What To Do During A Recession
So there’s a ton of talk recently that we’re moving towards a Recession. That’s right… a Recession! Isn’t that horrible? Well, sort of, but what exactly is a recession? A recession, by definition, is when the GDP declines for two or more consecutive quarters; but how does that really affect you? In reality, it’s a period of economic slowdown that is marked with companies earning less, paying less, and generally things in life are a little less prosperous.
So, what should you do to prepare yourself if a recession, specifically a prolonged recession, hits? It’s actually quite simple, the biggest fear you have and the biggest thing you should prepare for is the possibility that you could lose your job. In a recession, companies often scale back operations as sales lag and when that happens employees are often one of the things to hit the chopping block. To prepare for this, keep your ear to the ground and make sure that in the event that you are let go, the first you hear of it shouldn’t be the moment after your boss calls you to his office to deliver the bad news. The second part of preparation is to pull back your spending and boost your emergency fund. What? Don’t have one? Start one immediately! That’s what you will be to lean on as your income because you won’t be earning money if you’re unemployed.
Now, preparing for the worst is always a good idea but the worst may never happen. In recent memory, recessions haven’t been all that bad for most Americans so the doomsday scenario isn’t all that likely. What’s more likely is that raises won’t be as big and promotions won’t be as plentiful, which is fine because it’s better than being fired. So, if the only real tip is to pad an emergency fund, what’s the big deal? The big deal is that you need to begin planning for it now. If you wait until it hits the cover of Time or the New York Times, it is already too late.
How can you pad the emergency fund now? If you’re contributing more than your employer match in your 401k, consider pulling back so you can put that towards savings. If you’re making large payments on your car note, consider downsizing your car and getting into something you can handle better. Some things are easier than others (adjusting 401k contributions is easier than changing cars) but ultimately you want to reduce your spending to pad that fund. Whether or not a recession does hit, having a nice fat emergency fund is certainly something valuable in any economic situation (one can lose their job during a period of economic prosperity!).
22 responses to “What To Do During A Recession”
The Div Guy responds:
Posted: October 5th, 2007 at 11:25 am
Aren’t you the one who told us they were getting out of the stock market because it was going to go down. No offence if I don’t take your advice on the coming great depression. That said I think it is always prudent advice to have an emergency fund.
jim says in reply:
Posted: October 5th, 2007 at 4:55 pm
I didn’t say I was entirely getting out of the stock market, I said I was pulling short term investment funds out of the stock market. I also didn’t say there is a recession coming, I said that there’s talk of a recession, and what I wrote was advice as to what to do if you think a recession is coming… which matches your prudent advice to have an emergency fund.
Either way, I only speak what I think and I’m a regular person so I could be wrong.
Mrs. Micah responds:
Posted: October 5th, 2007 at 8:56 pm
Well, I’m feeling very fortunate that my job seems to be a necessary position. That is, I’m the admin assistant for a commercial office property company. Well, for the office which manages two of its buildings. And the buildings need managing, which the manager can’t do on her own.
If I get either Library of Congress position I applied for, those are government jobs, which helps too.
Roundup for the Week Ending October 6 on Consumerism Commentary: A Personal Finance Blog responds:
Posted: October 6th, 2007 at 9:42 am
[...] What to Do During a Recession. It’s hard to think about recessions when the stock market is coming close to setting record highs again, but Jim from Blueprint for Financial Prosperity has some tips. He brings up the good point of the chance of losing your job doing a recession as companies cut back for various reasons. [...]
Weekend links: Seven Ferraris and a Yugo Edition responds:
Posted: October 6th, 2007 at 6:58 pm
[...] The Sun’s Financial Diary asks who missed the rally in the stock market. I benefited with the rally, but I have to say that it’s confused me. I think we could be headed for a recession, and Blueprint for Financial Prosperity got some recession ideas [...]
The Sunday Review #41 responds:
Posted: October 7th, 2007 at 9:31 am
[...] What To Do During A Recession by Jim @ Blueprint for Financial Prosperity. [...]
FatLady responds:
Posted: October 7th, 2007 at 10:18 am
This is a recession? My investments made over 13 grand last month, and I’m not exactly a millionaire. Probably the inflated “value” of my house has dropped a bit–but it has not fallen to anywhere near what I paid for it three years ago.
It’s hard to know what’s really going on. When lending companies and banks fail, those of us who have been around a while think something more than “recession”: for most of us, “depression” is the word that springs to mind. Yet neither of those seems to be happening. The savings & loan fiasco led to a deep recession that included a collapse in real estate values. But real estate has been in eclipse for a while now, and it seems to me that if this were going to trigger a recession, it would be a great deal more obvious at this point.
Nothing lasts forever. The long prosperity we’ve enjoyed sooner or later will have to fall off. . .whether it rolls down a gentle incline or tumbles off a cliff remains to be seen. In either event, IMHO the best position is to be as free of debt as possible, and to be invested in a combination of blue-chip stocks and low-risk savings instruments.
Passive Income, Preemptive Spending and Possible Recession? A Gigantic Roundup responds:
Posted: October 7th, 2007 at 10:25 am
[...] For Financial Prosperity: Hmmm… Jim has brought up the dreaded “R” word recently. I’ve actually been through a recession (or two) which were thankfully short and forgettable. [...]
Weekend Update: Lazy Sunday Edition ∞ Get Rich Slowly responds:
Posted: October 7th, 2007 at 2:22 pm
[...] A lot of people have begun to worry that the U.S. economy is in a tailspin. For you folks, Jim has some suggestions for what to do during a recession. [...]
Posts I Enjoyed Last Week | The Sun’s Financial Diary | A Personal Finance Blog on Saving and Investing responds:
Posted: October 7th, 2007 at 2:52 pm
[...] Jim at Blueprint for Financial Prosperity had some ideas on what to do curing a recession. [...]
» Weekly Roundup - Foundation Wall Edition @ fivecentnickel.com responds:
Posted: October 7th, 2007 at 9:54 pm
[...] Jim talked about what to do during a recession. [...]
Personal Finance Review - Installing a Patio Edition » Money Smart Life responds:
Posted: October 8th, 2007 at 3:00 am
[...] -What To Do During A Recession @ Blueprint for Financial Prosperity [...]
Tim responds:
Posted: October 8th, 2007 at 5:06 pm
there is just too much stuff going on with the various markets that have nothing to do with each other, but for some reason people think they do. People have been saying for the past 4 years or so that the u.s. economy stinks and people have been believing it for some reason even though all the numbers indicate otherwise. i attribute this to people simply believing the political crap that has been slung all over the place the past 8 years. I’m not defending the republicans here, but the news has seemed to been down on the economy even though the economy has been consistent upward.
i think we have another quarter to really finally assess the subprime mess, but most indicators out there suggest it wasn’t nearly as bad as people feared. people blew the thing out of proportion just like they have overstated how bad the economy has been the past 4 years. in reality, the numbers just didn’t make sense for the subprime to be nearly as messy as the S&L.
i think we probably will go into a recession simply because i think it is a case of self-fulfilling prophecy at this point. If so, I think it will be a short lived one as it was during the last “technically called” recession. i’m surprised we haven’t gone into one yet, considering people have been calling for one the past 4-6 years now.
x responds:
Posted: January 13th, 2008 at 3:24 pm
I feel that our foolish spending to keep up with our neighbor is catching up. Most married couples under 40 do not have enough savings to last 7 weeks.40 percent of homeowners are upside down with the value of their homes. Increase of jobs going over seas, and the very limited liquidity is going to head us into a Depression instead of Recession….
John responds:
Posted: January 26th, 2008 at 11:52 pm
I have invested over thirty years and have been though a few Bull and Bear markets. This is no diffrent than any other recession and my advice is to have funds set aside for emergencies, and make sure you are invested in either good individual value stocks or good mutual funds. In the 70’s I had friend who told me I was nuts and there was going to be another Depression. Well, I did my homework and got good grades! I bought twenty solid stocks through a reputable brokerage and yes, I do spend money as it helps the economy, buying a new home and purchasing a winter home in Central Florida (its still quiet there below Avan Park). Money is made to be enjoyed and shares with those organizations who need support. growing up with a Father who was out of a good paying job several times, it was the Salvation Army and the American Legion who came to our door to help. I believe if you give, it will come back to you ten fold. Sure, I’ve been burned by unethical people but I learn my lessons well and pass it on to others. My hope is that our educational system teaches long term investing to our children. I have in our family. My Dad never had the opportunity. Even if its a few dollars a month, it adds up. Bottom line…. you won’t have to worry about a Recession or Depression.
NJ responds:
Posted: February 3rd, 2008 at 4:45 pm
My investments feed me in bull or bear markets, as long as there is volatility, so I just watch the bad news on TV while my lifestyle proceeds unchanged. I never understood why people bought stocks for the long term anyway, that’s the same as not having an exit strategy. Foolish.
Richard415 responds:
Posted: February 10th, 2008 at 8:33 pm
So how and with who do you invest? If I invest the same way it might make both of us rich.
Serge Birbrair responds:
Posted: March 9th, 2008 at 9:18 am
Interesting read and author was right on the money, despite the all time highs in October. Bravo!
How to Minimize the Recession’s Impact on Your Career responds:
Posted: March 24th, 2008 at 10:40 am
[...] financial advice on What to Do During a Recession from Blueprint for Financial Prosperity and 5 Ways to Recession-Proof Your Life from MSN [...]
How to Minimize the Recession’s Impact on Your Career | money news blog responds:
Posted: March 24th, 2008 at 10:58 am
[...] financial advice on What to Do During a Recession from Blueprint for Financial Prosperity and 5 Ways to Recession-Proof Your Life from MSN [...]
cali responds:
Posted: April 24th, 2008 at 10:11 pm
I am 21 years old, I entered trade school right out of high school. Ive ben working with commercial refrigeration for 3 years now, with the slow months over, loss of job was never spoken of, and with the summer months approaching, need of workers is an everyday conversation. I make 600 a week, live at home, have a car payment, 2 credit cards,and after all the fun things a 21 year old spends money on, I am still able to save 100 a week, how will recession effect me.
Jim responds:
Posted: April 25th, 2008 at 4:09 pm
A BIG THANK YOU for this article. I read it in October, and pulled all stocks and funds in Dec, when they were riding high; and stuck them in bonds and high-yield money markets. I figure I am up 25 percent, compared to if I stayed in. I have since done short trades on bank stocks, and have made a fe bucks. Thank you thank you thank you.