How to Survive a Recession

Surviving a recession takes diligence and patience, but it is possible to escape economic turmoil relatively unscathed. Consider your career choices carefully, monitor spending and cut back wherever you can, and you'll be able to wait out a recession. This article is structured to help you focus on each area of your financial outlook separately: career, financial, and personal. However you choose to proceed, know that there are indeed ways to survive a recession. If you're careful and have the necessary foresight, you might even find yourself making the most of a difficult financial climate.
Recession Survival Tips
1. Make yourself irreplaceable at work to avoid layoffs.
2. Think about skills you may want to build to remain current in your industry.
3. Invest carefully and make sure your investments are well-diversified and allocated in a way that makes sense.
4. Pay down debt as rapidly as possible to focus on necessary expenses.
5. Keep a tight leash on spending and consider reducing what you pay for "nonessentials" to save more money.
6. Be sure to build an emergency fund in case you lose your job or are faced with continued financial hardship.
7. In a true financial crisis, consider taking out a home equity loan to cover costs temporarily.
8. And don't panic: recessions don't last forever.
Disclaimer

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

Introduction
- What does a recession mean to the average American? Lost jobs, the paralyzing effects of inflation, and struggles to pay mortgages and monthly bills. While there are practical strategies that will help you survive a recession, it's also important not to panic, and to retain a sense of optimism that it will end while the economy repositions itself. Just as a recession is usually the result of multiple factors—essentially the perfect storm of poor stock market performance, job loss, and crises like the subprime mortgage disaster—surviving a recession will require a multi-faceted approach, from clipping coupons, and avoiding debt.
Your Career
- Though there have already been major layoffs across certain industries, particularly within financial services, it's likely that job growth will remain stagnant for the next year at least.
- Making yourself indispensable at work is one way to deter layoffs and hold on to your job. But there are other considerations to be made depending on your field of expertise.
Consider the Industry
- Are you in a position that rarely fluctuates with the economy? Despite an impending recession, it may not be time to worry yet.
1. Industries likely to suffer from a recession include: banking, real estate, home construction, home retail and repair, and home manufacturing companies.
2. Auto manufacturing, those in the insurance industry, and even engineers and architects are likely to be hard hit, as well.
3. If you rely on sales commissions for the bulk of your income, and particularly if what you sell are "consumer nondurables" like automobiles, you may want to start thinking of other ways to stabilize falling income.
4. Where you live will also play a role in the job market.
  - According to MSN Money, states like California and Florida may find fewer job prospects because of their struggling real estate markets, while New York will be difficult for bankers and mortgage brokers because of the subprime mortgage crisis, and manufacturing heavyweights like Michigan will find a lot of people out of work in 2008.
5. If you're searching for a new career, MarketWatch predicts that for 2008, major retailers like Wal-Mart and J.C. Penney will be hiring.
6. MarketWatch also suggests that 2008 will be a good year for bankruptcy lawyers, teachers, and those in the hospitality or healthcare industries.
7. And if you are laid off? File for unemployment benefits right away, as it will take some time for your paperwork to be processed. Use your downtime to research alternative industries and career options.
Sharpen and Update Your Skill Set
- If you think your job is in jeopardy or you are about to see major dips in income, consider the following ideas to jumpstart your career and make yourself even more needed at work.
1. Start training classes for a new career while you still have a job. That way you'll be ready to make a transition much sooner, if necessary.
2. Consider getting creative with your job title. Think more about your skills in general rather than the specific tasks you know how to do. This reassessment may help qualify you for jobs you hadn't considered before.
3. If possible, get better at the job you already have. To earn more money, work additional hours.
4. Or try getting a second job to help ride out the storm while keeping your primary career intact.
5. Challenge yourself to learn more about the industry you're in. Ask yourself what skills you'll need to brush up on to remain current, particularly as the economy may affect what you do and how your company reacts to market changes.
Make Yourself Indispensable
- It may be easier than you think to figure out ways to help your boss or company succeed, simultaneously making you untouchable when it comes time for layoffs.
1. Stay and look busy by arriving early and leaving late. And skip those long lunches out of the office.
2. Brainstorm how you might ease the pressure on your boss to make yourself a crucial member of his team.
3. Volunteer for extra projects and be willing to do what it takes to finish them on time.
4. And don't forget to keep detailed notes about such projects so you can tell your boss why you matter to the company, or simply so you have a concrete list of accomplishments that you can discuss with a future employer.
Keep Networking
- By keeping yourself in the know when it comes to current job prospects, you'll be poised to take advantage of the right opportunity.
1. Even if you still have your job, now is the time to network like mad so that you'll be ready to jump on a job opening that may offer more security or higher pay.
2. While you may find it awkward to discuss a bad job situation, or that you've been laid off, if you can muster the courage to ask friends how they can help instead of just accepting their sympathy, you may be on your way to a better job, or at least a few helpful meetings.
3. And if you're less comfortable talking to friends about how they can help, you could try contacting a job seeker's help line, or seeking out a job coach or counselor who may be able to offer just the objective advice you need to start your search.
Additional Earning Potential
- Start thinking beyond your salary to mine other talents and resources.
1. Rent out a room in your house to earn rental income. If you live alone, try finding a roommate to split the rent and share heating, cable, and other household costs.
2. Sell items you no longer use on eBay or Craig's List and then invest the money you earn.
3. Do you have skills that you could use in contract positions? Freelance writers, consultants, public relations professionals, educators, and lawyers may be able to do some work on the side for extra cash.
4. Might any of the hobbies you do be lucrative? Knitting sweaters or making other crafts could bring some additional income if you have time to complete projects.
  - In the worst case scenario, you can work on these projects if you are laid off and having a difficult time finding a new job.
Your Investments
- In a fluctuating market, you'll want to be protective of your investments, too.
General Considerations
- You should talk with your financial adviser about making changes to your portfolio or allocations within funds. That said, there are a few basic rules for investing in an economic downturn.
1. To avoid major losses, it's crucial to diversify your portfolio, spreading your investments across a wide range of stocks, bonds, real estate and other investment vehicles.
2. As hard as it may be psychologically to keep investing in a falling market, you've got to keep putting money into the market at regular intervals because it is simply unclear what will perform best in the future.
3. When inflation is causing prices to rise so that even basic goods cost significantly more than they have in the past, it makes sense to invest in stocks, because every dollar you save is becoming worth less compared to what goods cost.
4. It may also make sense to invest in "TIPS", or Treasury Inflation-Protected Securities. You can learn more about TIPS at Treasury Direct.
5. In a traditional bear market (defined as a market "accompanied by widespread pessimism"), it's best to sell early if you've made a bad investment, even if you have a hard time admitting you've made an error. Selling later will often mean greater losses, not to mention higher anxiety as you watch and wait for a stock to turn around and it never does.
6. But, if your portfolio is already well-diversified in a way that you're comfortable, it's best to leave things well enough alone.
7. If you suffer considerable losses in the market and sell stocks as a result, don't forget to offset your losses against next year's capital gains earnings on your taxes.
Buying Stocks
- While a recession will certainly make most individuals tighten their belts and try to shave costs wherever possible, it may also be smart to change up your investments and actually buy stocks that have the potential to surge.
1. Industries that are lower risk investments include utility, health care, and energy.
2. Be careful when buying bonds or bond mutual funds, which tend to bring lower yields.
3. Bank investments are still risky as we still don't know how the subprime mortgage crisis is going to continue to unfold.
4. Energy stocks are particularly good values compared to their prices.
5. Check out what the experts at CNN Money have to say about the safest investments to make during a recession.
6. No matter what you invest in, be sure to think long-term so your investments have time to mature. "Market-timing" is a risky venture that very few actually succeed in doing.
7. And a final word to the wise: remember that the best way to earn money is by working and doing work you enjoy, and then investing that money carefully and conservatively.
Your Spending
- One area you have near total control over is your spending. A recession is the time when most consumers tighten their belts and start analyzing their monthly bills to see what can be cut.
Make a Budget
- It's critical to have a precise understanding of exactly what is coming in and going out on a regular basis.
1. See Mahalo's guide to How to Make a Budget for helpful tips on creating your first budget.
2. Once you've organized your income and expenses, determine how long you would be able to meet basic expenses if you lost your job.
  - If you don't have enough in savings to cover costs for at least a few months, you've just determined your first priority: start an emergency fund that will grow to cover three to six months of expenses should you lose your job or face a crisis.
3. As a general rule, you should be saving at least 10% of your income, or else you are overspending.
4. Carefully analyze your budget to see where you might be overspending.
5. If you're in a serious relationship, sit down with your partner to discuss spending, income, and where there seem to be problems.
Reduce Unnecessary Spending
- Because it doesn't look like the cost of food and gas are going down anytime soon, you'll need to think about cutting expenses to save money.
1. If you're a recent grad on the job hunt, it may make sense to bite the bullet and move in with Mom and Dad. Saving the money you would be spending on rent will let you extend your search for a job you really want and will give you extra to pay off student loans faster.
2. Use any windfalls or tax rebates to add to your emergency fund.
3. Figure out your "latte factor"—any nonessential regular expense. Think about alternatives that are feasible to cut costs and put more into savings:
  - Make coffee at home
    Bring your lunch to work (don't forget that eating at your desk makes you look more productive!)
    Rent movies instead of seeing them in the theater
    As oil prices continue to skyrocket, think about public transportation or try to carpool with workmates
    Host potluck dinners with friends instead of going out to expensive restaurants
    Buy used goods whenever possible
    If you do need to buy clothing, wait for it to go on sale, which in this market, it probably will soon
    Take out books from the library and read magazines there
4. And though living through a recession can create stress, don't give in to the temptation to spend money to feel better—in the long run, you'll only be more anxious about your financial future.
Try to Lower Monthly Bills
- While cutting back on extras is a huge help, you may be able to lower what you perceive to be mandatory expenses, as well.
1. Read Mahalo's guide to How to Save on Your Energy Bill to figure out how to cut energy costs. With oil costs skyrocketing by the day, cutting energy costs will be a huge way to save.
2. Reduce minutes on your cell phone plan and monitor your usage closely to avoid being charged pricey overages.
  - If you have a live-in partner or spouse, consider combining plans to get better savings.
3. What monthly expenses might you be able to live without? Can you highlight your hair at home? Can you wash and iron shirts yourself instead of having them professionally laundered and pressed?
4. Look at your budget for regular expenses and think carefully about what you could cut out or switch to a cheaper alternative.
  - "Nonessentials" like cable television or getting takeout several times a week are things you can likely live without.
Additional Considerations in an Economic Downturn
- If you've covered your major areas of concern when facing a recession, it's time to think about the finer details that could make a difference.
Managing Debt
- Paying down debt while you are still afloat is crucial.
1. Use any extra money you earn to pay off debt. If you do lose your job and your expenses continue to skyrocket due to inflation, you'll have that much extra each month to manage necessary costs.
2. Pay off credit cards as soon as possible, even if you have to dip into your emergency fund to do so. If a crisis hits while you are still building the fund back up, use the credit card, but otherwise take the time to build back the fund with money you're saving on monthly payments.
3. And a recession is certainly not the time to rack up new debt. Try to postpone major purchases like new cars, for example, and wait until you've weathered the storm before applying for any additional loans.
4. If you are struggling to pay your mortgage, consult a credit counseling agency like the NFCC for advice.
5. You may want to try to consolidate debt to lower monthly payments and save on high interest rates.
6. Try calling credit card companies and asking them to lower your interest rate to save more in interest payments.
7. If you are a recent graduate, you may wish to consider deferring student loan payments or applying for student loan forbearance so you can resume making payments when you are in better financial shape.
8. See Mahalo's guides to How to Get Out of Debt and How to Reduce Student Loan Debt to learn more about managing common debt problems.
Health Insurance
1. Research your health insurance options with a spouse or partner in anticipation of being laid off. That way you'll be prepared if the worst happens, and adding yourself to a significant other's policy is usually less expensive than paying for your own coverage.
2. Most employers will let you remain in their group plan for a period of time after being laid off, but you'll likely be responsible to pay for it.
3. You might want to figure out exactly how much your health insurance will cost if you do lose your job to build up your emergency fund accordingly.
Getting More Drastic
- If times really do get tough, you may have to make more drastic changes to survive a recession.
1. While you still have a job, try applying for a home equity loan, which will allow you to have money on hand in case you are laid off or have an emergency.
2. In a real emergency, you may also be able to withdraw funds from your retirement account, though you may incur significant fees in doing so.
3. You may also wish to temporarily reduce your contributions to retirement in order to build your emergency fund.
  - Once your emergency fund is solid, make sure to max out contributions to retirement yet again.
Conclusion
- While living through a recession may not be quite as carefree as earlier halcyon days, it might also be an important time to understand your financial picture and realize how crucial it is to be prepared for any emergencies that may come your way, including an unexpected layoff or a significant dip in the stock market. By thinking carefully about your career, your investments, and the way you handle money, not only will you survive the recession you're in, but you'll be that much better disciplined for the future, freeing up more money over time for the things you really want to invest in: a home, your career, and the future.
- Good luck, and don't forget the cyclical nature of the market when you're feeling down: it will surge again in a matter of time.
Resources for How To Survive a Recession