Recession Concessions: How to properly prepare for, and navigate through a recession.

The world’s economies are shuttering from the impact of the novel coronavirus pandemic. We are witnessing as COVID-19 death tolls rise; state-enforced restrictions intensify; industries slow down; and fear takes hold of global consciousness. As a result, economies around the world are taking a sharp turn toward the next recession.

Let’s take a closer look of what this means, how it may impact your reality, and how best to prepare and protect your financial health.

What is a recession?

The main indicator that economists use to identify a recession is through an analysis of the GDP (Gross Domestic Product). Which is the total dollar value of all goods and services produced over a specific period of time for a given country.

The popular definition of a recession is when a country produces a negative growth rate of GDP over 2 quarters (6 months). This means that for 6 months, the total economic output produced by a nation slows down.

There are details and nuances to how economists analyze and categorize specific economic indicators and cycles, but we don’t need to go into those details here. Technically, we won’t be able to officially name this period of time a ‘recession’ until we have 6 months of official data, retroactively. But today’s leading experts agree that we are indeed, already in a recession.

As global markets and governments brace themselves for the economic downturn that is being caused by the Coronavirus pandemic, many defining characteristics of a recession have already begun to take hold in the US. Stocks are falling. Businesses are being forced to shut their doors and lay off employees. Manufacturing industries are slowing down. Unemployment is on the rise. Retail sales are on a decline.

The reality is that we have no idea when this pandemic will be contained, and when we will be released from its crippling effects on our economy.

No doubt about it, we are now on the front end of the next big recession.

So, what does that mean for you? Here are a few things you need to know.

How to prepare for a recession

There are many things to keep in mind when you are preparing for a recession. And almost all of them factor in having a solid long-term vision, and not getting caught up on the fear of short-term impacts.

1. Save, and save diligently - Assume that a loss of income is inevitable at some point.

One of the best ways to prepare for a recession is to assume that one is coming. The economy goes through its ups and downs in a cyclical way, just as all things in creation. So the best thing you can do is to get out ahead of it.

Save, and save diligently with the mentality that the economy will eventually take a downward turn, even if it’s been doing well for a while.

Now some of you may not have had the foresight or luxury to save up for hard economic times, and as a result you may be finding yourself in a financial bind today. If this is you, pay close attention to the following points below.

And if you don’t already have a savings, it’s time to start one.

Start, now. ASAP.

2. Educate yourself - Understand what are the common effects of a recession.

Knowledge is power. One of the best things you can do to prepare for a recession is to be informed about the impacts of changing tides in the economy. Educate yourself on how recessions affect your local economy, and what implications that may have your individual situation, and that of your communities.

a) Prepare for some of your local businesses (owners and employees) to be out of work.

Expect that small local businesses will have a hard time keeping their doors open, and maintaining their operations. Mass lay-offs are likely, and many employees and small business owners will be struggling. If you are in need of products or services, try your best to support local businesses over large corporations (who may have a better chance of survival during hard economic times).

b) Expect changes in interest rates (i.e. mortgages, banks, loans)

During recessions, interest rates offered by banks, mortgages, and loans, tend to decline. These rates usually go down to try and encourage and stimulate more economic activity in the market. Depending on your financial situation, it may be a good time to take advantage of the decrease in rates. Be aware that it may also affect the growth and value of your existing investments.

c) Expect changes in the housing market (generally prices go down)

During a recession, property values and housing prices tend to get cheaper. If you have the capital, this may be a great time to invest in some properties, as there will likely be an increase in properties placed for sale, and for cheap, on the market.

d) Expect changes in product availability and the nature of products that become prominent in the market (people tend to focus more on what they NEED vs what they WANT)

During recessions people change their spending patterns. Most notably people spend less overall. But beyond this, people spend even less on luxury items, entertainment, hobbies, fashion, and so forth.

But they will focus their spending toward necessities (toilet paper, anyone?) The way companies market their products may also change to appeal to the changing priorities of the marketplace.

Become aware of your own change in spending habits. Be mindful of your spending. Make decisions from an informed perspective of priority, as opposed to the fear of scarcity.

e) Expect changes in oil pricing.

Oil prices will change. During recessions, oil prices tend to dip initially, and then skyrocket as the recession deepens. Expect changes in the price of oil. And watch for this as an indicator of the changes taking place in the economy. Don’t jump to conclusions, turn to experts for their professional assessments.

f) Expect changes to your 401k / 401b / IRA (they are likely to decline)

Know that your retirement accounts will be affected during a recession. Don’t be shocked by this! The key is to expect this, and not panic when it happens. And do not, I repeat, DO NOT take out money from your retirement accounts. You may be hit with heavy penalties, taxes, and may put yourself in a worse position than you would have been in the long run.

3. Make informed, smart decisions & invest time into strategic planning

As I mentioned, do not take out all of your money from investments, stocks, and retirement accounts. Recessions last an average of 9 to 18 months. This too shall pass. The worst thing you can do during an economic downturn is to make decisions from a place of fear as opposed to a place of informed logic.

A fun fact: people who held onto their portfolios during the "Great Recession" of 2008 ended up with one of the longest growth cycles in history. Why?? Because they held onto their investments, and didn't panic?.

Take time to think about the big picture, and not just the short-term threats that are screaming for your attention in the media. Seek the advice of financial professionals to help you along this journey.

Just because things may appear to be turning for the worst, doesn’t mean that all is lost. There are still a lot of choices and options that are available to you - know that they may not be immediately apparent to you, and in fact require some investigating.

If you need support in navigating and deciphering your financial decisions during this recession, remember that I provide consultations free of charge. You can book your complimentary session with me here.

4. Emotionally prepare and ground yourself

a) Do not panic - I repeat: do not panic. Do not flail around in your fear of the worst case scenario.

Keep your emotions regulated to the best of your ability, and keep a level-headed approach to the way you navigate forward during this slowing economic period. Remember that we as humans, have a very deep connection between our money and our emotions. Your financial health is tied in very integral ways to your mental and emotional health.

When your financial health declines, it is very easy for your mental and emotional health to decline as well (and vice versa). When you understand this dynamic, you quickly realize that it is very important for you to keep a positive mental attitude, and a healthy level of emotional regulation in order to regain and improve your financial health.

Do not spiral in the negative thoughts. Actively spend time thinking about positive things, and intentionally engage in activities that help you feel good, to bring balance to your life.

b) Practice empathy - exercise emotional intelligence. ‘Social distancing’ doesn’t mean emotional alienation.

Economic recessions impact people in different ways. Depending on people’s professions and industries, there will be some people who are hit much harder than others.

Now is the time to practice kindness and generosity of spirit.

When there is a shortage of resources, there is also the temptation to slip into a scarcity mindset. Which can cause us to fall into fear, and unkind behavior toward people around us. Watch for this.

Now is not the time to turn others into projections of an enemy. Now is the time for increased generosity, charity, and community. Hardship may be coming (or is already here for some), but that doesn’t mean we need to be ‘hard’ toward one another. Even when we are short on cash, we must realize that we are abundant in our ability to love and care for one another.

Conclusion

It’s easy to feel disempowered when the world throws you into a situation in which you don’t have control. We had no choice but to be swept up into the novel coronavirus pandemic. And as individuals, most of us don’t have the political power to sway the decisions of our government at this moment.

However, we DO have the power of our personal agency. We have the ability to educate and inform ourselves on the facts. We have the ability to regulate our emotions away from fear and panic. We have history to look back on to realize that every pandemic and economic recession of the past had a beginning, and an end. Nothing lasts forever.

So keep a level head, make smart and informed decisions.

Remember I am here to help.

If you would like to chat on what your options are to help protect your financial health during this pending recession, I’d be happy to chat with you 1-on-1. Book your free appointment here.

~ Shelby Green, CEO of S|A|G Financial Group