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What To Do During A Recession

Posted By Jim On 10/05/2007 @ 8:45 am In Personal Finance | 24 Comments

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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