It doesn’t make the idea of facing a recession any easier just because you know that all recessions have ended with even greater economic growth in the past. However, there are a few basic steps you can take right now to make your life recession-proof.
Build up an emergency fund
Most of us are undoubtedly aware that we should keep three to six months’ worth of living expenses in our emergency fund. However, when the economy is doing well, it’s easy to dismiss it as something you’ll eventually get around to.
However, as news of a recession develops, it’s a good idea to focus on your emergency fund. Unemployment is on the rise, and if you’re laid off for a few months, you’ll need to be able to access your savings.
Take a look at your income and expenses first. Make a list of your absolute necessities, or fixed costs. That’s most likely your rent or mortgage payment, as well as utilities, cell phone, internet, food, and insurance.
Add up your monthly spending and multiply by three, four, five, or six, depending on how many months’ worth of cushion you want to provide yourself.
Don’t be alarmed if the amount appears intimidating at first. Set a target of at least $1,000 in your savings account and start small with a recurring daily, weekly, or monthly payment. (According to research, automating our savings makes it much easier.)
Continue to raise your contribution if you’re able until you’ve saved enough money to cover three to six months’ worth of expenses.
Bonus: Look for high-yield savings accounts to help safeguard your money from inflation (the rate at which the cost of goods and services rises). These accounts can have interest rates that are 10 to 20 times greater than the national average of.09 percent, ensuring that your money retains its value over time.
Check your spending
Take a look at your entire expenditure as you sum up your expenses to estimate what your emergency fund should be. If you don’t have a budget in place currently, now is a good time to start.
Most experts propose a 50/30/20 budget, in which half of your money is spent on essentials, 30% on wants, and 20% on saving, investing, and debt repayment. A 50/30/20 strategy may be a smart place to start if you’ve never worked with a budget before. Envelope budgeting, zero-based budgeting, and pay-yourself-first budgeting are some more common budgeting methods. However, the strategy you use is less crucial than ensuring that your overall spending equals less than your monthly income and that you’re saving a healthy amount for retirement and other future requirements.
Look for easy places to cut back on your expenditure, starting with thoughtless spending. This might include anything from impulse purchases to unused recurring subscriptions. Many communities have mandated shelter-in-place, making it easier to save money on transportation, dining out, and entertainment. Just keep an eye on your take-out and internet shopping expenses.
Get ahead of any debt
If you owe money, now is the time to make payment arrangements. If your income falls short in the future, you’ll want to make sure you’ve limited or paid off your debts so they don’t pile up during a downturn. To begin, make a list of all of your debts, making sure to include the amount owed as well as the interest rate.
Snowball approach: The snowball method begins with the smallest debts and works its way up. While prioritizing based on amount rather than interest rate may result in you paying somewhat more in the long run, some people find it more enjoyable to rack up a lot of modest wins before pursuing larger loans.
The avalanche strategy involves focusing on your highest interest debt, like as credit card debt, and paying it off before moving on to the next highest interest loan. Though you may spend more time chipping away at larger amounts at first, you may save a little more money over time than if you targeted primarily on loan amount.
Maintain your regular investments
It may seem contradictory, but you don’t want to cease contributing to your investment accounts, whether they’re your 401(k), Individual Retirement Account (IRA), or taxable brokerage account, during a recession.
While investing in a downward-trending market might be stressful, it allows long-term investors to benefit from what are effectively sale pricing on stocks. Due to dollar-cost averaging, this can allow you to buy shares at fractions of their later values over time and pay less per share altogether.
Consider the following scenario: Assume you began investing $50 per month in an S&P 500 fund in March 2006, two years before the Great Recession ended. If you had left your money alone and continued to make regular $50 monthly donations, you would have amassed more than $12,000 by March 2018, providing dividends were reinvested. That’s a rise of nearly 70 percent, or $5,000, over the basic amount you invested.
You could believe that by moving your money out of the market at its peak and reinvesting it when it reaches its bottom, you can beat the system. However, market timing is notoriously difficult, and missing days when the market makes significant gains can severely limit your earnings.
According to one Schwab analysis, investors who withdrew their money out of the market and missed the top 10 days of trading saw their profits decline by almost half, to 4.5 percent, over a recent 20-year period.
Those that kept their money invested, on the other hand, experienced annual returns of around 8% on average.
It’s nearly difficult to time the market, but by contributing to your investing accounts on a regular basis, you’ll be in the best position to profit from any future upswings.
Refine and diversify your skill set
Unemployment is on the rise, which might lead to a vicious cycle of businesses laying off people, who then have less money to spend, causing more businesses to downsize (and then more workers to be let go).
However, a growing unemployment rate does not guarantee that all businesses would cease employing or expanding.
Look for possibilities to take on new duties at work now to improve your chances of keeping your existing employment. This can help you get increases or promotions in an up-trending market, but once things get tougher, it can make you indispensable at work.
Look for ways to diversify your income outside of your full-time employment, such as side hustles you may do from home that allow you to develop new skills and earn more money.
How can we prepare for the impending recession in 2020?
It’s critical to have emergency funds in place while you attempt to recession-proof your finances. Having an emergency fund can help you avoid a lot of worry during a recession. It can also assist you in avoiding getting financially overextended or relying on debt to get by. It is critical to save money.
To begin, save away 3 to 6 months of your basic living expenses in an emergency savings account in the event that you lose your job.
And, given the unpredictability of recessions, strive to increase your emergency reserves to 12 months of your basic living expenditures. T
This will give you plenty of time to look for a new employment. However, keep in mind that in a recession, jobs may be difficult to come by.
Remember that your fundamental living expenses are the necessities for survival: food, shelter, core utilities, and transportation. One of the most crucial stages in planning for a recession is to build an emergency fund.
Diversify your investments
Have you ever heard the phrase “don’t put all your eggs in one basket”? The same reasoning can be applied to your investments. Having a well-diversified investing portfolio is critical. That means you shouldn’t put all of your money into one stock or one piece of real estate.
You want to make sure your assets are dispersed over a variety of industries and places so that if one suffers a setback, your entire portfolio isn’t ruined.
If you invest in the stock market, for example, you can diversify your portfolio by investing in consumer goods, healthcare, technology, and so on.
Both mutual funds and index funds are excellent diversifiers. You can also put your money into the stock market (funds and bonds), real estate, or small enterprises.
Whatever you decide to invest in, make sure you do your homework, are clear on your investment goals, and are aware of your risk tolerance. If a recession occurs, you will experience less anxiety as a result of this.
When the economy slumps, many people make the mistake of selling all of their investments. This is a terrible plan.
You’re in good shape if you have a clear investment strategy and want to stick with it for the long haul. Your investment is likely to outperform the market in a downturn.
If you’re unsure about what to do, seek the advice of a financial counselor. Diversify your investments properly to prepare for a recession.
Pay off debt
In a tough economy, the last thing you want to worry about is having to pay off debt, especially with rising unemployment rates.
You will save a lot of money in interest payments if you pay off your debt. In addition, you’ll be able to put your additional money toward emergency savings and other financial goals.
Prior to increasing your investment portfolio, it’s a smart idea to focus on paying off your high-interest debt. This is because, if you have high-interest debt, your interest payments may greatly outweigh your investment return.
If you have a credit card with a 19 percent interest rate, for example, it makes more sense to pay it off as soon as possible, given that the typical long-term rate of return on the stock market is 8% to 10%. Your rate of return might obviously be considerably higher, but you should avoid speculating or attempting to timing the market.
Once your debt is paid off, you may concentrate on increasing your investment portfolio. Learn more about how to make a sensible debt repayment plan and how to invest.
Learn how to budget and live within your means
The secret to accumulating wealth is to live within your means. It also means you won’t have to rely on debt to get by in lifeno more paying bills using credit cards.
Do you want to know how to prepare for a recession while staying within your budget? Learn how to budget and which budgeting method is most effective for you. Your budget will help you keep track of your costs in relation to your income and identify areas where you can save money.
Your ultimate goal should be to make as much of a difference as possible between your income and expenses. This is accomplished by growing your income while decreasing your expenses. You can put the money you have left over toward items that are important to you, such as your savings and investing goals.
Create multiple streams of income
For good reason, the average millionaire has seven streams of income. Having various sources of income guarantees that you have more money flowing in. It also serves as a safety net in the event that you lose a source of income.
Is there something you’re very enthusiastic about? Is there something you do that you are always praised on? Consider turning it into a second business to supplement your income. You might also consider a number of recession-proof enterprises.
Live on one income and save the other
Shifting to one income and saving the other is one of the smartest financial actions you can do to prepare for a recession. Getting more thrifty with your budget and lowering your spending can help you save a lot of money for a rainy day.
The idea is to lower your living expenses to the point where the second salary is no longer needed. In the event of a job loss, you will increase your emergency savings and not rely on a second source of income. The greatest approach to prepare for the unexpected is to live within your means.
Consider a recession-proof job
Consider a recession-proof job as another strategy to prepare for a downturn. Even during a recession, healthcare personnel, teachers, and pharmacists are in high demand. Expanding your skill set is beneficial to your job stability, especially if you work remotely.
More than ever, companies are shifting to remote roles. Why not establish your own home-based business now that work-from-home employment are on the rise? You may make a good living doing a variety of different jobs from the comfort of your own home.
How can I get ready for the next economic downturn?
Let’s clarify what an economic collapse is before we develop your economic collapse readiness checklist. Everyone’s definition is different, and what you should do about it is influenced by your definition.
What would life be like if the stock market plummeted 50%? What would be the reason behind this? How long would the economic downturn last? During this situation, where would you live, work, and send your children to school?
Equities of all kinds took a pounding during the Great Recession of 2008. I had been dollar-cost averaging a portion of my monthly company income into US mutual funds up until that point, assuming it was all I needed to succeed.
During the recession, I discovered that US mutual funds alone do not provide adequate diversification. Real estate values were also falling at the time, so there was nowhere to hide.
While many markets were hit hard by the recession, frontier markets like Cambodia actually grew. As the economy rebounded, precious metals skyrocketed, and foreign currencies outperformed the US dollar for years to come.
Your financial crisis action plan is determined by your unique demands, such as monthly bills, debt levels, and where you intend to reside.
Here are some ideas that any successful entrepreneur or investor may use to help avoid the next financial disaster.
In a downturn, how can you keep your money safe?
Here are three financial suggestions to help you weather the storm:
- Keep an eye on your debt. Reduce your current debt as much as possible and avoid adding to it.
- Make an emergency fund for yourself. You never know when a financial downturn will strike.
Which companies are recession-proof?
Businesses that are recession-proof are the only ones that are relatively undamaged during a downturn. They are perfect industries for meeting people’s basic needs, whether in the form of a service or a product. Despite being financially strained, consumers’ needs are continually directed to their trade, so they will likely thrive and withstand the effects of the crisis.
Take, for example, Disney. During the Great Depression, the company was created. The Disney brothers realized that America needed to be cheered up again in a moment of terrible despair. They were able to expand their firm as a result of this chance, and they were able to overcome the recession’s problems.
As a result, in current downturn, every individual, business, and investment should reevaluate and seek sanctuary in the so-called recession-proof industry.
The nine finest recession-proof enterprises for surviving this critical moment are listed below, in no particular order.
Grocery and Food Stores
In an economic downturn, the food business and grocery stores, unsurprisingly, thrive. During a recession, profits in grocery stores, fast food restaurants, and retail establishments stay relatively stable.
A good example is the frozen meal and coffee industry. Frozen food manufacturers should anticipate a 4.8 percent increase in total sales. The retail coffee market, on the other hand, expanded by 6%, a significant increase over the initial prediction of only 2%. No crisis, not even the apocalypse, is likely to stop people from eating and drinking.
However, this industry may still be vulnerable to the recession’s consequences. During the past recession, each household’s food consumption fell by 7%, possibly because customers were more likely to buy on sale or hunt for cheaper alternatives in order to save money. However, the reality is that consumers can only cut their food spending so much.
Consumers’ eating habits are stimulated and increased in times of crisis, which is interesting. When people are worried, they crave and eat more, especially sweets and alcohol. During the Great Depression, Snickers and Mars chocolate bars were created. Cadbury chocolate sales have reportedly increased by 30% in tandem with McDonald’s amazing business development during the 2008 recession. As a result, the food industry is one of the most recession-resistant industries.
Accounting and Tax Services
It must be so tempting to avoid paying those taxes! Regardless of whether there is a recession or not, taxes must be paid on time or face the repercussions.
What’s even worse is for an individual or a corporation to attempt bookkeeping on their own in the hopes of saving money. While it appears to be a quick gain, there is a lot of danger involved, and incorrect calculations could backfire and cause more problems down the road.
Entrusting a trained accountant to deliver the work while you focus on and target revenues is a prudent decision to make, especially during difficult circumstances.
Accounting firms are another business area that thrives during economic downturns. It’s extremely important for firms to have a robust accounting and bookkeeping system in place during recessions.
In times of slowing economic development, a company’s initial instinct will be to decrease costs and balance its books. When cash flow is limited, many businesses will want accounting assistance. When a business is in trouble, an accountant’s skills are needed to review spending, manage remaining resources, and offer sensible advise on how to resolve financial issues.
Unfortunately, most business owners are unaware of their tax obligations. Accounting assistance will be able to tell you where these tax benefits can help you. More importantly, these experts will assist a person in navigating and comprehending the latest adjustments in company regulations brought on by the COVID-19 pandemic. When an economic downturn strikes, it’s critical to rely on accounting help.
Financial Advisors
Have you noticed that a growing number of financial advisors and money managers are emerging from the shadows recently? The most basic explanation is that they’re in the business of providing services that people will require as the market falls. To put it frankly, their work was designed specifically for current economic downturn.
Investors and rich individuals, like business owners, want to protect their assets and ensure that they are well cared for during difficult times.
It’s only normal for us to be concerned and defensive with our resources during a downturn in the economy. Financial advisors frequently advance at this phase because their profession is in high demand. Their sound guidance will inform investors about the various types of investment accounts available.
Information Technology
I.T. jobs are unquestionably the most in-demand profession in today’s age of technical breakthroughs. Its major task is to promote innovation, which leads to business success. In reality, one of the causes for high traffic online is the present recession, which has resulted in an increase in sales.
Every department in the business world relies on information technology to improve their work procedures and strategies. A company can’t function without information technology. During this epidemic, the information technology industry has shown a lot of potential for enterprises, especially now that the work-from-home experience is widely accepted. More businesses are allowing employees to work from home.
In addition, information technology is one of the key factors that has contributed to the expansion of international trade and the market. Businesses that engage in linked assets and exploit information technology get closer to the international market, perhaps growing sales despite the recession.
We’ll even go so far as to argue that, in order to increase efficiency, every industry today will need to include information technology. Their service has shown to be beneficial to businesses. Businesses that refuse to adapt to technological improvements face a gloomy future. There are many reasons why information technology is regarded as the world’s fastest-growing industry. Their services are required today and will continue to be required in the future.
Telecommunications
The telecom business, like information technology, is here to stay, regardless of the economy. The COVID-19 crisis’ ramifications only served to highlight the industry’s current prominence.
To communicate online, people need their phones, among other things. As a result, the industry became inextricably linked to the global economy. People are interested in learning how to talk naturally in the local language of their clients as a result of the globalization of consumers. Furthermore, as the telecom industry has innovated, online enterprises have thrived alongside it.
Many people have been able to make money and learn new skills without having to leave their homes thanks to the online sector. People can also sell products online because of this sector.
Furthermore, the pandemic prompted universities to follow suit. Since the implementation of social distance, telecommunication has become a prerequisite in educational institutions, along with the instantaneous rise of study materials.
Despite the fact that some consumers have lowered their units, telecoms sales continue to grow, indicating that they are one of the most recession-proof industries. Even before the pandemic, the sector had demonstrated its efficacy, and it will undoubtedly play a key part in the current global catastrophe.
Healthcare Services and Providers
Someone will become unwell every now and then. When people are sick, they will always seek medical help, even if their funds are limited. Because of its price inelasticity, the healthcare industry might be considered recession-proof.
Clinical institutions and medical occupations are among the few industries that are unaffected by economic downturns. In a down economy, this company is unlikely to slash costs.
For example, during the Great Recession, the Occupational Employment Statistics (OES) assessed nurse employment in the United States. Focusing on the recessionary years of 2007 to 2010, the study found that, despite a nationwide job loss of roughly 7,257,090 million jobs, nurse employment increased by 7.6% over the same period.
Healthcare and food (discussed before) are two key industries that can thrive during a downturn. We’ve even seen the public health response to the COVID-19 outbreak today, and how healthcare providers play a key role in the midst of unprecedented financial instability.
However, due to the unique circumstances and emergencies brought on by the pandemic, several medical industries, such as surgeries, were forced to close and were unable to thrive in comparison to past recessions. Furthermore, we thank our COVID-19 front-line fighters, particularly doctors and nurses on the front lines, who are valiantly fighting the virus today.
Auto Maintenance and Utility Services
During recessions, companies that focus on utilities, repair, and maintenance will likely survive and prosper. People are even returning to do-it-yourself crafts and mending items on their own. Some fixes, however, are simply beyond our control. This is where the service industry comes into play.
Things will eventually fall down as time passes. The so-called wear and tear elements on autos will require special attention. Plumbers will need to inspect a leak in water pipelines for utilities. During times of adversity, the services provided by these handymen remain unaffected. This is also true of companies who sell tools and materials for home and car improvement.
Furthermore, as the current epidemic continues to spread around the world, coronavirus cleaning and disinfection services are gaining popularity as they become more valuable to businesses and residences affected by the outbreak.
During a period of considerable uncertainty, utility services remained afloat and continued to operate alongside the influx of new cleaning-related enterprises. The simple reason for this phenomena is that such services are already considered important by the general public, particularly in light of the current global health crisis.
The bottom conclusion is that, as a result of the pandemic, everyone appears to be more aware of and concerned about hygiene. As a result, demand for cleaning equipment and commercial cleaning services increased dramatically. Cleaning is unquestionably one of the few industries that thrived throughout the COVID-19 era.
Children’s Goods and Dating Industry
The necessities for a baby, such as diapers, milk, and bottles, are virtually recession-proof. You must provide for your child regardless of your financial status when you are raising a child. As a result, firms that sell infant and childcare supplies can weather a downturn and rarely fail.
For the sake of their children’s health, parents are now compelled to confine them within their houses. The times have changed, and many parents are left to instruct and entertain their children on their own. As a result of the pandemic’s consequences, the number of purchases of children’s books, games, and crafts increased dramatically.
Even children’s toys and clothing are recession-resistant for both practical and emotional reasons. Shortly after the epidemic began, total sales of children’s toys in the United States increased by 27%. Parents can’t deny the reality that their children grow up quickly, necessitating the purchase of larger clothing and shoes. And, while a toy is only a “wish,” parents will require it to calm their children.
Parents frequently prefer to save money in other areas rather than sacrificing their children’s necessities.
Another consequence of the COVID-19 pandemic today is disturbed family planning, which leads to unwanted pregnancies, as a result of long-term lockdowns and community quarantine. As a result, while starting a recession-proof firm, childcare items cannot be disregarded.
On that topic, the pandemic outbreak has shown the corporate world that the dating industry is still thriving and recession-proof.
Courier Services
This is what sets courier services apart from other companies. With the rise of e-commerce during this epidemic, freight and logistics companies are well-positioned and unfazed in today’s global market.
Industries that provide delivery services, such maintenance and utility services, are able to stay afloat during recessions. During today’s crisis, social distancing established around the world had a good impact on the freight business. Even routine errands such as grocery shopping are now available through delivery services. Of course, this means that the industry will have to adjust to the pandemic’s changes.
However, the sector has become sufficiently diverse to reap significant benefits and profit from internet transactions. Furthermore, shipping behemoths may save millions by leveraging fuel, a commodity that often falls in price during economic downturns.
Regardless of the state of the economy, courier services will continue to thrive since consumers will need to send items from time to time, whether for personal or business reasons. Being able to function and provide that one-of-a-kind kind of support to customers makes them less vulnerable to economic downturns. Furthermore, their ability to target both the business-to-customer (BTC) and business-to-business (BTB) industries qualifies them as one of the most recession-proof companies.
In a crisis, what is the best asset to own?
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, what happens to your money at the bank?
Benda said the rapid outflow of withdrawals has subsided, but he expects them to resume once people receive their stimulus checks from the federal government. “If another spike happens, the system has a lot of spare capacity,” he said.
He did warn, though, that people’s stimulus money is probably safer in the bank: “Once that money leaves the bank… there’s no insurance on it.” He warned, “You could get robbed.” “Robbing a bank is far more difficult than robbing a person.”
The FDIC, which was established in 1933 after the Wall Street crisis of 1929 and the advent of the Great Depression saw thousands of banks fail, is a major cause for this. Since the FDIC’s inception, no depositor has ever lost a penny of the money it protects.
The bank is a safe place for your money, even if it fails
The 2008 financial crisis began in the financial sector and spread throughout the economy. This time, the crisis is originating in the broader economy, with businesses closing and millions of Americans losing their jobs, and then spreading to the banking sector.
The government is taking steps to ensure that banks have the funds they require right now, and banks are better capitalized this time around than they were the last time, which means they are better financially prepared to weather the storm. Banks are also encouraged to use the Federal Reserve’s “discount window” to obtain loans if they require them in order to continue lending to individuals and businesses. The Federal Reserve reported last month that the largest financial institutions have $1.3 trillion in common equity and $2.9 trillion in high-quality liquid assets. This was essentially a reassurance that the banks are fine, that they have access to a large amount of cash if they need it, and that the central bank will assist them if things go much worse.
Even still, banks, like the rest of the economy, are suffering right now. However, if your bank fails, your money isn’t lost, as long as it’s insured by the FDIC.
“If your bank fails for whatever reason, the government takes it over” (banks do not go into bankruptcy). In an email, Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets, stated that “this is frequently done on a Friday night, and by Monday morning your local branch is operating again, often as if nothing happened from the depositor’s point of view.” “In most cases, the FDIC seeks to locate a new bank to buy the failed bank (or at least its accounts), and your money is automatically transferred to the new bank (just as if they had merged).” If not, the FDIC will continue to operate your old bank under a new name until they can find a new bank to take over your accounts.”
For example, in early April, the FDIC shuttered the First State Bank of Barboursville, a tiny bank in West Virginia. MVB Bank has taken over its deposits, and the bank’s branches will reopen as well. As a result, those who had previously banked with First State Bank have switched to MVB.
In a recession, do housing prices fall?
Most markets, including real estate markets, experience price declines during recessions. Due to the current economic climate, there may be fewer homebuyers with disposable income. Home prices decline as demand falls, and real estate revenue remains stagnant. This is merely a general rule of thumb, and home values may not necessarily fall during real-world recessions, or they may fluctuate in both directions.
What industries are the most recession-proof?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.