully survive the economic downturn.
Contents
List of 5 Best Recession tips to survive in great recession
Below is the list of 5 Best Recession tips to survive in great recessions:
- Manage financial stress.
- Change the way you spend.
- Review asset allocation.
- Reduce variable rate debt.
- Plan for possible job loss.
Recession Tips 1. Manage financial stress
It’s easy these days to experience anxiety and stress about the future of the economy.
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The latest burst of inflation is causing skyrocketing high prices for basic consumer goods. News headlines are full of recession speculation, bear market fears and rising interest rates.
“Things are more expensive,” says Amy Hubble, chief investment adviser at Radix Financial. “People are starting to feel it more, spending more at the grocery store and more at the gas station. That puts anxiety in people’s heads.”
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But economic cycles consisting of periods of growth and contraction are normal and have been observed time and time again throughout the history of the earth. The United States has gone into formal recession 14 times since the Great Depression. Recessions have historically lasted an average of 17.5 months, with the most recent recession occurring in February 2020 lasting only two months.
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To manage your financial stress, educate yourself about business cycles and make a plan to weather this and future downturns that are an inevitable part of any economy. Ultimately, Hubble says the long-term impact of the recession on most consumers is minimal.
Recession Tips 2. Change the way you spend
With the recession looming, it’s time to rethink your budget. This Recession tips is best to survive from recession.
Start by assessing how your expenses have changed over the past year to see where cuts need to be made.
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“A recession is something your financial planner should already be anticipating,” says David Rae, president of DRM Wealth Management. “You can make small adjustments, like if your rent goes up by 30%, but those are adjustments rather than drastic changes.”
During the Great Recession, which ended in 2009, consumer spending experienced its worst decline since World War II. According to Pradeep Chintagunta of the University of Chicago Booth School of Business and Shirsho Biswas of the University of Washington Foster School of Business, research suggests that consumers tend to shift spending from nonessential categories and often become more price-sensitive during recessions.
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But exactly how individuals will be affected by recessions and rising prices varies.
“The Great Recession has been particularly painful for the young, the poor and the middle class,” Chintagunta and Biswas wrote in an email. “But not all consumer groups have responded equally in terms of changes in their consumption behavior.”
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For example, they note that “spending on food at home increased disproportionately among older, more educated, white, and Asian households” and “younger households switched more to warehouse clubs, while older households switched more to discount stores.”
Recession Tips 3. Check your asset allocation
Investing during a recession can be scary, but experts suggest that sticking to your investment plan during an economic downturn is critical to its success — and reverting to typical safe assets like bonds comes with risks.
“Security comes at a cost, (Recession Tips)” says Rae. “You don’t lose money when the market goes down, but you don’t make money when the market goes up.”
Investors tend to panic when their portfolios suffer a significant loss. But imagine selling all your assets in the early days of the coronavirus pandemic just two years ago – and missing out on the subsequent market growth.
The latest market slump can be seen as an opportunity, says Hubble.
“If I had any money left, it would be on the market,” he says.
Recession Tips 4. Reduce variable rate debt
Although minor changes may be made to your investment strategy, major changes may be made to your plans to borrow debt or repay existing variable rate loans.
“Whether you’re in an expansion or a recession, you really don’t want to shift your activity toward saving and investing,” Hubble says. “However, you may want to change your attitude towards spending and debt.”
As the Federal Reserve tries to tame high inflation, it plans to continue raising interest rates. Higher interest rates make it more expensive for individuals to borrow money and make variable-rate loans like credit card debt more expensive.
Take another look at your existing debt and consider paying off debt with variable interest rates. If you’re looking to become a homeowner or take on any other major debt, consider delaying those purchases or adjusting your budget to accommodate the higher costs associated with borrowing today.
Recession Tips 5. Plan for possible job loss
During a recession, the unemployment rate usually increases. Take a moment to consider your own personal risk and plan accordingly.
“What are the odds that you will be one of those people who will lose their job? If you’re a real estate agent or a mortgage broker, for example, things could be tough going forward,” says Rae.
Work to make yourself more valuable to your employer while brushing up on your resume and pursuing other job opportunities.
In the worst-case scenario of a layoff, it’s key to have an emergency fund of at least three to six months of saved cash expenses already built up.
“In a recession, the biggest risk is that you could lose your income,” says Hubble. “So you want to have cash on hand to make sure you see through the loss of income.