How to prepare for a recession
Today’s economy can seem like a paradox. The overall job market is strong, but layoffs at large companies continue to make the news. Inflation is high, but so is consumer spending. Economists endlessly debate whether we’re in a recession or on the verge of one.
When you add in social and political turmoil, it’s easy to see why historian Neil Howe believes we’re living through a “Fourth Turning” of unraveling and crisis. The economy is cyclical. We’ve been here before, and we’ll be here again. Economic downturns aren’t a new phenomenon, and it’s up to us to learn how to prepare for and survive a recession.
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1. Don't give in to fear
Recession breeds uncertainty, and uncertainty leads to fear. Fear of recession is a natural human emotion, but giving in has negative consequences for everyone. Investors panic-sell and pull their money out of the market. Business owners stop innovating and struggle to make tough decisions, and relationships suffer significant stressors. However, when you resist the urge to give in to fear, you’ll gain certainty, clarity, and the inner strength to navigate challenging times.
2. Realize what you can control
Like fear, much of our stress is caused by our deep human need for certainty. We try to control everything around us in our quest to keep certainty in our lives. Unfortunately, there are many things beyond our control, including recessions. You can’t personally control the financial markets or fix the cause of an economic downturn. Accepting this reality will free you up to focus on what is within your control: learning how to financially prepare for a recession and change your mindset.
3. Think long-term
Humans are wired to avoid pain and seek pleasure. When we experience pain, it can be acute, especially when it feels permanent or pervasive. To learn how to prepare for a recession, it’s important to remember that nothing in life is permanent. Pandemics are not forever, winter is not forever, and war is not forever. Everything eventually ends, and something new begins. Those are the seasons of life. Seeing this bigger picture can help you make better decisions that aren’t influenced by fear.
4. Look for opportunities
Every obstacle is an opportunity if you know where to look. Many successful businesses started during a recession, and economic downturns often present an excellent opportunity to create passive income. If you own a business, creating new efficiencies and innovating are vital in preparing your business for a recession. Even adverse events can have positive outcomes when you view them from the right perspective.
5. Stay agile
We are living in a time of unprecedented change. Recently, The Great Resignation had employees quitting in droves, and now they’re on the hunt for recession-proof jobs. After the two-month pandemic recession – the shortest on record – we appear to be heading into another downturn. As a business owner, the ability to quickly adjust to change is becoming essential to preparing for a recession. Stay open to new ideas and ways of thinking, and you’ll be ready for anything.
6. Refresh your connections
It’s always productive to surround yourself with the right people, but in times of uncertainty, this becomes a priority. Take a look at your network and see where you can reconnect. Make new connections online or at events. Find a mentor or join a mastermind group. Even if you’re happy in your current job, it doesn’t hurt to have leverage for when you may need it.
7. Change your habits
Habits are the foundation of our lives as they provide certainty, even when harmful. This certainty can make it difficult to change our habits, but change is a big part of how to prepare finances for a recession. The most important? Spending habits. It’s straightforward enough: Stop spending and start saving. 76% of Americans insist they’re making changes to their spending due to concerns over a possible recession, including putting off large purchases and allocating more income to savings. These are smart moves you’d be wise to follow.
8. Pay off debt
Credit card debt, student loans, car payments, or business debt can make you vulnerable to the effects of a recession. When it comes to how to prepare your business for a recession, this is a big one. Indeed, one recent study showed that companies with high debt levels experienced bigger losses during the 2008 recession. Debt also makes it much harder to save money on a personal level. As such, it makes sense to focus on paying down debt and not take out any new loans.
9. Rethink your investments
If you’re worried about how to prepare investments for a recession, don’t panic! Continue investing in your retirement plans, and do not pull your money out of the market. Diversify your investments – use the three buckets of asset allocation and leverage dollar-cost averaging to keep things steady. Over the last 20 years, the stock market in the United States produced an 8.2% compounded return, but only those with a long-term view can benefit from this growth.
10. Meet with an advisor or coach
Learning how to prepare for a recession isn’t just about finances – it’s also about mindset, learning how to control your emotions, and making good decisions in the face of uncertainty. Working with an advisor may be a helpful solution if your financial future is a serious concern. Similarly, a life coach is a good option if you feel stressed and anxious. Bottom line: don’t be afraid to ask for help!
Ready to prepare for recession – mentally and financially?
A Tony Robbins Results Coach can help you implement all of the above strategies and more. Get your free introductory session to learn how.