If you are up to date with financial news, then chances are that you may have heard that an economic recession is currently sweeping across most countries in the world. Well, most of the top developed countries at least. Some say it is not yet here but is on the way. It is a bad thing depending on who you ask, but what does it all mean and how can one survive a harsh recession?
Most economists describe an economic recession as a period, usually months or years, of consecutive negative growth and cooling of economic activity. A period usually characterized by crashing markets, reduced business investments, lower consumer spending and surging unemployment. For the average person, that usually translates to high cost of living coupled tougher economic conditions.
How to prepare for and survive an economic recession
Now that we have a solid idea of what an economic recession is, it is time to look at some of the best ways to prepare and limit your potential exposure.
Emergency fund
As a good rule of thumb, it is always a good idea to have an emergency fund that can last you 6 months or thereabout. This is important whether you are employed or a business owner. Nobody knows whether they will lose their job or their business might go under in case of a recession. This is why an emergency fund makes so much sense, because it gives you something to fall back on in case the worst happens.
Having an emergency fund during an economic recession will allow you afford living (pay the bills, buy food and other necessities) as you strategize or look for another source of income.
Create an umbrella for your business
The rainy days are coming and your business’ ability to survive the floods of an economic recession will depend on what you do. How will you adjust your business in case demand falls or goes to zero? Can your business pursue alternative income sources or models of operation? How long can you sustain your employee salaries without going into bankruptcy?
The above are all important question that you can use to guide your decision-making and develop strategies that will help your business weather the economic storms. In some cases, you might have to deploy drastic measures such as slashing your work force in order to survive if that is what it takes.
Reduce unnecessary spending
As noted earlier, low consumer spending is one of the key characteristics of an economic recession. The same applies to individuals and businesses. When in Rome. Non-essential products or services suffer the most in this case. It therefore makes sense to preserve your cash reserve as much as you can. This will provide longevity for your emergency fund.
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Have a backup financial plan
Unemployment poses a great risk to many. It is thus a great idea to be prepared in case of this eventuality. Perhaps consider building up a skill or product that you can use to generate income during a recession. Note that these have to be skills, products or services that will not be affected by the throws of an economic downturn. Especially those that are within the realm of essential services.
Buy the dip
If you are lucky enough to have an excess of cash during an economic recession, then you are among the lucky minority. Economic recessions are often considered great for investing because asset prices tend to fall.
The excess cash can be wisely allocated to purchase some of the best dividend stocks out there at a discount. This is a strategy that the wealthy deploy during recessions. For example, Warren Buffet’s Berkshire Hathaway reportedly has a cash pile of almost $300 billion, ready to deploy at bargain prices.
Conclusion on surviving an economic recession
Adhering to the above tips will help you stay afloat when the impact of an economic recession hits hard. For some, it will be all about survival but for others, it is an opportunity to make money or explore new opportunities.
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