Introduction
The global economy faces several headwinds, including rising inflation, supply chain disruptions, and the war in Ukraine. These factors have led many economists to predict a prolonged recession.
7 Ways to Survive a Prolonged Recession
If you are concerned about a prolonged recession, you can take several steps to prepare. Here are seven tips, along with some additional details:
1. Build up your emergency fund
An emergency fund is money you set aside to cover unexpected expenses, such as a job loss, medical emergency, or car repair. Aim to have enough money in your emergency fund to cover 3-6 months of living expenses.
If you don’t have an emergency fund, start by setting aside a small amount of money each month. Even if you can only save $50 or $100 monthly, it will add up over time.
You can keep your emergency fund in a savings account, money market account, or certificate of deposit (CD). A savings account is the most liquid option but may not offer the highest interest rate. A money market account typically offers a higher interest rate than a savings account, but it may have some restrictions on withdrawals. A CD typically offers a higher interest rate than a savings or money market account, but you may have to commit to keeping your money in the CD for a certain period.
Here are some additional details about building an emergency fund:
- How much money should you have in your emergency fund? The amount of money you should have in your emergency fund depends on your individual circumstances. A good rule of thumb is to have enough money to cover 3-6 months of living expenses.
- Where should you keep your emergency fund? You can keep your emergency fund in a savings account, money market account, or certificate of deposit (CD). A savings account is the most liquid option but may not offer the highest interest rate. A money market account typically offers a higher interest rate than a savings account, but it may have some restrictions on withdrawals. A CD typically offers a higher interest rate than a savings or money market account, but you may have to commit to keeping your money in the CD for a certain period.
- How do you start saving for an emergency fund? If you don’t have an emergency fund, start by setting aside a small amount of money each month. Even if you can only save $50 or $100 monthly, it will add up over time.
- How do you track your emergency fund? You can track your emergency fund using a budgeting app or spreadsheet. This will help you see how much money you have saved and how much you need to save.
2. Set realistic goals
When you create a budget, it’s important to set realistic goals. If you try to save too much money too quickly, you’re more likely to give up. Start with small, achievable goals, and gradually increase your savings over time.
Here are some additional details about setting realistic goals for your budget:
- How much money do you want to save? When you set savings goals, it’s important to be realistic about how much money you can afford to save. If you’re living paycheck to paycheck, you may not be able to save much money immediately. But even saving a small amount of money each month can add up over time.
- How long do you want to save for? When setting savings goals, it’s also important to consider how long you want to save. If you’re saving for a short-term goal, such as a vacation, you may be able to save up quickly. But if you’re saving for a long-term goal, such as retirement, you’ll need to save more money over a longer period of time.
- How much money do you need to cover your expenses? When you create a budget, tracking your expenses to know how much money you’re spending each month is important. This will help you see where you can cut back on your spending and free up more money to save.
- How much money do you need to cover your debts? If you have debt, including your monthly payments in your budget is important. This will help you ensure you can afford your payments and avoid defaulting on your loans.
3. Pay down debt
The less debt you have, the easier it will be to weather a financial storm. If you have high-interest debt, such as credit card debt, prioritise paying it off as quickly as possible.
There are a few different ways to pay down debt. You can make larger monthly payments or focus on paying off the highest-interest debt first. If you have a lot of debt, you may want to consider consolidating your debt into a single loan with a lower interest rate.
Here are some additional details about paying down debt:
- How do you prioritize your debt? When you have multiple debts, it’s important to prioritize them so you can pay them off as quickly as possible. One way to do this is to use the debt snowball method, which involves paying off your smallest debts first, regardless of their interest rates. Another way to prioritize your debt is to use the debt avalanche method, which involves paying off your debts with the highest interest rates first.
- How do you make a budget? A budget is a plan for how you will spend your money. It can help you track your income and expenses, so you can see where your money is going and adjust your spending. There are a few different ways to create a budget. You can use a budgeting app or spreadsheet or track your income and expenses in a notebook.
- How do you stick to a budget? Once you have created a budget, it’s important to stick to it. You can do a few things to help you stick to your budget, such as tracking your spending, setting financial goals, and rewarding yourself for sticking to your budget.
4. Invest for the long term
Even if you think a recession is coming, it’s important to continue investing for the long term. The stock market will go up and down in the short term, but over the long term, it has trended upwards.
When you invest for the long term, you are essentially betting on the future of the economy. Even if there is a recession in the short term, the economy will eventually recover.
There are a few different ways to invest in the long term. You can invest in individual stocks, mutual funds, or exchange-traded funds (ETFs).
Here are some additional details about investing for the long term:
- How much money should you invest? The amount of money you should invest depends on your individual circumstances. A good rule of thumb is to invest 10-15% of your income each year.
- What should you invest in? There are a few different things you can invest in, such as individual stocks, mutual funds, or exchange-traded funds (ETFs). You can choose to invest in various investments to diversify your portfolio.
- How do you choose investments? When choosing investments, it’s important to consider your risk tolerance, investment goals, and time horizon. You can also talk to a financial advisor to get help choosing investments.
5. Have a plan for your job
If you think you might lose your job, start thinking about what you will do next. Update your resume, network with people in your field, and consider taking online courses to improve your skills.
It’s also important to have a financial cushion in case you do lose your job. This could include having a savings account with enough money to cover your living expenses for a few months or having a line of credit that you can use in an emergency.
Here are some additional details about having a plan for your job:
- How do you update your resume? When you update your resume, highlight your skills and experience relevant to the jobs you are applying for. You can also get help from a career counsellor or friend to review your resume.
- How do you network with people in your field? There are a few different ways to network with people in your field. You can attend industry events, join professional organizations, or connect with people on LinkedIn.
- How do you take online courses? There are a number of different websites that offer online courses. You can find courses on various topics, from business to personal finance. You can also find courses specifically designed for people looking to improve their job prospects.
6. Stay Informed
It’s important to stay informed about the economy and the latest news about the recession. This will help you make informed decisions about your finances.
There are a few different ways to stay informed. You can read financial books, news websites, watch financial news shows, or listen to financial podcasts. You can also follow financial experts on social media.
Here are some additional details about staying informed:
- How do you read financial news websites? When you read financial news websites, make sure to read the headlines and the articles. You can also read the comments section to see what others say about the news.
- How do you watch financial news shows? When you watch financial news shows, pay attention to the guests and experts being interviewed. You can also listen to the opinions of the hosts and the commentators.
- How do you listen to financial podcasts? When you listen to financial podcasts, make sure to listen to the entire podcast. You can also rewind or fast-forward to listen to specific parts of the podcast.
7. Don’t panic
Feeling anxious about a recession is natural, but it’s important to remember that it’s just a temporary event. The economy will eventually recover, and you will get through this.
If you do start to feel panicked, take a step back and remind yourself of these facts. Remember that you are not alone and that there are people who can help you.
Here are some additional details about not panicking:
- How do you stop panicking? If you start panicking, take a few deep breaths and relax. You can also talk to a friend or family member about your feelings.
- How do you stay positive? It’s important to stay positive during a recession. You can do this by focusing on what you are grateful for and setting goals for yourself.
- How do you help others? One way to cope with a recession is to help others.
Conclusion
A prolonged recession can be difficult, but it’s important to remember that it’s not the end of the world. By following the tips in this article, you can prepare for a prolonged recession and become stronger on the other side.
Here are some additional tips to help you prepare for a prolonged recession:
- Set financial goals. What will you achieve financially in the next 1, 3, 5, and 10 years? Having specific goals will help you stay motivated and on track.
- Create a financial plan. Once you know your goals, you must create a financial plan to help you achieve them. This plan should include your income, expenses, savings, and investments.
- Review your financial plan regularly. Your financial situation will change over time, so review your financial plan regularly is important to ensure it’s still on track.
- Don’t be afraid to ask for help. If you’re struggling to manage your finances, don’t be afraid to ask for help from a financial advisor.
Remember, a prolonged recession is just a temporary event. By following these tips, you can prepare for a prolonged recession and become stronger on the other side.
