If you’re worried about the U.S. slipping into another economic recession, then you have every reason to be.
At this year’s annual Jackson Hole meeting in Wyoming, U.S. Federal Reserve Chairman Jerome Powell gave a short, direct, and ominous speech where he mentions that there will be “some pain”. The speech then ends with the statement, “we are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply.”
In other words: Buckle up! The Fed is going to do whatever is necessary to tame inflation and bring price increases back under control.
Understandably, this is not an easy task for the central bank. The last time the U.S. dealt with double-digit inflation was in the early 1980s when then-Fed Chairman Paul Volcker had to initiate some difficult and unpopular policies that pulled the economy into recession. However, it worked! Eventually, Volcker was able to slow down price increases and get the economy back to normal.
Let’s be real – to the average person, recessions aren’t fun. In fact, once companies start talking about layoffs and the stock market loses half its value, things can get downright scary.
But that doesn’t mean you have to give in to fear. Here are seven tips for mentally surviving a recession and coming out stronger on the other side.
1. Create Your Financial Plan
When times get tight, one of the top things you can do is stop trying to control what you can’t control. Instead, focus on what you can control. And by this, I mean your expenses.
Believe it or not, you get to choose what you buy and who you give your money to. Of course, with inflation clocking in at somewhere between 8 and 10 percent for the better part of 2022, your paycheck isn’t going to go as far as it did previously. This is why you’re definitely going to need a financial plan to help you be more careful with how you manage your money.
Having a financial plan will be helpful in three positive ways:
- It will help you cut down on unnecessary spending
- You’ll give more prioritization to your long-term goals like retirement or paying for your children’s college
- It will mentally help you to feel more in control over your finances.
For all of the short-term stuff, monitor your spending habits in real-time using a budgeting app like Buxfer. Buxfer monitors and collects transactions from over 20,000 financial institutions and condenses the information into a single report. That way you’ll know if your spending is within your means or if you need to make some adjustments.
2. Build Your Emergency Fund
Just because the stock market is down doesn’t mean bad, unexpected things won’t stop happening. Yes, your vehicle will start making a clunking sound, or the washing machine will eventually need to be replaced. When these unplanned things occur, you’ll want to make sure you’ve got an emergency fund in place.
Often when someone doesn’t have a stash of savings to fall back on, their options aren’t very good – especially in a recession. You can sell off some investments, but you’ll likely have to do this at a loss since the markets will be down. You could also apply for a loan, but with the Fed raising interest rates, it might cost you more than you think. That’s why being able to bank on yourself will be the far better choice.
However, something else that an emergency fund can do is put your mind at ease. When something bad happens, it’s not just the event that stresses us out but rather trying to figure out how we’ll pay for it afterward. By taking the time to build your emergency fund, you’ll have the safety and security of knowing there’s a buffer of several thousand dollars between you and whatever life throws your way.
3. Embrace Your Job
The ugly part of recessions is usually that they’re synonymous with job loss. During the last major recession (the Great Recession of 2008), unemployment rates went from 4.7 percent to 10.0 percent with more than 15 million people suddenly not working.
While that’s not great, it’s important to keep things in perspective. If unemployment was 10 percent right now, that means nine out of every ten people you know would still be working. While that’s unfortunate for that one person, those are pretty good odds in your favor.
When it comes to recessions and your job, a good mindset to have to take things one day at a time and just do the best that you can do. Don’t expect too much from your employer as they’ll probably be dealing with slow sales and potentially even losses. However, while others may get discouraged, use this as an opportunity to shine to your employers and show them what you’re capable of. Once things start to turn back around, you’ll be first in line for any new promotions or bonuses they plan on delivering.
4. Develop Other Marketable Skills
While your job may be your primary source of income, it never hurts to be able to do things that can help you make some extra cash on the side. In fact, lots of people are making thousands of dollars per month with the following skills:
- Acting as a virtual assistant
- Social media management
- Copywriting
- Graphic arts
- Creating presentations
The easiest way to get started is to pick something you already know how to do and start perfecting it. Even if you’ve never done one of these skills before, there’s no reason you can’t learn how. Spend an hour or so each day learning something new that could be used to help your side income flourish.
5. Look for Investment Opportunities
Though it can feel counterintuitive to invest your money when the markets are going down, remember that this is exactly the right time to buy. As the market dips, stock prices get slashed, and everyone likes to buy something when it costs less than it should.
To put this in perspective, the S&P 500 is down 15 percent for this year so far (as of this writing). That means you could be buying perfectly good companies at a discount that will make great additions to your portfolio. As the old saying from investment legend Warren Buffett goes: Be fearful when others are greedy, and greedy when others are fearful.
What’s helpful about this is that you’ll feel like an investment pro when the markets eventually turn around (as they always do) and you earn some substantial gains. But at the same time, just having the outlook that the economy is going to get better will also help to improve your overall disposition.
6. Keep Your Credit Score Solid
Whether you plan to borrow money or not, another financial tool that can put your mind at ease is the ability to qualify for a loan.
In the most extreme situations, a loan can help bail you out of a major financial emergency. Or if you’re feeling entrepreneurial, then it can give you the seed money you need to buy an investment property or start your own business. Either way, it all starts with having a great FICO Score.
Keeping your credit score up is much easier to do than you might think. A good routine to have is to:
- Set up your account for automatic payments (preferably about a week before the due date)
- Keep your credit card spending to a minimum (but never $0)
- Continue to keep old accounts open as long as there’s no fee
- Don’t open any new cards or accounts if you can help it
7. Remember This Will Pass
Finally, remember that recessions aren’t forever. They come and go and are a normal part of the business cycle. When economic factors like inflation or the money supply get too far gone, a recession is usually the slow and painful way to tame these things back under control.
From World War II (1945) to now, the average recession lasted about 10 months. That means you’ve got about a year, give or take, to expect the worst and keep your head above water.
During this time, you should stop checking your 401k balance (surprise, it’s going to be down), focus on your expenses, and show more appreciation for the small things in life. Eventually, the situation will turn around, and when it does, you’ll want to be well positioned for the recovery that will follow. But all of this won’t happen until you permit yourself to see things differently and for the potential opportunity that it could be.
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