Whether you are a “glass half full” or a “glass half empty” kind of person, the chances of a recession happening in the next two years is at a whopping 60% according to . We can all scream and shout over exactly when it will happen, but it will happen.
If you are not one of the lucky ones who is winning in the real estate market, has an investment portfolio that can carry them through a recession, or has a crap-ton of liquid assets laying around, a recession is not going to be the best time of your life.
While you may not have the financial backing to weather the storm, you hopefully have a job. Your goal at this point is to keep that job and not get laid off during the recession.
It is like a scene from one of those movies where a sailor has to strap himself to the mast during a storm so he doesn’t get swept off the boat. Strap in and hold tight to what you have.
There are both emotional and, what I am going to call “real-world” effects of a financial crisis.
Emotional effects are, perhaps, the worst for some people. The feelings of stress, depression, anxiety, helplessness, etc. These feelings can be devastating to some individuals and have been known to have some dire consequences.
The key to overcoming the emotional effects of a financial crisis are trying to accept the situation and focusing on finding solutions to overcome the problem.
This may include talking to family members and friends about your situation. Many times, discussing your problems out loud, helps you organize and rationalize your thoughts and potential solutions better than simply keeping them as thoughts in your head. Others may be able to provide help or insight that you may not have considered.
You want to be honest with people, especially your family, about your situation. You don’t have to go into extreme detail, but it may benefit everyone to let them know that times are financially difficult right now and some extraneous things may have to wait.
In extreme situations, you should consult the services of a professional therapist. There are times when it gets to be too much for some people to handle on their own and confiding in someone who is not part of the situation is a good alternative.
The Best Offense Is A Good Defense
Like any emergency, however, being prepared is the best defense. Fortunately, there are some things you can do before a recession hits to prepare and make yourself a little less vulnerable.
- Have A Back-Up Plan: Every good business has a backup or disaster recovery plan and you should too. This means preparing a household budget if you don’t already have one. The difference between your current budget and this new, apocalyptic budget is going to be that the new one cuts every single non-essential item possible. Consider this “Budget B” and determine how you would stick to this budget if the worst happens. How could you move your assets around to meet your expenses?
- Save Now: If you do not already have a savings account, start one now! This will become your emergency fund and should eventually have enough in it to cover three to six months of expenses. Try putting 10% of your paycheck into a savings account every pay and don’t touch it. It will be difficult, trust me, but it is a necessary component in your financial crisis toolkit.
- Pay Down Your Debt: If you are drowning in credit card debt in good times, it will kill you in bad times. Whether you choose the debt snowball or debt avalanche method, start paying down your credit card and student loan now.
- Pay Attention To Details: Do you buy coffee every day? How much does that lunch cost you every time you go out? Do you subscribe to magazines or online subscriptions that you really don’t use or need? Now is the time to take inventory and see what you can cut out of your life.
- Update Your Resume: You may feel comfortable in your current job, but at times of financial instability, anything is possible. It is always a good idea to have your resume updated with your latest skills and accomplishments. Make sure you include any courses that you have completed since you last made updates.
- Create A Side Hustle Now: There is no time like the present to create extra income. If you wait to try to create a side hustle when times are difficult, it will be more difficult to get something started. Start now, get your side hustle off the ground and grow your extra stream of revenue before something terrible happens. This will add a little extra padding when times get tough.
The takeaway here is that a recession is coming eventually, whether you want to believe it or not. Will you be prepared when it comes? What is your emergency or disaster recovery plan? Are you going to be proactive or reactive?