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Preparing for a Recession: 24 Things You Should Know for Financial Stability and Survival ∙ FAQ

Updated: Jan 31, 2023

A recession can be a difficult and uncertain time, but with proper preparation and understanding, you can weather the storm. Get ahead of the curve and protect your financial future during a recession. In this article, we'll cover what you should know about a recession and how to prepare for one.

Recession Sign Ahead

Recessions are an inevitable part of the business cycle and can have a significant impact on individuals, businesses, and the economy as a whole. In this article, we will explore what a recession is, what you can expect during a recession, and what you can do to prepare for and survive a recession.

What are the signs of a recession?

There are several indicators that a recession may be on the horizon, including:

  • A decline in Gross Domestic Product (GDP)

  • Increased unemployment

  • Decreased consumer spending

  • Declining stock market values

  • Rising interest rates

  • Decreased business investment

What are the 5 stages of recession?

  1. Early stage: characterized by declining economic activity, decreased consumer and business spending, and a decrease in stock prices

  2. Full-blown recession: marked by declining GDP, increased unemployment, and decreased economic activity across a range of industries

  3. Trough: the lowest point of the recession, characterized by a stabilization of economic activity and the beginning of a recovery

  4. Recovery: characterized by growth in the economy, an increase in consumer and business spending, and a rising stock market

  5. Expansion: marked by sustained economic growth, low unemployment, and increased consumer and business spending.

How long do recessions last?

The length of a recession can vary, but on average, recessions last about one to two years. The length of a recession is determined by several factors, including the severity of the recession, the actions of policymakers, and the state of the economy.

"Economic recessions are periods when the economy is running below its full potential, typically characterized by high unemployment, slow growth, and falling prices." - Janet Yellen

What to do if recession hits?

  • Review your budget and spending habits, and make any necessary adjustments to prioritize essential expenses

  • Consider reducing or temporarily suspending non-essential expenses, such as dining out or entertainment

  • Increase your savings, and consider building an emergency fund to help weather job loss or decreased income

  • Review your investment portfolio and consider diversifying to reduce risk, seeking professional financial advice if needed

  • Stay informed about the economic situation and be prepared to adapt to changes in the job market, such as seeking new job opportunities or additional training to increase job security.

What should I buy before a recession?

Before a recession, it's important to invest in a diversified portfolio of assets, including stocks, bonds, and real estate. You should also consider creating an emergency fund, which can provide you with financial stability during a recession.

Where do you put money before a recession?

In the lead-up to a recession, it is important to consider diversifying your investment portfolio to mitigate risk. This may include investing in a mix of stocks, bonds, and cash, as well as considering alternative investments such as real estate. Seeking professional financial advice can help ensure your investments are aligned with your overall financial goals and risk tolerance.

What's the best thing to do in a recession?

The best thing you can do in a recession is to prepare and be proactive. This includes creating a budget, saving money, paying off debt, and investing in a diversified portfolio of assets. You should also consider creating an emergency fund, which can help you weather any financial storms during a recession.

What happens to the average person during a recession?

During a recession, the average person can expect to experience a decrease in their income, a rise in unemployment, and a decrease in the value of their investments. Many people may also experience financial difficulties, such as bankruptcy, foreclosure, or debt.

"A recession is when your neighbor loses his job; depression is when you lose yours." - Harry S. Truman

What should you avoid during a recession?

During a recession, it's important to avoid making impulsive or hasty financial decisions. This includes taking on new debt, making risky investments, or overspending. You should also avoid withdrawing money from your retirement account, as this can have long-term consequences for your financial future.

How much money should you have in a recession?

How much money you should have in a recession will depend on your specific financial situation, including your income, expenses, and debt. As a general rule of thumb, financial experts recommend having three to six months of living expenses saved in an emergency fund. This can provide a safety net in the event of job loss or decreased income during a recession. Additionally, it's important to have a diversified investment portfolio, including stocks, bonds, and cash, to help mitigate risk during a recession.

Who benefits in a recession?

While a recession can be difficult for most individuals and businesses, some individuals and companies may benefit from a recession. For example, companies that provide essential goods or services, such as healthcare or utilities, may see an increase in demand during a recession. Additionally, investors who are well-prepared and have a diversified portfolio may also benefit from a recession.

Woman Suffering from Recession Stress

Who suffers most in a recession?

During a recession, individuals who are heavily invested in the stock market, those with high levels of debt, and those who are unemployed or underemployed are likely to suffer the most. Small businesses and companies that are heavily reliant on consumer spending may also be negatively impacted by a recession.

Do things get cheaper in a recession?

During a recession, some goods and services may become cheaper, as demand decreases and companies look to reduce costs. However, other goods and services, such as healthcare, may become more expensive, as companies try to offset decreased revenue.