Globally, nations are falling into economic recessions because of the coronavirus, and the United States is no exception. Most financial experts agree, if we’re not already in a recession, we are headed toward one.
Recessions can feel anxiety inducing. This blow is especially painful because it took years for many people to recover from the Great Recession, which occurred just over a decade ago. But while no one can really predict how long it will last, preparing your finances can make it less painful.
Here’s how to survive a recession, from beginning to end:
What to Do Now
At the first sign of an economic downturn, take these steps:
Shore up your income
If you’ve been laid off, sign up for unemployment and any supplementary sources of income. For example, you may be eligible for unemployment insurance right now, even if you were a contractor or freelancer. You may also qualify for the Supplemental Nutrition Assistance Program, or SNAP, to help with the cost of food. Research and apply for every program you think you qualify for. The worse the recession gets, the more people will be filing claims, so do this right away.
Go through your expenses with a fine-tooth comb. Cut everything except essentials, which include your rent/mortgage, utilities, groceries and debt payments. Look ahead to expenses that will come up during the next couple of months — think car registration, health insurance premiums and other important costs — so you can put some money aside for those as well. Then eliminate all other expenses, so you can put as much money as possible into a savings account.
Think about any plans you’ve made for the second half of the year, and evaluate whether they are feasible, both logistically and financially. Maybe you were planning to do a reunion weekend with some close friends or committed to meeting your family somewhere warm to celebrate the holidays. If money is tight because of the pandemic, you may want to postpone until next year, when travel is a little easier and more affordable. Canceling now could also prevent you from losing money on travel and event tickets, along with other trip-related purchases, if more lockdowns occur.
The first step in learning how to survive a recession is cutting back on all your discretionary spending, which unfortunately means making tough decisions. But you’ll be relieved when you have more money on hand during a downturn.
What to do in the coming months
Once you’ve got an immediate plan in place, start looking toward the future. While some recessions are relatively short-lived, you want to be as prepared as possible to weather several months of downturn. Ask yourself these questions:
What should you do with your money before a recession?
Number one: Build up your emergency savings. The golden rule with emergency funds is to have enough stashed away to cover three to six months’ worth of expenses. No one expects you to stockpile that kind of cash overnight, but you should save whatever you can in the coming weeks and months.
What happens to savings in a recession?
In the best-case scenario, you won’t need your savings in a recession. You’ll maintain enough working hours to cover your expenses and you can hang onto your stockpile.
The next best-case scenario is that you’ll need to draw on some of your savings, but you won’t empty the account. If you receive state and federal unemployment benefits and are eligible for other types of financial assistance, you may be able to supplement that income with your savings.
However, depending what your expenses and obligations are, you may need to live off your savings for a while. That’s why it’s so important to trim your budget now, so you can stretch those dollars for as long as possible.
How will I survive if I lose my job?
Layoffs are an unfortunate part of recessions. Hopefully, it won’t impact you personally, but you can give yourself peace of mind by planning ahead.
First, beef up your resume and update your online presence on sites like LinkedIn. Keeping that information up to date will make it easier to apply for jobs should you need to.
Once your resume is in order, research part time and short-term jobs you could work while you look for another position in your industry. If you do end up getting laid off and you don’t have a large emergency fund to fall back on, gig economy jobs like delivery services and rideshare can help you earn quick cash. You can also find part time jobs in retail, delivery and many other industries (many large corporations have hired through the early phases of the pandemic).
How to Survive a Recession: Think Long Term
You can survive, and even thrive, in the face of economic downturn. Here’s how to stay focused:
Have a monthly maintenance plan
Schedule monthly (or more frequent) budget reviews to see how much you’re spending. Are you sticking to your plan or have nonessential expenses crept in?
Recessions are tough mentally, and this one will be compounded by the fear and uncertainty surrounding the pandemic. The combined stressors may cause you to overspend on things like comfort food, takeout, or online shopping orders to cope. While those might feel good in the moment, they’ll only add to your stress by straining your finances.
Look for free and more enriching ways to deal with these times, such as calling a friend you haven’t talked to in a while, borrowing a book through a library app or trying out a new exercise routine. You can also try getting creative in the kitchen by coming up with new recipes based solely on what’s in the pantry to keep your grocery bill to a minimum.
Focus on small wins
Recessions are difficult times to take control of your finances, but you can still make progress. Rather than setting massive money goals, such as paying off all your student loan this year, go after small wins. Use the snowball method of paying off debts, in which you pay the minimums on all accounts except your smallest debt. Pay as much as you can afford on the target debt each month until it’s knocked out, then focus on the next debt. Small wins will keep you motivated, even when money is tight.
You can apply the same mindset to saving. If you aren’t in the habit of saving right now, set a goal to save $5 per week this month. Next month, see if you can increase that to $10 per week. Do that for the duration of the recession as a challenge to yourself. Reaching your goals may become so satisfying, you find creative ways to rework your budget so there’s even more left over to put into savings.
Small wins are also important because they help you build good financial habits that will serve you during good economies and bad. You can come out of this recession stronger, no matter how long it takes to ride it out.