10 Credible Tips to Try Now

Deepti Nickam

October 21, 2022

Recession—just hearing the “R” word can trigger negative emotions. After all, a recession indicates an economic downturn, falling stock markets, unemployment, and more.

As unpleasant as it may be, talking about recession is now more critical than ever.

But why?

The US has seen a negative gross domestic product (GDP) for two consecutive quarters in 2022. This consecutive decline in economic output and consumer demand qualifies for a recession. 

It’s safe to say the question of a recession is no longer if, but when.

This article will help you prepare for a recession, survive when it hits, and perhaps even thrive when everyone else is feeling the pain.

This article will tell you: 

• What Is a Recession?
• What Happens in a Recession?
• 10 Best Tips on Preparing for a Recession in 2023
• How to Survive a Recession That’s Already Here?
• What If We Said You Can Take Advantage of a Recession?
• Key Takeaways

What Is a Recession?

A recession is a prolonged period of economic downturn. The National Bureau of Economic Research’s (NBER) website describes a recession as a period between a peak of economic activity and its subsequent lowest point. During this period, a nation experiences a falling GDP, reduced trade and industrial activity, increased unemployment, and high inflation rates. 

For instance, the US experienced a significant recession in 2008 due to its housing market’s sudden collapse. More recently, the COVID-19 pandemic led to the US witnessing a brief recession in the early months of 2020.

A probability model run by Ned Davis Research has now predicted a 98.1% chance of a global recession. And with the US experiencing its highest inflation rate in over 40 years, a recession is almost inevitable.

So, How Long Do Recessions Last?

Data suggests that since 1950 recessions in the US have lasted between two and 18 months, with the average spanning about 10 months.

This average timeline is a crucial difference between a recession and a depression. Unlike a recession, a depression is a more severe economic downturn that lasts for several years!

What Happens in a Recession?

Stalled or nonexistent economic growth is a pivotal sign of a recession. 

But what does that translate to on an individual level?

On a personal level, a recession can mean that:

• Your income becomes stagnant or drops. This is because employers are either slashing hours or reducing their workforce. 
• You have lesser spending power because of reduced income. This can drastically impact retail sales. 
• There’s also a significant increase in the price of goods and services, further impairing your purchasing power. 

Let’s now dive into our recession tips to help you prepare for an economic collapse. 

How to Prepare for a Recession: 10 Best Tips for 2023

Here’s a step-by-step breakdown of what we think is the best way to prepare for a recession:

1. Set up an Emergency Fund

According to a 2022 Consumer Financial Protection Bureau survey, 24% of consumers have no savings set aside for emergencies, while 39% have saved less than a month’s income.

This means most Americans are living paycheck to paycheck and would find themselves in trouble if they lost their jobs during the recession. And weekly unemployment benefits of $398.87 in 2022 can barely cover an individual’s cost of living in the US. 

An emergency fund is crucial.

With a pending recession, aim to get your emergency fund to cover at least one year of expenses. Don’t get intimidated by that number! Start making small contributions today. 

2. Zero in on Debt Repayment

Paying off your debt should arguably be your first step when preparing for a recession. 

Here’s the thing: When the recession hits, you’re more likely to experience a loss of income. This directly impacts your ability to pay your bills. That’s why aiming to be debt-free before the economic collapse is essential.  

Take stock of your financial situation and focus on paying back:

• Credit card bills 
• Rent or mortgage
• Car payments
• Medical debts
• Loan repayments, and more.

Not sure where to start?

Try the debt snowball method. This debt-reduction strategy focuses on paying off debt from smallest to largest. You keep gaining momentum as you knock out each remaining balance. 

Want to set up your debt snowball spreadsheet in just a few minutes? Check out our digital tools on Etsy. Make a small investment, get your instant download, and create a plan to become debt-free today.

One of our users, Redd, had this to say:

“Great product! I can actually breathe a little better after entering all of my information and seeing a light at the end of the tunnel! Great customer service as well! Highly recommend.”

Related: Debt Free by 30? (Absolutely! I Did It! Here’s How!)

3. Keep Your Emergency Funds Safe

Deciding where to stockpile your funds can heavily impact your financial situation in a recession. 

Now may be a good time to park your funds in a high-yielding bank account.

Why?

The Federal Reserve has been hiking interest rates aggressively to combat inflation. In response, American banks are increasing savings yields at a rapid pace. 

But remember, your emergency fund is your safety blanket. Don’t treat it like your investment fund. It’s alright not to make returns off of it. 

Also, ensure that you aren’t sacrificing cash liquidity for yield. You want to have easy access to liquid funds during a downturn. That’s why it’s best to avoid locking up your funds in a certificate of deposit (CD). Avoid selecting an account that limits your withdrawals.

4. Recession-Proof Your 401K

One thing’s for sure—when the recession hits, the value of your 401K accounts will start melting away. And like clockwork, 401K participants will have a knee-jerk reaction to the situation and start selling.

Rookie mistake! 

You’re a long-term investor in your retirement plan unless you’re less than five years from retiring. Short-term market fluctuations shouldn’t shake you up.  

Instead of selling out, continue making your 401K contributions regularly. This will help you yield compounding benefits in the long haul. 

Here’s more on Why You Should Think Twice About a 401k Early Withdrawal. 

5. Reconsider Expenses, Especially Pricey Ones

Consider budgeting to identify the minimum you can spend in a month. Once done, start prioritizing your expenses by separating your “wants” from your “needs.”

Next, you can adapt your budget for a recession by cutting down on non-essential expenses. This includes entertainment, holidays, clothing, and so forth. 

Consider studying patterns in your previous monthly expenses to identify where you overspend. This way, you’ll be more aware of where to tighten your spending in a downturn. 

6. Diversify Your Investment Portfolio

You know what they say, don’t put all your eggs in one basket. Cliché, we know. But it’s true, especially with investing.

It’s essential to have a well-diversified investment portfolio. That means your investments shouldn’t be tied to a single stock or real estate property.

Spread your investments across multiple industries and businesses. This way, your entire portfolio remains unaffected even if one industry or business declines.

For instance, if you’re investing in stocks, you can spread your money across multiple industries such as healthcare, technology, consumer goods, and more.

Investing in mutual funds, index funds, real estate, and small businesses (and maybe even wine!) is an effective way to diversify your portfolio as well.

7. Stock Up on Staples With Longer Shelf Lives

Regardless of your financial situation, it’s unrealistic to think you can save on staples and other basic commodities. 

However, you can plan your shopping strategically to curb some expenses. For instance, you can buy staple foods with longer shelf lives to prepare for a recession. 

How to Prepare for a Recession—Food

The TDCA Academy suggests stocking the following amounts of staples per person per year:

• Wheat—240 pounds
• Corn—240 pounds
• Iodized Salt—12 pounds
• Soybeans—120 pounds
• Vitamin C—180 grams (must be rotated yearly unless purchased in crystalline form).
• Powdered Milk (nitrogen packed) for babies and infants—240 pounds

Note: You’ll probably need a larger pantry (at least 8X8 feet) to store these staples. 

Buying and storing these food items correctly can help avoid the impact of hyperinflation, unemployment, food shortages, or any other crisis.

8. Take Stock of Your Career Opportunities

We’ve established that recessions can often lead to increased unemployment rates. So, working on a backup plan is vital should you face a layoff.

Here are some ways to expand your career opportunities:

• Work on refreshing connections and building new relationships within your professional network.
• Update your resume and socials to include your relevant work experience. 
• Study the job market to note job requirements and interesting profiles. 

Thinking about switching careers?

Consider picking a recession-proof job or industry. 

While no company or industry is 100% safe from an economic crisis, some jobs are safer than others. 

Recession-proof industries include:

• Consumer staples
• Medicine
• Grocery stores
• Discount retailers

Recession-proof jobs include:

• Healthcare professionals
• Auditors, accountants
• Insurance providers
• Underwriters
• Law enforcers
• Judiciary workers

9. Consider Upskilling

The World Economic Forum estimates that by 2025, 97 million new job roles may emerge that are more adapted to the new division of labor between humans, machines, and algorithms. 

After all, companies increasingly depend on digital skills and tools. This is why, recession or not, upskilling is the need of the hour. 

Expanding your skill set is a key preparatory measure. It can help you qualify for newer job roles across industries. 

10. Capitalize on the Gig Economy

Another successful recession tip would be to create multiple sources of income. You can keep your current job and work on a side gig for extra income. 

Are you passionate about something? Do you have additional skills you aren’t using in your current job?

Your side hustle can be anything from teaching to selling products online. If you’re interested in freelancing, check out portals like Upwork, Fiverr, and LinkedIn to discover job opportunities.

Let’s now go over your action plan if you were already in a recession.

How to Survive a Recession That’s Already Here?

If you were to find yourself in the middle of an economic downturn, don’t panic! You can weather a recession by focusing on the following aspects:

• Stay alert and pay attention to economic conditions that could impact your income.
• Downsize to frugal living immediately. This includes tips we discussed earlier, including cutting unnecessary expenses, stocking up on staples, etc.
• Save anything and everything you can. Continuing to build on your emergency savings is essential.
• Take minimal risks when dealing with investments. Don’t make impulsive decisions that can cost you in the long run.
• Continue making minimum payments on existing debts. This allows you to preserve liquid cash for upcoming difficult times.

Next, we’ll look at how you can capitalize on a recession to benefit you. 

What If We Said You Can Take Advantage of a Recession?

You heard that right. It’s possible to benefit from a recession. 

Wondering how?

Remember that a recession has always been followed by a recovery period. This recovery period often sees a strong rebound across industries, especially in the stock markets.

Here’s how you can take advantage of this scenario:

1. Dollar-Cost-Average Your Investment

You can take advantage of a declining market using the dollar-cost averaging method of investing. Note that if you’re making monthly contributions to a qualified retirement plan, you already use the method. 

When the economy declines, you can take advantage by increasing your contributions or starting dollar-cost-averaging in an investment account.

With this technique, you’re slowly reducing your overall cost basis in the share price (as the market declines). So when the stock prices rebound, your cost basis remains lower than the price. 

For instance, if you invest $1,000 monthly in a mutual fund selling for $50, you can buy 20 shares. If the share price drops to $40, you can buy 25 shares with the same contribution. Your account, after these two months, will now have 45 shares with an average cost basis of $44.44.

Note: This method works best for the long term for investors who don’t have to worry about how their investments are performing.

2. Invest in Consumer Staples

Even during a recession, people must buy food, hygiene products, and medical supplies. These consumer staples are the last items to be cut from a family’s budget. 

Other retailers selling non-essentials may experience a drop in revenue. However, companies and retail outlets selling food products and other necessities rarely see a profit decline. And because these stocks remain resilient, they’re sometimes called defensive stocks.

Investing in businesses like Walmart Inc (WMT), Procter & Gamble Co (PG), Newell Brands Inc., and more may be a sound choice. 

3. Invest in a Business

If you have a fair amount of cash, consider buying a struggling small business for the value of its assets. 

In a scenario where you’re able to turn things around for the business, you can eventually make money. You can still sell the assets if the business fails and recoup your investment. 

4. Invest in Residential and Commercial Real Estate

American Economist Paul Krugman recently suggested that the US housing market may slow down further. 

He predicts that the Fed’s high-interest rates will mean less demand for new homes. This would slow down construction and also further impact consumer spending. 

The residential real estate market will likely recover after the recession, making it a worthy investment opportunity. 

On the other hand, commercial real estate may soon struggle too. And, the prices of warehouses, office buildings, and retail stores will likely bounce back after the recession. 

According to the National Council of Real Estate Fiduciaries (NCREIF), the average annual return for commercial real estate assets has been 10.3% annually over the last 25 years. So, we’d say this is a pretty stable investment option.

Read our article What to Do With Your Money in a Recession for more!

How to Prepare For a Recession: Key Takeaways

• A recession is a period between a peak of economic activity and its subsequent trough or lowest point.
• Building an emergency fund that covers at least a year’s worth of expenses is imperative. 
• Implement the debt snowball method to pay back as much debt as possible before the recession.
• Use the dollar-cost-averaging method to take advantage of a declining economy. 

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