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Trade disputes, exploding global debt, volatile stock markets, and government shutdowns oh my! Are we really hurling head first into a recession? And if we are how can we survive it? Well before we can find the answer to these questions, let’s first understand what a recession is?
What Is A Recession?
According to Business Dictionary, a recession is a period of general economic decline. It’s usually defined as a six month or longer contraction in GDP (Gross Domestic Production). A recession is characterized by a fall in retail sales, stagnant wages, and high unemployment.
Are We Currently In One?
Now that we’ve clearly defined what a recession is, it doesn’t appear that we are currently in one. However, economists have been keeping a watchful eye on the U.S. economy and asking what will cause the next recession because it’s not a question of “if”, but rather, “when”.
Will It Be Corporate Debt?
Corporate profits have been healthy and interest rates have been low, so servicing the risky corporate debt that’s been building up in the system doesn’t seem to be a problem, thus far.
Will It Be Interest Rate Hikes?
The Federal Reserve has raised interest rates by a moderate amount, but have signaled that it doesn’t have much desire for future increases.
Or Will It Be Tariffs?
President Trump’s trade war with China doesn’t seem to be having much effect yet.
Then What Is It Exactly That’s Hurling Us Towards A Recession?
The government shutdown!
President Trump has caused 800,000 government employees to either be furloughed or to work without pay in an attempt to force Congress to build a wall on our southern border. Now, these 800,000 workers only make up about 0.5 percent of the labor force and are scheduled to receive back pay.
However, it’s hard for them to pay rent, mortgages, credit card debt, car payments, car insurance, groceries, etc.. while they are not earning money. On top of these microeconomic woes for these workers, many government services are not being provided.
For instance, the TSA is struggling to perform security screenings leading to congestion and long lines of people. The loss of these government services and paychecks for government workers will certainly jam the gears of the American economy creating macroeconomic woes for everyone.
Furthermore, according to NPR, in addition to the 800,000 furloughed federal workers, there is a much larger number of government contractors who are going without pay; and who won’t be receiving any back pay when the shutdown ends.
Therefore, the evidence pointing towards another recession is piling up.
So, How Do We Survive A Recession?
The key to remember here is that we are focused on worrying about the factors that we can control, not on the ones that we can’t. It’s important that we never let our emotions get the best of us. Therefore, here are some steps that we can take now to better prepare us for those difficult financial times that lie ahead.
1. Keep Your Job
As previously mentioned, a recession is characterized by high unemployment. So even if we hate our jobs, it’s best that we wait until the economy stabilizes before quitting. The last thing we want to do is look for a job when the unemployment rate is 8% or higher.
2. Make Contingency Plans
Although we should do everything in our power to keep our jobs, sometimes keeping our jobs is out of our control; The government shutdown is a prime example of this.
Furthermore, a high unemployment rate in the overall economy is a direct result of employers downsizing their staff, cutting pay and reducing hours.
Therefore, the best thing we can do is regain control over our own lives by making backup plans. It’s imperative that we make contingency plans for ungovernable (no pun intended) events like this that cause us to lose most if not all of our income.
3. Stay Liquid
Staying liquid means having access to our money when we need it. It’s important that we keep a cash cushion. Investments are great but we don’t want all of our money tied up in investments that are difficult to sell quickly without taking a loss or in investments that we might not be able to sell at all.
4. Educate Yourself
Education is the best asset that we can invest in. What we don’t know can and will hurt us. Whatever we choose to do to survive an economic downturn, whether it’s keeping our job, finding a new job, or going into business for ourselves, learning more can never steer us wrong.
The best way for us to distinguish ourselves is by studying the issues facing the industries we’re in, boning up on technology and getting more training or schooling. It may sound cliche`, but by learning how to fish we will eat for a lifetime.
5. Get A Side Hustle
Remember those contingency plans we spoke about earlier? Well, a side hustle is a great contingency plan. Starting a freelance business, doing some consulting work, building a website for ourselves and for others, just to name a few, are great ways to have something to fall back on if we unexpectedly lose our jobs.
Don’t wait, act now!
Recessions don’t happen overnight and aren’t declared immediately. In fact, by the time we even declare that we’re in a recession, we’ll have already been in one. And this time there probably isn’t going to be any government bailouts or quantitative easing from the Federal Reserve.
In all honesty, the world’s central banks are probably going to have a hard time fighting the next serious financial crisis. This is why we shouldn’t wait. We have to get financially disciplined and prepare now while things are still good.
What goes up must come down. Recessions are imminent so always remember to “Be fearful when others are greedy, and greedy when others are fearful”.