Knowing how to survive a recession isn't about making a few extra dollars here and there until everything blows over. It's more important to adapt to a mindset of not living beyond your means and prioritizing your needs. Regardless of your employment status, following specific tips will enable you to make it through a recession without digging too deep into your pockets.
Surviving While Unemployed
There are a number of ways to survive a recession if you are unemployed.
Get a Job, Any Job
If you've been laid off or fired, your survival needs are greatly different than someone just wanting to cut expenses. Some people released from companies have severance packages or unemployment benefits. While both are a soft cushion for a while, the reality is you will eventually need to find a job. During a recession, having almost any type of employment helps for a number of reasons, including:
- The ability to maintain cash flow.
- The option to network for additional employment.
- The opportunity to stave off depression by being productive.
Many people let pride stand in the way of gainful employment. Avoiding this trap is the first step to adapting your mindset and learning how to survive a recession. Many skills are transferable, even if you have to change industries or professions.
Most states have a workforce development office designed to provide job counseling and help you through the transition. You may be delivering papers part time for a while, but remind yourself that honest employment is honorable, and the situation may be temporary.
Update your resume and develop a detailed job application prep form. This will help you be prepared at a moment's notice to respond to an interview request.
Start a Business
In some cases, successful entrepreneurs stumbled across the opportunity after a layoff. An excellent example of this is Pat Flynn, the CEO of Smart Passive Income, who got his start after being terminated from a lucrative position at an engineering firm. It may be possible to turn your hobby into a profitable business at little to no cost to you at inception.
Adjust Major Expenses
Housing, transportation, food, health, and savings are the primary expenses. All other expenses, specifically those that are variable, should be drastically reduced or omitted. Assess the following factors individually and develop an action plan:
- Housing: Do you have enough money each month for the mortgage or rent, as well as basic utilities? Create a spending plan that lets you forecast three months out what these expenses should be. Find ways to save money on utilities, even if it means dropping cable TV and the Internet for a while in order to keep the lights on.
- Transportation: If you live in a non-metro area of the U.S., a car is almost a necessity, because public transportation isn't an option. If this is your situation, consider other alternatives. Two-car households can sell one vehicle; carpooling and car sharing with someone else might work, too. Also, consider consolidating errand runs to save on gas expenditures.
- Food: Look for ways to save while grocery shopping and rely on frugal recipes to help you make the most of this budget. Some people develop one menu they use week after week: spaghetti on Monday, rice and beans on Tuesday, stewed chicken and frozen vegetables on Wednesday, and so on. This method might help you stock up on inexpensive staples during sales. Also, be sure to incorporate coupons into your plan. Those items that are on sale and have corresponding coupons should take precedence.
- Health: Unfortunately, health insurance for those who are unemployed is incredibly expensive. However, many people can afford catastrophic hospital plans for an individual or a family, even if it means they will pay considerably more out-of-pocket for regular care. Evaluate your current healthcare to see if it is the best fit for right now.
- Savings: All financial experts agree that you should always save, even on a limited income. Just $13 a week puts you up $52 for the month. Saving is another way to help you adapt your mindset and think ahead.
Manage Debt Wisely
If you have any debt at all, such as a credit card, car loans, and student loans, call your creditors immediately and tell them you've lost your job and need to work out a payment plan. In some cases, you may be able to get a reduced interest rate on a credit card, or a monthly extension on a loan. Now is certainly not the time to compensate for low income by charging everything.
According to Dave Ramsey, it is likely that you will spend more money if you use a credit card than if you use cash for purchases. A 2016 report from Credit Cards.com mentions that the average credit card debt per adult in the United States is about $5,200, which affirms Ramsey's assertion.
Other ways to manage debt wisely include:
- Refinancing existing debt obligations to obtain lower interest rates on your outstanding balances
- Avoiding home equity loans because you can lose your home if you default on the payments
- Taking advantage of balance transfer offers in an effort to pay down debt minus the fees associated with the annual percentage rate
Handling a Recession While Employed
Keep Your Job
Honestly, there aren't many ways to control this if your company has to downsize. However, when managers schedule layoffs, they'll clean up the weakest spots first. With simple modifications, you can remain proactive now and in the future.
- Work a little harder. It's easy to have a "what are they doing for me?" attitude when times are tough. Stay focused and productive, however. Come in early. Work ahead. Take shorter breaks.
- Don't complain. The adage is, "the squeaky wheel gets the grease," but in many cases, that wheel is replaced. Everyone needs to vent, but first consider if you're contributing to an already toxic environment or actually affecting change before you speak up. You might be better off taking a 10-minute walk.
- Look for solutions. Your skill set is necessary, otherwise you wouldn't have been hired. Constantly think of better or more efficient ways to improve your workflow, department, or line.
In an article published at Investopedia, Mark Cussen, a personal finance expert, also suggests that you should be flexible and willing to take on tasks that are necessary to get the job done.
Improve Your Skills
Use this time to become better at what you do. Take classes online, ask to shadow someone in a different division, or work with your manager to broaden your responsibilities. The more diversified you are, the better your chances for long-term employment.
Get a Clear Financial Picture
You may still have a job right now, but manage your finances as if you'll lose it tomorrow. In an article published at Bankrate.com, Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Washington, D.C. states that in addition to an emergency fund, you should have the equivalent of nine to twelve months' worth of income saved in the event of unemployment.
Attain this goal by creating a spending plan similar to what we outlined above. Focus on necessities and streamline expenses. This shift in focus will help you in the future, regardless of what the economy does. Find ways to save money every day, such as:
- Create a list of what you "need" to shop for verses what you "want" to shop for, then put it down for a day. Pick it up again the next day and see if you still need a trip to the mall.
- Make meals at home instead of eating out. This can be a fun and easy family activity that saves money, too.
Regardless of your current financial situation, there are a number of other ways that enable you to save money during a recession. These include:
- Saving money on your banking needs
- Switching to a health insurance provider that offers more cost-efficient coverage options
- Participating in activities that offer a free source of entertainment
- Obtaining a prescription discount card to save big on drug costs
Learning how to survive a recession first involves all the nuts and bolts of money management, but the psychological ramifications require attention, too. It's easy to worry constantly or slip into depression during tough times. Maintain the simple pleasures of life to help you stay connected, laugh more, and keep a healthy perspective.