Even the most optimistic economist has to acknowledge that high gas prices, multiple interest rate hikes, and a bear market are strong indicators of the next recession.
In fact, even though the unemployment rate has essentially been cut in half in the wake of the pandemic, the shaky state of the U.S. economy has made it significantly more difficult for small business owners and their employees to take care of debt payments and cover necessary expenses.
While nobody can predict exactly what’s to come, you should be prepared to withstand even a short-term economic downturn. From navigating the stock market to getting rid of credit card debt to ensuring your savings account is in good shape, the Possible Recession Survival Guide contains strategies and tips that can help you achieve financial security even as the Federal Reserve continues to raise interest rates.
The Possible Recession Survival Guide
The Great Recession of 2008 forced many people to learn how to survive in a world where massive layoffs, vanishing retirement accounts, and a collapsing real estate market became the reality.
Although the National Bureau of Economic Research (NBER) has yet to declare an official recession as of writing, consecutive quarters of negative growth are impossible to ignore.
With the gross domestic product (GDP) shrinking by 1.6% in the first quarter and 0.9% in the last three months, it’s clear supply chain complications continue to hamper the U.S. economy.
Ultimately, it seems more like a matter of when than if a recession hits—at least officially. But that doesn’t mean you should wait for the next business cycle to get your personal finances in order.
If the recent recession brought on by COVID-19 taught us anything, it’s that a sudden job loss or sharp economic downturn can quickly cause problems to pile up.
So, what can you do to get ahead? The keys to recession survival are outlined below.
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Set Yourself Up for Success
Money issues don’t just have an impact on your financial well-being—they also take a toll on your mental health. To make yourself as recession-proof as possible, you must take the necessary steps to ensure you have a positive cash flow. After all, you don’t want to find yourself in a situation where you’re dipping deep into your savings account to cover your bills.
Meeting with a financial advisor is a smart, short-term solution to set yourself up for long-term success. However, if you can't afford one, you can still put yourself on the right path by carefully monitoring your economic activity with apps like Mint and Personal Capital, budgeting appropriately, and eliminating unnecessary expenses.
In addition, anyone can create a personal finance plan based on their individual situation. Whether you start saving more just in case layoffs are on the horizon, or simply want to budget better with rising costs, making a plan will help you feel more confident about your financial future.
Find Emergency Funds
Take some of the burden off your shoulders (and mind) by relying on available resources. Emergency funds or government programs can make the recession survival process less painful.
Luckily, there are a variety of ways you can find emergency cash. Charities, family, and friends may be able to provide assistance. If you need money fast, Possible offers installment loans via a short application process you can complete right from your phone.
Look for Local Financial Aid to Fill the Gap
Before the next recession hits, do your research on programs and nonprofits in your area that provide financial aid. For example, you may be able to secure help paying bills through the United Way 211 network, which has more than 200 local organizations that serve their respective communities.
Or, if you meet the eligibility requirements, you can receive payment assistance for your energy bills through the Low-Income Home Energy Assistance Program (LIHEAP). Plus, social services handle a broad range of aid-based programs on a local level.
You may be surprised by the number of local resources available for emergencies, from local no questions asked food banks to rent assistance from local government.
Recession Survival Tips
No recession survival guide would be complete without a set of actionable tips you can begin working on immediately.
From your income to your expenses, here’s what you should focus on in order to get through the current economic downturn:
1. Cut costs where you can
When the stock market is down and inflation rates are high, it’s time to cut costs. Of course, that’s a multi-step process that can involve everything from saving on gas to canceling unnecessary subscriptions to reducing your electric bill. Not only will your cost-cutting efforts keep more money in your pocket, but it’ll give you perspective on what’s truly important—and what’s not.
2. Pay off your credit card debt
One of the best ways to get your personal finances in order at any time is to pay off your credit card debt. With interest rates rising, you want to do your best to bring your balance as close to zero as you can.
In addition to improving your credit score, implementing this recession survival tip will teach you about using credit responsibly.
3. Create or adjust your budget
Following basic budgeting principles can go a long way toward keeping you out of a bad financial situation. And when a recession hits, you certainly want to create or modify your budget accordingly.
Remember that there’s no one-size-fits-all approach, so you have flexibility. Plus, there are plenty of free apps like Mvelope and Honeydue (designed for couples) that can make budgeting easier.
4. Build up a nest egg
Whether you call it a nest egg or a rainy day fund, one thing’s for sure: You should have at least three to six months’ worth of average living expenses saved in the event of a fiscal crisis.
With all the economic factors at play, now is the time to slash expenses and save every dollar you can. That way, you will be better prepared to withstand a job loss or large emergency expense.
5. Have multiple sources of income
Our final tip goes hand-in-hand with the last one. Instead of relying on one stream of income to bolster your bank account, find another way to make money.
Besides allowing you to save money fast, adding a paid side gig to the mix can provide some mental relief from any anxiety the current economy is giving you. Some ways to earn extra cash include:
- Driving for a rideshare company (like Uber or Lyft)
- Joining a delivery driver network (like Postmates)
- Renting out your vehicle or second vehicle
- Selling custom crafts on Etsy
- Renting out your home (or an extra room in your home)
- Teaching online classes or tutorials
- Starting (and monetizing) a YouTube channel
How to Rebuild Your Financial Health After a Recession
There’s no doubt a recession will leave many people in a worse overall situation. Still, that doesn’t mean you can’t work your way back up and find stability and security again.
How can you start the rebuilding process? Here are some ways to improve your financial health following a recession:
- Boost your credit score by paying monthly bills.
- Get a credit-building loan to establish payment history.
- Set a specific savings goal to help make up for lost income or increased expenses.
- Use debt management tools like balance transfers, refinancing, or credit counseling to help get out of debt.
The Bottom Line
Controlling what you can control right now should be the biggest takeaway from the Possible Recession Survival Guide.
That starts with taking a close look at your cash flow and making decisions that reduce your costs and increase your income—and secure your savings.
As frustrating and uncertain as times may be, following the tips and strategies outlined above can make life less stressful, even in the face of the next recession, whenever that may be.
