‘Recession’ can be a scary word – but with a little planning and a bit of knowledge, confronting an economic downturn doesn’t have to be terrifying. We spoke to Capsule contributor, The Curve’s Victoria Harris, about how to gird your financial loins for the upcoming recession and some general recession advice.
It’s more a case of ‘if’, not ‘when’. The world is an uncertain place at the moment (hello inflation, hello high interest rates) but one pretty certain thing is that we will head into a recession. It might be in 2023, it might be in 2030, nobody really knows – but the more financially prepared you can be for when it DOES happen, the better.
What is a ‘recession’? Just hearing that word can cause some people to clench their teeth, clutch their chest and run to the bank. A recession is when a country’s unemployment rises, consumers pull back on spending, house prices fall and businesses start struggling. And recessions are kind of like hurricanes – it’s hard to predict when they’ll hit and how much damage they’ll cause.
Well, it’s a good idea to have your finances in order—always. You don’t need to build a bunker, stuff a pile of cash under your mattress, or stock up on toilet paper. So, relax. Don’t freak out! Here’s how you can make sure you’re prepared with five top tips and recession advice:
Pay off debt
As interest rates climb, so too does the cost of your debt – meaning you end up paying more for the same amount of debt. Ouch. And if you’re spending a large portion of your income on credit card and loan payments, that leaves little to save for a rainy day. Eliminating debt is an important part of how to prepare for a recession. Being debt-free will give you an overwhelming sense of freedom and peace. And when you aren’t spending most of your paycheck on debt payments, things like higher grocery prices—or a dip in the stock market—won’t hurt as much.
Have an emergency fund
When it comes to finances we can plan and plan and plan but at the end of the day, things sometimes don’t always go to plan. You can’t see what you can’t see and there will always be unknowns around the corner. However, having an emergency fund is a MUST for any financially responsible adult. It can be called a ‘safety net’, a rainy day account or a F**k you fund – they all do the same thing – give you financial flexibility should you get in a sticky situation. Having about three months of paychecks in your emergency fund will mean should the inevitable happen, you won’t feel as stressed.
Have multiples sources of income
OnlyFans anyone? Lol, just kidding. You might not realise that recessions not only impact you and me, but they also impact businesses too. This means if a company is struggling they may cut costs by cutting staff (e.g you) or freeze pay rises. The more you can diversify your income (have multiple streams of income), the less susceptible you will be should something bad happen. This could be starting that business idea you’ve always had, renting out that spare room you don’t use or even becoming an Uber driver on the weekends!
Keep investing (even a small amount)
The stock market typically slumps before a recession begins and rebounds before the economy improves, so heading into a recession can be a good time to buy stocks when prices are lower. When the stock market goes down, you might be tempted to sell your mutual funds at a loss and put the money into something safe to weather the storm. But hold on, take a breath, and don’t let fear cause you to make a costly mistake. We say it time and time again: Investing is a roller coaster ride, and the only people who get hurt on a roller coaster are the ones who jump off early.
Instead, wait. Ride it out. Stocks rise and fall all the time. And even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. So leave your money alone. Remember that investing for retirement is a marathon, not a sprint. And don’t pull your money out just because some dude on the news told you to.
Focus on You
Finally, keep the stress of a recession at bay by making your health a priority. Times like this can be stressful. Focus on taking care of yourself; mentally and physically. Get outside, go for a walk, journal your thoughts, catch up with friends, breathe some fresh air.
And remember, recessions don’t last forever, they are just part of life. If you’ve had a bad stint with your money, now is the time to really dig in and get serious. Use the possibility of a recession as motivation to be intentional about how you handle your money going forward. Nobody knows what the future will hold, in life or investing but the more prepared you can be, the more certain the uncertain will feel.
