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First of all, what exactly is a Recession?
A recession is defined as two consecutive quarters of negative gross domestic product (GDP).
Recently, it was unveiled that the US economy did shrink for two consecutive quarters. However, we’re not “officially” in a recession…yet.
There’s no way to actually predict these things, but what we can pay attention to are the things currently affecting us:
- Rising interest rates
- Increased costs of goods/services
- More difficulty finding a job/pay increase
- Increased rent/home prices
I’m not creating this post to scare anyone, but we can already feel a shift in the economy. Recessions are normal and the economy will recover. The average recession lasts 17 months, but there is also no way in predicting the length.
What I want is for you to be prepared. If you’re like me, you haven’t ever experienced a true recession as an adult with a career and bills to pay. The last recession was 2007-2009, I was still in high school!
This is also a great time to build wealth. I’m honestly kind of excited. Let’s get into it:
Bulk up your emergency fund
You’ll definitely want to throw some extra cash to your emergency fund. I don’t suggest touching any retirement funds or investments to do this, just spend the next few months saving.
During a recession:
- There are often layoffs – I hope this doesn’t happen to you, but it’s best to prepare just in case.
- Prices increase – You’ll want to make sure you have enough cash on hand to pull from if necessary.
I suggest at least 3 months of bare bones expenses, and then continue to add to your savings each month as time goes. I also suggest saving your money in a High Yield Savings account (such as Marcus by Goldman Sachs), where your cash will gain interest.
Articles to Read:
The Top 3 Ways to Boost Your Savings
How Big Should Your Emergency Fund Be?
Why You Should Open a High Yield Savings Account
Pay off high interest debt
Prioritize your emergency fund, but once you have saved 3 months of expenses or if you already have it saved, tackle your high interest debt. Interest rates are increasing which means that any debt you have is costing you more money.
You can also look into balance transfers and/or consolidating debt into a personal loan.
Article to Read:
How to Pay Your Debt Faster
Maintain/improve your skillset
If you work in an industry that may face layoffs, be sure to maintain or improve your skillset. This may even mean learning skills in a different industry just in case.
Why? If anything happens (lay off, need another job), you’ll be ready to whip up a resume and apply.
This is definitely something I am working on. I work for a Salesforce Consulting firm. While I believe my job will be OK, I’m still studying for my next certification and continuing to learn more and more about the platform.
Don’t touch the money you have invested and continue or increase investing if you can! You may have heard that recessions are where millionaires are made.
You may not reach millionaire status right after a recession, but continuing to invest while in a recession and during a bear market will surely get you closer.
“Be fearful when others are greedy and be greedy when others are fearful.”Warren Buffet
Remember that when stocks are low, this is like them being on sale. For example, if you bought 200 shares of VTSAX (Total Stock Market) on February 27, 2009 it would have cost you $3,582. That would now be worth over $17,000!
There is no need to time the market, just invest regularly (weekly, bi-weekly, monthly) and you will reap the benefits soon.
Increase your income/create multiple sources of income
It feels like everyone has a side hustle or second job these days, which is awesome! This is primarily because we need to supplement our income and/or build our own business.
During these times it’s especially important to have multiple sources of income in case of a job loss and/or for the higher cost of living.
A side gig may not be able to support you full time, but it will at least bring some money if necessary!
Articles to Read:
5 Reasons Why Young Adults Should Start a Side Hustle
The Benefits of a Side Hustle
We’ll see what happens over the next few months, but I want to be as prepared as possible to come out of this recession in a better financial place. Please feel free to share how you’re planning to prepare!