Recession Preparation and Survival

All the financial papers are talking about the next recession. When will it get here? No one knows. After nine years since the last one it could be soon…or not. Either way better get prepared and buckle up. If you lived through the last one like I did in 2009/2010 you know what to expect.

  • First of all get your spending under control and live within your means. Recessions are no time to be adding to your debt load.
  • Set up an emergency fund of six months of living expenses in savings account. This should cover rent/ mortgage, car payments, food, taxes, insurance and the like. The reason we want liquid assets instead of less liquid ones like stocks is that you don’t want to be forced to sell at a loss. If you have a mainly cash but also some investments too you can liquidate that’s ok too (opportunity cost).
  • Get your debts paid now, especially credit card debts and car loans.
  • For longer term debt like housing debt and student loan debt that’s why we have the emergency fund and stocks we can sell if we absolutely have to.
  • Sell the junk and stuff you don’t need. You can likely sell it now for better prices than during the recession when everyone is trying to sell their stuff.

What to do with stocks and retirement funds

Stocks and mutual funds: As a general rule we don’t want to sell these in a recession when prices are low unless we have to. The motto is not buy high and sell low. It’s the other way around. Don’t panic. You have to ride it out like a surfer.

There is a famous saying from Warren Buffet the Oracle of Omaha. “Be greedy when others are fearful and fearful when others are greedy”. That’s wisdom. In plain English the man means when there is blood in the streets that’s the time to buy, even if it is your own blood!

So we are going to try to add to our positions at fire sale prices during the recession if our finances allow it. Once the bounce happens at the end of the recession the gains can be very nice. The people that did this during the last recession made out very well as in 2X to 3X gains. Keep in mind this can be years down the road.

For example in 2010 I sold the intermediate bond fund in my 401K account and switched it to the Fidelity Blue Chip Growth Fund (FBGRX). The value nearly tripled by 2018. The moral is be ready to pounce when markets drop in half and be patient.

Retirement funds such 401k should not to be touched. You should contribute as normal when employed. This is called dollar cost averaging. It means you sometimes you buy low and sometimes high but on average your price will be ok. You may even want to increase your contribution if not already maxed out to take advantage of those fire sales prices if you can afford it. Remember you are in it for the long haul.

Prioritize your spending into to buckets and come up with a list of things you can cut if push comes to shove.

Fixed costs

  • Rent/mortgage
  • Taxes and property taxes
  • Utilities
  • Auto insurance
  • Car payments
  • Food
  • Internet access: I put this in fixed as you may need to hunt for jobs online

Variable costs

  • Dining out
  • Shopping
  • Travel and vacations
  • Hobbies
  • Subscriptions
  • Cable tv/satellite TV
  • Entertainment
  • Clothing
  • Transportation
  • Child care? : If you unemployed you won’t need to pay for that now as you will home. However once you get a job you will need it. So it’s a tough call whether you can drop this or not. So it is timing dependent.

The items on the variable list is what you are going to chop if times get hard.

Have your resume ready to go and networks warmed up. You want to hit the ground running.

Survive the Recession

If you still have a job then keep it. Now is not the time to switch jobs or dream about career changes. Work hard and add value. Help the company or organization. Be a team player. You want to keep that job at all costs. If someone is going to get cut don’t let it be you.

Job losses happen. It’s a fact of life. I know many successful people who have lost their jobs but all have gotten back on their feet. This was due to mass layoffs where 1000 -3000 people got cut in a cycle. It’s not personal. Companies need to align their costs with their now lower revenues. We as people are costs on the P&L.

If you get laid off

Try to get a severance check. These range from a few weeks to many months. To get this money from your company you will need to sign an agreement that you won’t sue them for discrimination etc. If you want that money you will need to sign. If you have a strong case for discrimination then go see an attorney before signing. Most will sign. You need to save this money not spend it.

The next day go to the local unemployment office and make a claim. There is no shame. You have been paying into the fund all these years. This is your money to take. Usually it will be six months of cash flow. It won’t be as high as your income but could be 1200 to 2000 per month. Keep in mind this money is taxable. It is considered income on your tax return and you did have other income from your job so it will be your normal tax rate too.

Cut those variable costs to the bone based on your prioritization above.

Now that you are home with nowhere to go on a Monday morning get busy with your job. What job? Your new job is to find a job! If you are white collar professional I recommend you work on this from 8 am to 6 pm on week days just like you were going to the office. This means applying for jobs, scouring web sites and doing interviews on the phone and in person.

Now is also the time do to those side jobs to bring in money. Uber driving, working at the coffee shop, waiting tables, operating a cash register, running errands, stocking shelves or flipping Big Macs for the money. These could limit your unemployment comp so check into this.

Consider temp jobs. If there is a three month job or six month job in your field you may want to take it. If you work hard it could turn into a permanent job. And if you find a real job then quit. It’s not like you owe them something. You are a temp! Thanks for the pay guys! At least you will be getting cash flow coming in and your skills won’t atrophy sitting at home watching TV.

Be willing to relocate. If there are no jobs in your town consider relocation. Some other cities and industries may not be affected as much and may have good openings. Don’t write these off. Once you have moved once it won’t be as big of a deal. You don’t need to sell your house right away either. Just rent and get a feel for the new town first. You might like it better than your existing one after a while.

It bugs me when people stay in their small town and complain there are no jobs. No risk no return! Go where the money and jobs are. Back in the day they called this Go West Young Man or something like that. I’ve had to move several times and that’s the way things are now. Jobs don’t come to you. You go to the jobs.

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