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Would you know how to survive a recession if one hit?
Where I live, we have to plan for hurricane season every year. There’s a checklist of things you’re supposed to do to get ready just in case the worst happens.
Planning for a recession is kind of the same way.
You hope you never have to deal with one but you want to be prepared if one happens. The more prepared you are for a recession, the better your odds of staying afloat financially.
What Is a Recession, Anyway?
Now, if you’ve never been through a recession, you might be wondering what the heck I’m even talking about.
Here’s how the National Bureau of Economic Research (NBER) defines it:
“Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
Sounds confusing but here’s what it means: the economy slows down. And not just for a day but for several months.
In the worst-case scenario, a recession can last years. The Great Recession, for example, stretched from 2007 to 2009.
That one was a real doozy. Even now, nearly half of Americans say they’ve seen no improvement in their finances since it hit.
So why is a recession not a great thing? Well, here are some things that can happy when the economy gets wobbly:
- Finding a job can get a lot harder.
- Employers cut back on things like pay raises and promotions.
- Banks make it harder to borrow money.
- Your investments might lose value.
- Prices on some things can go up.
- You might earn less interest on your savings.
Yeah, so none of that is exactly great news. But there’s a silver lining.
There are things you can do to recession-proof your finances if you’re worried about the economy taking a turn.
And it just so happens, I’ve got some practical tips to help you do it. Let’s dig in!
7 Smart Money Tips for How to Survive a Recession
1. Review your budget and spending
If you’re not already living on a budget then now might be a good time to give it a try.
I promise it’s not painful and it can come in handy when you need to know how to survive a recession. If you don’t know where to start, check out this detailed make a budget guide.
Once you’ve got your budget done, take a good look at what you’re spending now every month.
(And give this post on why you should track your spending a look if you’re not keeping an eye on your expenses.)
The next step is simple:
Ditch expenses you don’t need.
There’s a great tool you can use for that. The Trim Financial Manager can:
- Help wipe out pricey bank fees.
- Cancel unwanted subscriptions.
- Renegotiate your bills so you pay less.
- If you’re already using Trim, then you know what’s great about it. And if you’re not, head here to sign up and give it a try!
Aside from cutting out unnecessary expenses, you can also look for ways to save money when you spend.
Use cashback and coupon apps to grow savings
In a nutshell, these sites pay you real cash to shop like you normally would. If you’re looking for some cashback and coupon apps to try, here are my favorite picks:
The Ibotta app pays you cash back when you shop at 275 supported stores. You shop, snap a photo of your receipt, upload it to the app and boom–get cashback! Or you can link your store loyalty cards to earn cash back instantly when you shop.
With Rakuten, you can earn cashback when you shop in-store or online. When you download the Chrome browser extension, you can also get exclusive coupon codes to go along with your cashback to save even more money.
Drop is another cashback portal. You browse deals through the site, shop with your credit card and earn cashback. Super simple and an easy way to stack cash back you earn with your credit card.
Honey is another browser extension tool you can use to save when you shop online. You can automatically apply coupons at partner merchants. Honey even helps you find the best price when you shop at Amazon.
The Dosh app is an easy way to earn cashback. You link a debit or credit card to the app, spend at partner stores and restaurants and get up to 10% back.
They’re all free to sign up for and use and you can try one or all of them to save money and get cash back.
Rakuten will even give you an extra $10 right now just for creating a new account. So go grab your free cash!
2. Pay down your debt
Being in debt is no fun, especially if you’re serious about surviving a recession.
All the money experts I’ve interviewed over the years more or less favor the same strategies for paying off debt:
- Get rid of high-interest debt first, since it usually costs you the most money.
- Pay off “bad” debt (like credit cards) before “good” debt (like a mortgage).
- Don’t add any new debt, while you’re trying to pay off debt.
- Cut up your credit cards and/or close your accounts.
I agree with most of those, although closing your credit cards when you still have a balance isn’t great for your credit score.
If you’re worried about how to survive a recession, you might focus on getting rid of the debt that’s costing you the most money in interest or fees first. Or you could pay off the one that’s most annoying or keeps you up at night.
What’s more important in my book is committing to the debt payoff.
But if you’re looking for some simple debt payoff strategies, try these tips:
- Go over your budget to look for extra money you can pay toward your debt.
- List your debts in the order you want to pay them off.
- Work out a timeframe for paying off each debt, based on how much you’re paying monthly.
- Consider paying biweekly if you can to cut down on interest and finance charges.
- Try automating debt payments for student loans or car loans if the lender offers an autopay discount.
3. Beef up your savings account
Having money in the bank is always good. But you might be extra glad to have some spare cash in a recession.
Because one thing that can happen when the economy shrinks is companies start cutting jobs.
If your job (or your spouse’s) gets eliminated or there’s a cutback in hours, then your household income could shrink. Cash savings can help you get through leaner times if your income dips.
So how much savings should you have when you’re planning for how to survive a recession?
The answer is different for everyone.
A single person with minimal expenses might need a lot less than a family of four that’s got a mortgage and growing kids.
Most of the time, financial experts say you should have 3 to 6 months of expenses saved just for emergencies. The 2008 financial crisis was a great example of why that still might not be enough.
Ultimately, your savings number should be based on your financial situation. So look at:
- How many people you’re responsible for financially.
- Your total household income.
- What you spend each month and how much you could realistically cut your budget if needed.
- Your job security.
I have well over a year’s worth of expenses saved. But being self-employed as a freelance writer, I’m not taking any chances.
One more tip about how to survive a recession with savings: keep your money in the right place.
- A liquid account you can get to quickly if you need to.
- Ideally, a savings account that earns a great interest rate.
- A bank or financial institution that’s FDIC-insured.
Online banks can deliver all three. If you’re shopping for a place to grow your money, take a look at my review of CIT Bank’s savings options.
They pay stellar rates on savings, money market and CD accounts with no fees. And you can open your account with just $100.
4. Pay attention to interest rates
So, when you think about interest rates and how to survive a recession, there are two things to look at:
- The rates you’re earning on savings.
- The rates you’re paying on debt.
In a recession, interest rates tend to go down. The Federal Reserve, which sets interest rate policy, can lower rates to try to encourage people to borrow money.
So, the upside of that is that if you want to buy a home, for example, and you have the cash to do it then you could get a great deal on a rate.
The other advantage is if you’re trying to refinance the debt you already have.
Say you have some private student loans, for example. If rates go down and you have a good credit score, you could try to refinance your loans to get a better rate.
(And if you don’t know your credit score, you can check it for free at Credit Sesame. This is the service I use to monitor my credit.)
The other side of interest rates is what you’re earning on savings.
If you’ve been keeping your money at a traditional bank and getting a rate like 0.01% (which is what a lot of big banks pay) a rate drop isn’t going to help you.
Moving your savings to a bank with better rates isn’t as much of a hassle as you might think. So it’s something to consider if you’re trying to earn as much interest as possible.
5. Look over your investments
If you want to grow your money, then that means it investing some of it.
The trouble with how to survive a recession with your portfolio intact is that stocks can be unpredictable.
That doesn’t mean you should bail out of your investments if you’re worried about how to survive a recession. But you should know where your money is and what you own.
There’s something called diversification that’s important for investing. This means not putting all of your eggs in one basket.
So you wouldn’t want your entire portfolio to be just one stock or be focused on just one sector. Because if that investment takes a hit you don’t have anything to balance it out.
A financial advisor can help you decide where and what to invest in to recession-proof your portfolio.
If you don’t have the cash to pay an advisor or you haven’t even started investing yet, then you might want to try a micro-investing app like Acorns.
Acorns lets you build a portfolio of exchange-traded funds with your spare change. You connect your debit or credit card and the app rounds up your transactions, then uses those round-ups to invest.
You can start investing with as little as $5. Acorns will even spot you your first $5 bucks when you sign up for a new account so give it a try!
6. Reevaluate your financial goals
I love setting goals with my money. But when a recession comes along, you might have to rethink your financial goals.
Because for a lot of people, how to survive a recession comes down to how you prioritize your money.
So, when money is tight your list might look something like this:
- Pay your essential household bills first.
- Cover basic needs, like food and clothing.
- Add a little something to emergency savings every month.
- Pay at least the minimums on your debt each month.
If you’re not feeling the squeeze quite as much from a recession, then you could go back to your goals and see where you can add those in.
For example, you might want to keep investing and saving for retirement. So your goal may be to just keep saving the minimum to get the employer match in your 401(k) or adding $100 a month to an IRA.
When you’re looking at your financial goals against the backdrop of a potential recession, make sure they’re realistic.
And be prepared to have a backup plan in case your money situation changes and you need to adjust your goal focus.
7. Find new ways to make money
One of the best things you can do money-wise when figuring out how to survive a recession is looking for ways to boost your income.
Depending on where you are in your career, that could mean asking for a promotion or raise. Moving to another company that offers better pay might be an option or getting a part-time job.
I personally prefer to make money independent of an employer. It’s why I run a business online.
You could start a business, too but that can take a lot of time and energy. So a side hustle might be better if you already have a full-time job or you’re a busy stay at home mom who wants to make some extra cash.
Here are a few of my favorite ways to make money in your spare time:
- Become a pet sitter with Rover
- Get paid to take surveys
- Get paid to write online
- Start a money-making blog
- Earn money for losing weight
- Create and sell an online course
- Get paid to teach on Outschool
- Become a virtual assistant
- Learn to proofread
- Earn gift cards when you shop
The possibilities are endless so put your thinking cap on and consider how you can make money, either online or off.
Are You Recession-Proofing Your Finances?
The thing about recessions is that they’re not always predictable.
But being prepared financially is something you’ll be glad about if the economy does slow down.
Are you doing anything differently with your money or do you have a tip for how to survive a recession?
Head to the comments and tell me about it, then pin and share this post if it helped you!