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What To Do During A Recession

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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!).

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24 Responses to “What To Do During A Recession”

  1. The Div Guy says:

    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.

  2. jim says:

    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. :)

  3. Mrs. Micah says:

    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.

  4. FatLady says:

    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.

  5. Tim says:

    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.

  6. x says:

    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….

  7. John says:

    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.

    • David Smock says:

      That’s really great for you, but considering I have $630 a month SSI I don’t have a dime to invest, and in fact can’t even afford rent anywhere in town.

  8. NJ says:

    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.

    • David Smock says:

      Well that must be nice for you rich people who can afford stocks. In the meantime I live on $630 SSI because I have spina bifida and had to drop out of college for medical reasons. I can’t even afford apartment rent, food, clothing or anything else on $630 and can’t invest a dime.

  9. Richard415 says:

    So how and with who do you invest? If I invest the same way it might make both of us rich.

  10. Interesting read and author was right on the money, despite the all time highs in October. Bravo!

  11. cali says:

    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.

  12. Jim says:

    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.

  13. Katharine says:

    Any advice for a retired widow who is living on the income from her investments? These so-called “investments” are evaporating at a rapid rate. Maybe my only hope is to go out and find a job!

  14. sarah says:

    I am 39 years old, own a house in san francisco and a struggling creative business. I am personally in debt (not counting house) $65k and my business is $100K in debt. I am able to get by monthly and pay employees but cannot pay down my debt in this economy. I have $12,000 in cash in my pension that I have not invested (its a long story, why its sitting in cash!) my question is, what should I do in this economic crisis? should I take a hit and pay taxes and pull it out and pay down debt? should I leave it in cash until market changes? should I buy while things are low and buy what? thanks for any advice.

  15. Abhi says:

    I got little more worriede when I saw the statement of UK Prime Minister, Gordon Brown, that The world will enter a recession. I am 27 aged and have very faded idea about all these recession games. I have invested some money in mutual fund, which will mature in 1.5 yrs. I have planned for some more investments but worried also. Although these market players are very strong with whome I am dealing. I want some suggesting from you. I suspect that this recession wind will blow for a year..

  16. Kendrya says:

    Start buying into solar panel stocks that is the future. Alternative energy..!!!
    Buy while is low…
    Let’s stop being fearful about our financies.
    Support and contribute will give you a good return at the long run..

  17. jane says:

    If I cut back on consumption, wouldn’t that cause deflation and thus cause recession. This exactly how recession takes place, people believe that times ahead are going to be worse and cut back on consumption. What we do today shapes what happens in the future.

    This is why the USA government is overflowing the economy with money to cause people to think inflation will take place in the future. This will cause people to increase the expenditure today which will cause prices to rise, thus causing inflation. This is why China was chastising the US economy several days back as they feared the money China lent would lose its value due to inflation.

  18. Melvin Goldstein says:

    Question: question 12 in “Thinking Physics” – page 259
    Inside a warm damp cave completely sealed off from the outside world could life flourish indefinitely?

    Answer: No life forms could flourish indefinitely. In an isolated system, entropy always increases. Life tries to push entropy in the opposite direction. When life is created, entropy decreases in the cave but nature demands a greater entropy increase offset. The cave, being sealed, would mean that entropy would reach its max, thus energy necessary to sustain and generate new life would be unavailable. Maybe we should learn a lesson from this. Available energy is mandatory. Wealth may equate to available energy. If you want to live in a nation that is prospering make sure that its available energy supply is abundant.

    Entropy is one of “Physics Foibles”

  19. Uppaimappla says:

    Ah, recession. No better advice for these sad times than by the great zen master Lin Chi to a a disciple what to do in life (perhaps in similar circumstances):

    “Eat your food, move your bowels, pass water, and when you’re tired go and lie down. Fools may disagree but wise will understand.”

  20. ann says:

    hey i have 5 kids and it’s hard to save i live pay check to pay check …save? How? maybe 10.00 a month..

    • Sabbir says:

      May God help you and your family survive in the coming recession. Only He can we rely upon. I heard it will be much bigger (recession) than the last one.


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