Recessions are unavoidable, and they can be difficult to forecast. Even in times of strong economic growth, being prepared for a downturn is beneficial. Preparing for a wet day now will save you time and aggravation later.
Here are some strategies for preparing your finances in case of a recession:
- Make sure you have a back-up plan in place. An emergency fund should be utilized to help you survive in difficult times. This fund should contain at least three to six months’ worth of living expenditures. If you lose your job or your work hours are shortened during a recession, having emergency reserves might help you pay for necessary expenses. If you already have enough money set aside to last six months, it’s not a bad idea to save even more if you can afford it.
- Keep your spending to a minimum. It’s never a smart idea to spend more than you earn. When you live within your means, the total of your monthly expenses is equal to or less than the amount of your monthly income. This strategy will not only save you money, but it will also keep you from becoming overextended if your income is affected by a recession. Add up all of your current monthly expenses and reduce that amount from your monthly income to see if you can afford your present lifestyle. You’re living within your means if you still have money left over. If not, you should think about reducing your spending where you can.
- Reduce your current debt. If a recession strikes, the less debt you have, the better off you’ll be. You may find it difficult to pay your bills if your income is reducedor perhaps abolished. You’ll be setting yourself up for effective spending if you restrict your debt while you have the financial resources to do so.
- Have a backup plan in place for your investments. Regrettably, stock market downturns frequently accompany recessions. If you have a 401(k) or other sorts of market investments, make an emergency plan for what you’ll do if the market crashes due to a recession. Market volatility can be frightening, and planning beforehand might help you avoid making rash judgments if the market shifts. Seek guidance from a financial advisor to determine which plan is best for you.
- Look for a job that is “recession-proof.” While it isn’t simple, having a recession-proof job can help you relax if the economy starts to falter. There is no scientific definition of what industry is recession-proof, although vocations that supply critical services have historically had less of an impact when corporations reduce their workforce. Teaching, accounting, and medicine are just a few of the disciplines where essential occupations can be found.
During a recession, where do you put your money?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
During a recession, which budget is the best policy?
Expansionary fiscal policy boosts aggregate demand by increasing government expenditure or lowering tax rates. Expansionary policy can achieve this by: (1) increasing consumption by increasing disposable income through personal income tax or payroll tax cuts; (2) increasing investment spending by increasing after-tax profits through business tax cuts; and (3) increasing government purchases by increasing federal government spending on final goods and services and increasing federal grants to state and local governments to increase their final goods and services expenditures. Contractionary fiscal policy works in the other direction, lowering aggregate demand by reducing consumption, investment, and government spending, either through cuts in government spending or tax hikes. The aggregate demand/aggregate supply model is important for determining whether fiscal policy should be expansionary or contractionary.
Consider the situation in (Figure), which is similar to the economy in the United States during the recession of 2008-2009. As the LRAS curve shows, the intersection of aggregate demand (AD0) and aggregate supply (SRAS0) occurs below the level of potential GDP. A recession occurs when the equilibrium (E0) is reached, and unemployment rises. In this instance, expansionary fiscal policy, such as tax cuts or increases in government expenditure, might move aggregate demand to AD1, bringing output closer to full employment. Furthermore, the price level would return to the P1 level, which corresponds to potential GDP.
Is it wise to spend money during a downturn?
In a sluggish economy or a full-fledged recession, it’s wise to keep a close eye on your spending and avoid taking unnecessary risks that could jeopardize your financial goals. A recession can have a negative impact on your personal finances. You can weather the economic storm by being prepared and adopting a few basic steps to lower your risks. The following are some financial hazards that everyone should avoid during a recession.
During the Great Depression, who made money?
Chrysler responded to the financial crisis by slashing costs, increasing economy, and improving passenger comfort in its vehicles. While sales of higher-priced vehicles fell, those of Chrysler’s lower-cost Plymouth brand soared. According to Automotive News, Chrysler’s market share increased from 9% in 1929 to 24% in 1933, surpassing Ford as America’s second largest automobile manufacturer.
During the Great Depression, the following Americans benefited from clever investments, lucky timing, and entrepreneurial vision.
Where should you put your money to be safe?
Because all deposits made by consumers are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for bank accounts and the National Credit Union Administration (NCUA) for credit union accounts, savings accounts are a safe place to keep your money. Deposit insurance pays out $250,000 to each depositor, institution, and account ownership group. As a result, most consumers do not have to worry about their deposits being lost if their bank or credit union goes bankrupt. If you’ve received some additional cash as a result of an inheritance, a work bonus, or a profit from the sale of your home, you may be investigating other safe options for storing your funds in addition to a savings account.
Which investments are recession-resistant?
- Assets, companies, industries, and other organizations that are recession-proof do not lose value during a downturn.
- Gold, US Treasury bonds, and cash are examples of recession-proof assets, whereas alcohol and utilities are examples of recession-proof industries.
- The phrase is relative since even the most recession-proof assets or enterprises might suffer losses in the event of a prolonged downturn.
What should I put away in case of economic collapse?
Having a strong quantity of food storage is one of the best strategies to protect your household from economic volatility. In Venezuela, prices doubled every 19 days on average. It doesn’t take long for a loaf of bread to become unattainable at that pace of inflation. According to a BBC News report,
“Venezuelans are starving. Eight out of ten people polled in the country’s annual living conditions survey (Encovi 2017) stated they were eating less because they didn’t have enough food at home. Six out of ten people claimed they went to bed hungry because they couldn’t afford to eat.”
Shelf Stable Everyday Foods
When you are unable to purchase at the grocery store as you regularly do, having a supply of short-term shelf stable goods that you use every day will help reduce the impact. This is referred to as short-term food storage because, while these items are shelf-stable, they will not last as long as long-term staples. To successfully protect against hunger, you must have both.
Canned foods, boxed mixtures, prepared entrees, cold cereal, ketchup, and other similar things are suitable for short-term food preservation. Depending on the food, packaging, and storage circumstances, these foods will last anywhere from 1 to 7 years. Here’s where you can learn more about putting together a short-term supply of everyday meals.
Food takes up a lot of room, and finding a place to store it all while yet allowing for proper organization and rotation can be difficult. Check out some of our friends’ suggestions here.
Investing in food storage is a fantastic idea. Consider the case of hyperinflation in Venezuela, where goods prices have doubled every 19 days on average. That means that a case of six #10 cans of rolled oats purchased today for $24 would cost $12,582,912 in a year…amazing, huh? Above all, you’d have that case of rolled oats on hand to feed your family when food is scarce or prices are exorbitant.
Basic Non-Food Staples
Stock up on toilet paper, feminine hygiene products, shampoo, soaps, contact solution, and other items that you use on a daily basis. What kinds of non-food goods do you buy on a regular basis? This article on personal sanitation may provide you with some ideas for products to include on your shopping list.
Medication and First Aid Supplies
Do you have a chronic medical condition that requires you to take prescription medication? You might want to discuss your options with your doctor to see if you can come up with a plan to keep a little extra cash on hand. Most insurance policies will renew after 25 days. Use the 5-day buffer to your advantage and refill as soon as you’re eligible to build up a backup supply. Your doctor may also be ready to provide you with samples to aid in the development of your supply.
What over-the-counter drugs do you take on a regular basis? Make a back-up supply of over-the-counter pain pills, allergy drugs, cold and flu cures, or whatever other medications you think your family might need. It’s also a good idea to keep a supply of vitamin supplements on hand.
Prepare to treat minor injuries without the assistance of medical personnel. Maintain a well-stocked first-aid kit with all of the necessary equipment.
Make a point of prioritizing your health. Venezuelans are suffering significantly as a result of a lack of medical treatment. Exercise on a regular basis and eat a healthy diet. Get enough rest, fresh air, and sunlight. Keep up with your medical and dental appointments, as well as the other activities that promote health and resilience.
How can you get inflation under control?
- Governments can fight inflation by imposing wage and price limits, but this can lead to a recession and job losses.
- Governments can also use a contractionary monetary policy to combat inflation by limiting the money supply in an economy by raising interest rates and lowering bond prices.
- Another measure used by governments to limit inflation is reserve requirements, which are the amounts of money banks are legally required to have on hand to cover withdrawals.