Recession-Proof Your Life: How to Thrive During Difficult Times

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Recession-proof refers to entities or individuals that do not decline in value during a recession, ergo weather economic downturn better than everyone else.

More and more people are now worried about what their financial situation will look like a year – or even a few months – from now. There is so much concern about the economy going around and it’s reasonable to be worried about a potential recession.

How Does A Recession Impact You?

A recession is an extreme economic slowdown which may lead to job loss or issues with employment. This means that you could completely lose your income, or have financial incentives taken away at work – that is bonuses, reduced compensation, and more). During times of extreme economic slowdown, companies have to adjust to a decrease in consumer spending, that is fewer sales.

Therefore, you need to start preparing now so that you’re in the best position with your money to withstand the downturn. Whether for business or personal finances, things will get more challenging and money might be harder to come by. As such, there will be less cash to fund your day-to-day. Surviving this downturn requires deft financial management, or else you’ll crash and have a hard time recovering when the economy comes around.

Related: 5 Ways You Can Financially Prepare For A Recession

How Do You Survive A Recession?

In order to survive a recession, I believe there is only one rule – Don’t run out of money. Structuring your personal finances, in such a way that enables you to remain liquid or have access to cash during an economic downturn is the best way to recession-proof your life and secure your future.

Let’s break this down.

1. Prepare For Lower Income or No Income

Periods of economic downturns do not tend to last forever and therefore are weatherable. You might lose your job or earn less for a period. You might have lower revenues coming into your business. Therefore, it’s important to consider all these possibilities and recession-proof your field.

Here are a few things you should start doing:

A. Build a 12 -24 month emergency fund

In a stable economy, it is recommended to have funds stashed for six months, however, times are different. You must have a sizeable amount worth 12 to 24 months of money stashed away for a rainy day. Use this time to build your fund just in case you need it. An emergency fund is one of the main tools in your financial toolbox and it’s mandatory to have one.

B. Minimize high-interest debt

In order to secure your future, try to reduce the amount of debt you hold. The more obligation you have, the more cash you need to make your interest and principal payment. When a recession hits and less money comes in, it puts you at risk of defaulting. In order to survive you will be forced to make deep cuts which hamper your financial goals. Debt limits your options and forces your hand, leaving you very little room to act opportunistically.

C. Prepare to borrow money

People tend to borrow more to get through difficult times – and that’s okay. But then interest rates are high, lenders will take a hard look at your capacity to repay. This will make it more difficult for you, if not more expensive for you to borrow. Therefore, make payments on time, keep balances low and try to pay down your high-interest debts now. These are the most important factors that will increase your chances later on.

2. Look for Ways to Cut Costs

When the going gets tough, the tough get going. While there’s nothing glamourous about going through financial struggles, there are still creative ways you can employ to save money to prepare yourself financially.

Here are a few things you can consider:

A. Delay major purchases

Consider putting off getting a new car or purchasing that double-door fridge for instance. You’ll need all the cash you have to weather things out.

B. Buy in bulk if you can afford to

Anything that is a cost-saving today that you’ll need and use in the future will save you even more money later, especially now that inflation continues to plague us. Consider stocking up on non-perishable staples like toilet paper, toothpaste or even soap which make a great bulk purchase.

C. Buy from switching brands or buying generic brands

There are numerous items that can be purchased at a lower cost and generally offer virtually the same utility as cooking oil, toilet paper, drinking water and more.

D. Cut Out Some Fixed Cost

You might want to consider getting rid of some fixed costs that may not completely be a priority for you. For instance, a streaming service or any other subscription service that you might rarely use.

3. Try to diversify your income

The riskiest thing you can do during a recession is to rely on one source of income. If your business or job isn’t in a recession-proof industry, consider getting a side hustle or look into diversifying your income so that you have few sources to rely on.

Here are a few things you might want to consider to create additional sources of income:

  • Side Hustles through gig apps like Uber and other car-hailing services, Upwork and other freelancing marketplaces, Airbnb or have your own independent service renting out your property (or vacant room in your home) etc.
  • Vehicle leasing to car leasing companies is another way to make a predictable stream of income.

4. Don’t panic with your investments

While many investors may choose to liquidate their investments to have cash, think twice before selling off your investments. The aim of the aforementioned things you need to get done is to that you do not have to make this decision in order to survive.

Additionally, even though you see your portfolio going down in value day by the day, it’s going to be tempting to sell everything to liquidate. The problem with this is that you’re likely selling at a loss and recessions are short-lived. Does it make sense to get rid of your investments due to fear or temporary uncertainty? If you believed in the investments you made in the beginning, you do not want to make rash decisions that might cause you a serious financial setback.

Therefore do not buy into the fear that is being peddled. During times of uncertainty, there is a lot of volatility in the market and any news leads to immediate reactions which you shouldn’t partake of. Therefore, if you really do not need the money to cater for your short-term expenses, do not panic. If you do, you will lose out on astronomical gains when the market turns around.

Should you still invest during a Recession?

A recession is a normal part of the economic cycle, and therefore it’s not a valid excuse for not investing your money. There are industries that are recession-proof, namely those in consumer staples, utilities and health care for instance and they are the ones you should be buying. Not all industries are badly affected by the economic downturn. In fact, there are those that thrive during tough economic times.

If you are afraid, consider investing in well-established, well-known businesses in the aforementioned industries. Make smart, unemotional decisions and consider protecting your gains while reducing losses with your investment portfolio. That is the only way you will survive and come out winning when the economy turns around.

Related: How to Invest in Uncertain Times

Conclusion: Don’t panic — recessions don’t last forever

I believe that a recession is coming and things will be mighty tough. The good news is that things will get better. Therefore, let’s not panic and be recession-proof. Let’s do whatever we can to prepare our finances for more dire straits ahead. If perchance, we avoid a recession, your financial position will be better off and ready for your thoughtful considerations for the next decade or more.

A recession-proof financial situation will enable you to thrive and keep ahead curve during economic expansion.

Image Credits: Top by Leeloo Thefirst via Pexels

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.

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