A recession is coming.
Time will tell if the recent spike in the unemployment rate and the weak July jobs report lead to a full-blown recession later this year.
But whether the recession hits you next week or several years from now, you’ll feel the sting eventually.
Recessions are inevitable, and they are never good news. However, those who prepare for hard times can actually benefit from them when they come.
The following are some ways you can survive and thrive during a recession – but only if you prepare now.
1. Collect money to buy stocks when they are cheap
The research is clear: Trying to time the stock market is a fool’s errand.
Study after study shows that investors often panic and bail out of stocks at the wrong time. As a result, the average rate of return for investors is often worse than that of the market itself, according to research firm Dalbar.
History shows that many investors can do better simply by buying a wide variety of stocks – such as an index mutual fund – and holding those funds for a long time, periodically rebalancing their asset allocation.
But anyone who felt the pain of the market crash of 2008 – or the mild bear markets of 2020 and 2022 – knows how difficult a buy-and-hold strategy can be. So, here’s a little trick that can make a bear market a little more… well, a bear.
Start building a cushion of money so you can invest that money – either in lump sum or dollar cost averaging – if the market drops by a certain amount, such as 20%.
Are you guaranteed to make a killing with such a strategy? No. In fact, you can invest to see the market move forward. But history suggests that the lower the market goes, the higher it will eventually rise when the market recovery begins.
2. Shop credit for a loan
During a recession, lenders tighten the purse strings, and access to credit becomes difficult. In times like these, you will need a high credit score if you hope to get a loan.
Building a high credit score doesn’t happen overnight. So, don’t wait until the economy goes south to improve your credit standing. Start working now on making sure your credit is in top shape.
For tips on improving your credit, check out “What’s the Fastest Way to Improve My Credit Score?”
3. Save money so you can snag a bargain home
In many markets, housing prices are very high. But the recession could change that.
Delaying the purchase of a home in the hope that prices will eventually come down – and you will get a profit – can be a mistake. Like the stock market, timing the housing market rarely works.
But “rarely” does not mean “never.”
If you guess right – or if you plan to buy and look at the right time – you may be able to buy a home at a lower price when other buyers hit hard economic times and decide to sit on the sidelines.
After all, having fewer buyers means sellers will be more interested in selling to you at a reduced price.
Save cash now for a fat paycheck and be ready to pounce when times get tough and great deals on homes come along.
A down payment will not only help you secure a more affordable mortgage, but it will also lower the amount you need to borrow – a two-way savings.
4. Plan big expenses now and save for later
Sadly, the recession leaves a few people untouched. Newly successful businesses may be looking for new sales and revenue.
The same goes for your local contractor. If you’re planning — and saving for — a big home improvement project now, you can save big by hiring contractors who are willing to work for less when times get tough.
This tip also applies to other big-ticket items. For example, car dealers may be more willing to negotiate when sales are slow, and resorts may lower prices just to keep customers – and revenue – coming.
5. Be prepared for a career change
Do you hate your job? Even if the answer is “yes,” you may feel compelled to stay in your current job if the pay is great and the position is stable.
Still, it never hurts to dream. So, start thinking about something else you would like to do. Educate yourself on new career paths until you find something that seems right for you.
If a new job requires school, get all your ducks in a row — look into local or online programs to save money — and be ready to go back to the classroom if the economy takes a downturn and you find yourself in the wrong position of being laid off.
During a recession, fewer companies will hire. But rather than trying to fight that wave, you’ll be in a position to ride it by going back to school and training for a new job. With any luck, you’ll come out of school fresh and ready to move on just as the economy picks up again.
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