Preparing for a Recession

What Is a Recession?

Before you can begin preparing for a recession, it’s helpful to actually understand what the term means. By definition, a recession is a period of economic slowdown that occurs when the gross domestic product declines for two or more consecutive quarters. This means that big businesses make less profit, hire fewer workers, and generally try to reign in their overall spending.

For the average American, the main fear associated with a recession is a potential job loss. Some industries, such as health care, are fairly recession-proof because the demand remains constant regardless of external economic factors. However, most people will find is wise to put together a plan to protect themselves and their loved ones in the event of a personal financial crisis.

In most cases, a recession will eventually correct itself. Unfortunately, prolonged economic recessions create the risk of an economic depression

Boost Your Emergency Fund

While an emergency fund is a good idea in flush economic times, it’s even more important when you’re preparing for a recession. Ideally, you’ll want to have three to six months worth of living expenses saved to protect you against a major financial crisis. If you feel this amount is impossible to save, however, don’t give up. Even an emergency fund of just $1,000 to $2,000 can be beneficial.

The best way to build an emergency fund is by reducing your daily expenses. Check out LoveToKnow Save’s articles on How to Save Your Money, Frugal Living, Extreme Ways to Save Money, and Bargain Shopping for advice on getting started.

Stay on Top of Your Investments

During a period of economic recession, it’s common for the stock market to take a hit. If you have your 401k in high risk portfolios, you risk sustaining a serious loss. Diversify your portfolio as soon as possible. As a general rule, stocks relating to utilities and healthcare are fairly safe bets during a recession.

Bond mutual funds are often touted as a good place for your cash during a recession, but these investments aren’t always a great idea. You won’t lose much money during a recession, but you won’t gain either once the economy starts to pick up.

Think Twice Before Accumulating New Debt

In most cases, people judge their ability to repay credit card debt based on their current income and expenses. However, a recession means that these factors could change at any time. If you borrow money that you can’t afford to repay, your credit rating will take a huge hit that can be difficult to recover from. Therefore, it’s not wise to borrow money when it looks like a recession is coming. Learn to distinguish from wants and needs, then postpone all nonessential expenditures for as long as possible.

For advice on getting your credit card debt under control, visit LoveToKnow Credit Cards.

Brush Up Your Professional Skills

If you do happen to lose your job during a recession, you’ll want to be able to find a new position as quickly as possible. Therefore, it’s a good idea to do whatever is necessary to make yourself marketable. Revise and update your resume, read professional publications to make sure you’re knowledgeable about current trends in your industry, and consider gaining any technical certifications that may make you a more valuable employee.

For additional information about planning your career path and preparing to find new employment, visit LoveToKnow Jobs.

Additional Information on Preparing for a Recession

You can learn more about what you can do to help prepare yourself for a recession by visiting the following resources:

• Preparing for a Recession
• Surviving a Recession
• With Recession Looming, Be Prepared for a Layoff
• How to Prepare for a Recession
• 10 Tips for Surviving a Recession