When you say ”recession’, many people think of the Great Recession of 2008-10, and while that period and others like it devastated the worldwide economy, we’ve learned a lot in the process. During recessions, companies often collapse, people lose jobs and struggle day-to-day… it’s a really hard time for many people. But recessions have patterns, and by observing how those patterns have affected generations before us, we can estimate how future recessions will work and what we can do to minimalize their impacts.
The toughest thing to accept is that things will likely get harder before they start improving. Let’s learn from past recessions and take a look at some tips and tricks that may help ease our way through the next economic recession.
1. It’s Not Forever
Unfortunately, recessions are fairly common. It’s hard to pinpoint the causes of recessions, but natural disasters, pandemics, and international conflicts can all severely impact the global financial climate, and unfortunately, these are things we’ve all become familiar with. These events are often unexpected, so it’s easy to quickly feel overwhelmed by all the bad news.
The Economics Observatory reports that the average length of a recession is 18 months. Although it will take longer for the average person to feel things improve, it’s important to remember that this isn’t a permanent situation. Your parents and grandparents struggled through recessions in their lifetimes; unfortunately, it’s all part of the process, but there is a light at the end of the tunnel.
2. Diversify Your Assets
If you’re lucky enough to be able to invest, the lead-up to a recession is the time to spread that money out. Don’t let your hard-earned money sit in an account earning minimal interest when you could be investing in stocks, shares, and bonds that can help you earn while doing nothing. Sounds appealing, right?
Many banks or investment platforms are desperate for new customers during financial crises and often offer great deals on interest rates and even sometimes a cash bonus just for opening an account with them.
By investing in a variety of financial areas, you are bettering your chances of making money, even if your government’s finances have hit rock bottom. However, it’s important to do your research to avoid scams or false advertising, which leads to the next tip…
3. Stay Informed
Keep up with the news as much as you can. Although it’s boring for most of us, you need to know what will happen to your money and where you should and shouldn’t be investing.
Beware of online schemes urging you to invest your money in certain areas, promising that you’ll profit hugely by investing in dodgy companies or cryptocurrencies.
While the advertisements may look appealing, money never comes that easy, so it’s important not to dive into things you know little about.
4. Don’t Be Rash
When money gets tight, people panic and impulse buy. It’s normal to feel like you’ve lost control of your finances, and it’s natural to want to change how you handle your money, but be careful with extreme decisions. Founder of Modernist Financial Georgia Lee talks about people’s urges to spend their savings on property. This happened frequently throughout the Covid-19 pandemic, as the public began scrambling for stability. She says people try “to anchor themselves to deal with their anxiety… but that doesn’t mean you should act on it”.
Big decisions like buying and selling property should be made carefully and certainly not as a way to calm the storm. Financial stress is very real and natural leading up to and during recessions but remember that you are still in control.
5. Keep Your Savings Safe
Recessions are really not the time to be using up your savings. Although it’s tempting, try to avoid spending your savings on material items and instead try to build that number.
Although many people simply can’t afford to save, previous recessions have taught us that setting a sum of money aside for emergencies can really help. Being able to dip into some money when your monthly expenditures are increasing dramatically is a good way to prepare for a recession. If the foundering economy starts cropping up more and more on the news, it may be time to start putting away some money each month if you can afford it. Even $15 of your paycheck will mount up and help when times get tougher.
6. Keep Track of Your Spending
It’s hard to log into your bank account and see your balance decreasing, but simply knowing what you’re working with can help you feel more on top of things.
Although this tip won’t drastically change your financial situation or raise your salary, it’s an important one to bear in mind. When the global economic climate seems chaotic, taking control of your finances can help ease the madness.
Take each day as it comes and ensure you know how much is coming in and going out of your account monthly. Loads of apps can help you do this, and during recessions, it couldn’t be more important.
You can also take a look at your transaction history, look at how much you spend and what you’re spending it on, and potentially make some changes.
7. Know Your Priorities
It’s hard to hear, but it’s time to get your priorities straight. We’re all guilty of buying unnecessary stuff, whether it’s that super cute dress, the newest iPhone, or the meals out, but take a step back and think whether you need it.
Ask yourself, ‘do I use that gym membership enough?’ or ‘how much do I actually watch Disney Plus?’ Chances are you probably have monthly direct debits for services that you hardly use. If you’re a takeaway regular, now may be the time to dive into the dusty recipe book and have some fun cooking at home. If you’re a shopaholic, consider whether you need those new clothes. If previous recessions have taught us anything, it’s that we need to focus our budget priorities on the essentials. Focus on eating and heating until it all blows over.
8. Clear Out!
Don’t lie… We all have *that* room full of unorganized and unused clutter. It takes effort, but having a clear out and selling some of your stuff can be quite therapeutic.
You’d be surprised how much the contents of your wardrobe, bookshelves, or garage are worth. If you need some extra cash to spend on luxuries, clearing out your old stuff is a good way to do it. There are plenty of apps and websites that can help you sell your items and get a surprising amount for things you never use. It creates space and helps to top up your bank balance when you really need it.
These are just some tips and tricks to help you stay afloat during all the chaos. If you follow these eight steps, you will gain more control over your finances and hopefully even make some money.