If you have been following the news lately, you should probably have heard that a recession is coming very soon. You might be left wondering, “what does the recession mean for me” and “how do I prepare for it?” You may also be worried or concerned especially if you remember the 2008 recession and its devastation.
In this post, I will walk you through the definition of a recession as well as ways in which you can prepare for it. This will help you to feel in control of the situation and develop a strategy in the event that a recession actually occurs.
What is a Recession?
So what exactly is a recession and why do economists think that there will be a recession in the near term, possibly 2023?
A recession is a time when the economy does not grow and shrinks instead. It also means that gross domestic product or GDP falls for at least two consecutive quarters.
In a recession, consumer confidence wanes as people are worried about the economy and as a result, they spend less money. With less spending, company profits decline and layoffs occur along with declines in the stock market.
In recent times, especially since the pandemic, energy prices have increased with high gas prices. High-interest rates along with the devasting war in Ukraine, and inflation, according to economists, all signal a looming recession.
Also, inflation – the rising cost of goods and services – has caused significant strain on households that are already financially stretched and living paycheck to paycheck.
It is interesting to note that recessions are a normal part of the economic cycle that fluctuates between growth and recessions and experts argue that this recession may be different from the 2008 recession.
What Does the Recession Mean for Me?
Now that you have a grasp of what recessions actually are, you must be thinking about your personal situation and how a recession may impact you.
Recessions can affect people in many ways and can cause concern and financial stress. They include:
- Losing money in the stock market. Your investments may be in the red and could leave you anxious.
- Lay-offs, historically many people lose their jobs during a recession
- Higher gas prices
- Higher interest rates
- Reduced confidence in the economy
These are examples of how the recession may affect you personally but do not fear, as there are ways in which you can plan and prepare for an impending recession.
What to Do to Prepare for a Recession
American General, Douglas MacArthur once said the following:
“In preparing for battle I have always found that plans are useless, but planning is indispensable.“
— General Douglas Macarthur
He’s right, planning is the key to ensure that you are ready to face situations and can give you some sense of control.
Whereas you can only have plans for certain situations, (for example, none of us knew that the pandemic would be upon us in 2020), planning helps you to look at possible solutions and plot a strategy to deal with what may happen.
In the event of a recession, here are some key things you need to do right away to build your planning for the future.
Build Your Emergency Fund
Now is the time to build up your cash reserves. You should focus on saving as much as you possibly can by stashing money aside from your income or any side hustle activities.
Ideally, your emergency fund should be 3-6 months of your income. If you have started to save and have some funds stashed away, that’s amazing. If not, there’s still time. You can follow my step-by-step guide on how to save money fast and build your savings in those blog posts.
Cut Unnecessary Expenses
As you save extra money, you should also focus on cutting any unnecessary expenses that you do not need and that is not adding any value to your life.
Now is not the time for excesses and trying to keep up with the Joneses. Focus on saving as much as you can and cutting ruthlessly on the things that either don’t bring you joy or are useless at this point. You can always add these back to your life when the economy gets better. Use that as a consolation.
Pay Off Debt
This one is tough as household debt continues to rise. Your #1 aim at this point as you ponder what the recession means for you is to get rid of debt.
Debt can be stifling especially high interest debts such as credit cards. You should focus on paying off debts as much as you can so that you can be released from any financial entanglements should there be a recession.
In this guide, I walk you through the steps you need to take to pay off all debt especially if you have a low income or you currently live paycheck to paycheck. Make this a priority along with saving money.
Learn New Skills and Brush Up Your Resume
One of the unfortunate parts of a recession is that people may lose their jobs. With this in mind, now is the time to focus on learning new skills that can help you to strengthen your resume and enhance your employability. There are many resources available for free at your public library that can help you to learn new skills such as Great Courses Plus, Skillshare, Udemy and Linkedin Learning to name a few.
Spend some time building yourself so you can be prepared for the job market.
Also, invest some time in reviewing your resume and sprucing it up to include your achievements at work and any other new and exciting projects you may be working on. This will prepare you for anything and you will not be left scrambling at the last minute.
Don’t Panic
This one is easier said than done but it is extremely important. If you are stressed, worried, fearful, and anxious, then you will not be able to think clearly and carefully.
As I mentioned before, recessions are a normal part of the economic cycle and typically last around 1-1.5 years. This means that they will not last forever and you will spring back. So spend your time focusing on what you can control and be aware of your finances.
You can do this and a part of living abundantly is knowing that despite any hardship, you are resilient, strong, and able to survive anything. Tell yourself this and have faith and hope.
In conclusion, I hope this will help you to build a solid strategy in place to prepare for the financial future and a possible recession.
As always, here at Abundance of Jo, we have many resources to help you and lots of free tools that you can use to build your finance and wealth.
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