Although some would say that we are already in a recession because of two quarters of declining GDP, some are still predicting a recession farther out in the future. Bloomberg says that in 2023 there is a 100% of a recession. So, here is my guide on how to survive the next recession and you can start using these tips today so you’re fully prepared for the rocky economic road we have ahead of us.
Pay off Debt
With rising interest rates, variable interest rate loans like credit cards will be heading higher. If you can, now is a great time to reduce debt. Most Americans are doing the opposite right now. Thanks to food and fuel inflation, credit card balances are higher than they have been in 20 years (Wall Street Journal). The recession-smart person tries to do the opposite. This is no easy thing with inflation being what it is right now but any way you can pay down debt faster will be to your advantage in the coming recession. Keeping credit card balances lower will save you a fortune. This is especially true as interest rates move higher and credit card interest rise in turn. Also, if you have taken out a variable rate on your home loan, you should have refinanced already but now might be a good time to look into getting a fixed interest rate. Otherwise, you’ll be a victim of the rising mortgages rates which are currently at around 7% and may go as high as 10% before the Fed changes course.
Don’t Change Jobs
If you get laid off in the next recession, then you’ll be changing jobs regardless but if you have a choice in the matter, now would not be the time to change jobs. Wait it out for a little while longer. Right now, companies are cutting back on hiring and even recinding job offers. If you’re considering a career change, now might be a good time to go back to school if you’re making a big career shift. Both during the Great Financial Crisis and the pandemic, millions went back to school for retraining. Trying to keep things stable as the economy goes through the next several months is going to be key. If you have paid off debt, save money as you are able.
Don’t Sell the Bottom
One of the biggest mistakes that investors make during a recession is getting scared and pulling out their money. This is a big mistake. The losses are not realized until you sell the asset at a price lower than what you paid for it. Don’t sell the bottom. Don’t make investment decisions out of fear. Check your investing thesis. If a stock is meaningfully lower (lower than its 52 week moving average) then you might consider selling it but I would still wait. In 1987, 2001, and 2008, stocks recovered. Investing is a long-term game and making decisions out of fear will just mean booking real losses and a loss of capital to reinvest in the future. Don’t make that mistake. Let a cool head prevail and ride out the wave until prices recover. They will recover and even if you end up selling later your loss will be less than playing into market fears and headlines.
Surviving the Next Recession
Getting through any recession is not easy. I’m still recovering from 2008 myself. However, with these helpful strategies you can survive the next recession in as best of financial shape as you can. Don’t play into fear, pay down your debt, and try to hang onto your job or income source and you can ride through this next recession feeling positive about yourself and your money.
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