108: Planning For A Recession: Emotional & Financial Survival Tips
Planning for a Recession
To plan for a recession, it’s first important that you understand what a recession is, and that recessions are a normal part of the economy. People define recessions differently, from an “economic contraction” to two consecutive quarters of negative GDP growth, or the job market not being as competitive or good for job-seekers.
Recessions are a normal part of the economic cycle: growth or expansion (almost eight years on average) and slow down or recessions (just shy of a year on average). Typically growth slows, the job market might not be as competitive, and people hold onto their money more tightly and spend less on non-essential consumer goods and services.
“Recession-proof” is kind of a lie: an individual might be able to put some things in place to protect themselves from the biggest impacts of a recession. However, we cannot prevent a recession from happening. There are two types of planning for a recession: emotional survival and financial survival.
Recession Anxiety
Recession anxiety is when you feel nervous, worried, or on edge about the potentiality of a recession or during a recession. Emotionally preparing for a recession means remembering that there are periods of growth and periods of slow down in our economy.
We’ve been trained to think that nonstop growth is normal and “good.” Think about other types of healthy cycles that happen in nature: bears go into hibernation, certain plants only bloom in the spring, etc.
If you are listening to this podcast, you’ve survived a recession before. The 2008 recession was the worst economic downturn since the Great Depression. And depending on how you define a recession, some economists will say we had a short recession in the spring of 2020 when the pandemic initially hit, and unemployment skyrocketed.
A few things you can do to cope with recession anxiety by taking care of your emotional self:
Positive self-talk. Remind yourself you’ve survived past recessions
Get emotionally grounded. Practice getting emotionally regulated and grounded before making big financial decisions. Wait 24-48 hours before making a financial decision and ensuring that you decide from a wise place, not a reactive place.
Get in touch with your numbers. Start–or restart–regular money dates to have a better understanding of what money is coming in and what’s going out
Revisit creative activities and hobbies. Get creative finding new lower-cost hobbies and activities
Recession Survival Tips
Financial planning for a recession is something we can do on an individual level. Again, remember that we cannot stop a recession from happening. We can only take care of our personal financial landscape.
In my opinion, there are a few bad takes floating around. A bad take I heard recently was, “don’t ask for a raise; just get a side hustle.” This was most recently, and loudly, voiced on the NY Times’ podcast The Daily as they argued that asking for a raise only makes inflation worse, which then worsens the economy. Remember: as individuals, we cannot control the economy; we can only change our personal financial landscape. So blaming a recession on individuals asking for raises is a prime example of individualism and shame baked into our society.
Another bad take is “take out a personal loan to have more cash on hand.” While I’m okay with folks refinancing or consolidating debt, remember what you risk when doing this. It’s risky to leverage your house, car, or other belongings to have more cash on hand.
And the last terrible take I heard on how to survive a recession is not to tip or to tip less to employees who rely on tips instead of hourly wages or salaries. As a person who wishes service industry workers' compensation was different (and worked in service for nearly a decade), until the industry changes, do not punish the workers by not tipping.
Instead, here are several ways to plan financially for a recession:
Bulk up your emergency fund. Save more if possible to create a larger financial safety net. Perhaps you felt ok with a three-month emergency fund; you can consider bulking it up to a four-six month stash instead.
Dust off your resume. Make sure your resume is up-to-date with all of your new skills, certificates, and responsibilities in the event of a company downsizing.
Pay down high-interest debt. Anything over 8% interest needs to be prioritized.
Dial back non-values aligned spending. Review your spending and trim down areas that don’t align with your values.
Careful when you log into your retirement account If you’re more than 10 years away from retirement, don’t look at/touch your retirement account. Keep contributing as you’ve planned!
Look into community mutual aid and government assistance. If your income drops or you haven’t thought you qualified for aid in the past, you might. You might not have thought of apartment subsidies, Medicaid, food assistance, and transportation credits as things you can access, but I encourage you to double-check. In the U.S., we’ve made “government help” a dirty phrase, but if you need it, use it!
And if you need more guidance…
If you need more guidance on spending intentionally, my step-by-step workbook, The Financial Anxiety Solution, can help you stop worrying about money, take control of your finances, and live a shame-free life! The Financial Anxiety Solution is available via Amazon or your retailer of choice! Available in both digital and paperback format.
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Welcome back to the Mind Money Balance Podcast, episode 108. We are continuing on August theme, with sunnier takes on scary financial stuff. So today we are covering how to plan for a recession, of course, financially, but also emotionally and why you don't have to freak out, maybe as much as you feel like you should be freaking out.
So before we get into how to deal with a recession, how to survive it financially and emotionally, let's first just figure out what the heck a recession is. And one thing to know about recessions is that they are norma and some economists would even argue that they are a healthy part of an economic cycle. And when it comes to figuring out what the heck a recession is, defining, it can be a little bit tricky. One reason that it can be a little bit tricky is that some people define recessions as two consecutive quarters of negative GDP growth. That means the economy has not grown for two quarters in a row or for six months in a row. But how do we know whether or not we have grown or not grown, we have to look back at what happened in previous months, which is why figuring out whether or not we're in a recession can be a little bit tricky. Other people say, recessions are more of these economic contractions or corrections, after a period of growth that was unsustainable, or was like growing too quickly, too rapidly. And we had to kind of slow things down or things had to slow down a bit. Now, other people say recessions are really defined by job opportunity or job growth availability. So it's a little bit tricky to know whether or not we're in a recession, outside of what the talking heads are saying on the news and things like that. But in general, I think of recessions as a normal part of an economic cycle, where we have kind of these growth periods in our economy, and then we have slow down periods in our economy. And what has happened, since we've kind of been tracking this stuff here in the US is that growth periods in our economy tend to be longer. And on average, we're talking about eight years on average of these cycles of economic growth. But as we know, things can't just keep growing nonstop forever, things have to slow down, or as I mentioned earlier, they have to kind of contract or reset. And that is when we call it a recession. And recessions are much shorter. They're about a year, actually 11 months on average, and so during these periods of recession, you're going to see things like economic growth, slowing, the job market might not be quite as competitive, people are more likely because of this fear of a recession coming or being in a recession, they might hold on to their money more tightly and spend less money on non essential consumer goods and services. So it's this weird thing where when we say we're in a recession, it freaks people out and they go, Oh, my gosh, we're in recession, I shouldn't send spend money. So they hold on to their money, they don't spend as much. And then because there isn't as much money kind of flowing through the economy, it actually tends to make things a little bit worse. And as you can see, our our economy is really built for this consistent exchange of cash, this consistent exchange of money that looks like buying and selling, buying and selling, I go to the grocery store, I load up my grocery cart, I pay for all of that food, and I go to work, and I get paid for my work, et cetera, et cetera. So there's this money coming to me and this money coming from me. And so when I'm fearful that I won't maybe make as much money or that my job might be on shaky ground, I might spend a little bit less the next time I go to the grocery store, thus, there's less money in that particular economy. So obviously, the economy is much bigger than us as individuals. But that's how it tends to impact us on a personal or an individual level.
So I've heard this term thrown around recession-proofing, and I had to do that voice because those are the types of people who are talking about it. But recession-proof is kind of a lie. Because an individual might be able to protect themselves from certain things happening in the economy or some of the bigger impacts of a recession. But me, Lindsay, as an individual cannot prevent a recession from happening. I can't proof or proof stop a recession from occurring. And so I want for us to think about how can we soften the blow of a recession? How can we cope in move recently with a recession, and then also, of course, like what are the things we can do financially speaking, to make sure that if we're in a recession right now, or if we look back and go, oh, shoot, we were in a recession that we are okay. So we're going to talk first about the emotional ways to survive a recession, and then the financial ways to survive a recession.
So first up is recession anxiety, you might have tuned in to this episode, specifically, because you're experiencing recession anxiety, I don't probably have to spell it out for you. But you're here. So I might as well, it's having anxiety around a recession happening, or during a recession. And the reason recession anxiety, in my opinion is so heightened is because in our society, it is drilled into us that we should be in periods of nonstop growth. And I'm not just talking about economic growth, think back to when you were a child and you were in school, perhaps you were an athlete, your coach was probably always drilling into you to get faster, to get more consistent with whatever sport you were playing, to get better, there was this constant pressure to improve, improve, improve. When it came to grades, you probably heard things from your parents or from other people in your life, Oh, you got a B, I bet you could have gotten an A or you got an A, why didn't you get an A plus, there's this constant pressure on us to get better and to be improving all the time. Shit, look at the self-help industry. It's all about saying, you're okay, you're like fairly decent, but you could be better, we should do some self growth, some self development, some self-help. This is kind of baked into our culture. And when it comes to the economy, we have really been taught that nonstop growth, record breaking stocks, record breaking incomes, record breaking housing growth, or development is all good. But let's just like sit back for a second. And acknowledge that consistent growth is actually not normal, or expected. Think about other things that kind of happen. cyclically, that we understand are a part of a natural cycle. Think about bears, they go into hibernation, they aren't constantly out fishing for salmon in the river and eating berries, they take these periods of deep rest, they literally need it so they can survive. Think about harvesting food. Food isn't consistently just at the growth and pick stage of food. It's often in phases of seeds link, small growth, then a flower, then a fruit or vegetable, then harvest time. And in between harvest time, we also have to do some regeneration to the soil. So it can actually be healthy enough and nutritious enough to feed the seeds that we plant in it. So we have this weird idea that things should always be exponentially growing, it should be that hockey stick growth model on a growth chart, but that's just not normal. And what makes it even harder when it comes to the economy is that as I mentioned in the intro here, we tend to be more likely to be in growth stages of the economy. Remember, we have about an eight year cycle of growth, and then about an 11 month cycle of non-growth. So for most of us, if we have, I'm just gonna round up because that makes it easier 10 years and an economic cycle, and eight of them are good, and we're growing. One of them is we're retracting, and one of them were kind of neutral 80% of the time, we're in a growth period. So it does feel like most of the time we're growing, we're getting better, our dollar is getting stronger. But what we forget about is that about 20% of the time, we're at a standstill or we are not growing economically, that is not always a bad thing. It is a part of making sure that the economy has what it needs in place to continue on a relatively strong growth path. So let's just acknowledge that recessions are normal parts of economic cycles, including growth, and I was gonna say stagnation, but I don't really love that word, but I can't think of anything else. So we're gonna go with it. And the other thing too emotionally prepare for a recession, is to remind yourself that you've survived a recession before. Literally, if you're listening to this podcast, you are old enough to have remembered the 2008 recession, which by the way, was the worst economic downturn since the Great Depression. In the 1920s, and here you are, a survivor, listening. And depending on which economist you listen to, when we think about defining a recession, some economists will say, hey, we experienced a short recession in the spring of 2020, when the pandemic initially hit, and unemployment skyrocketed. And if that's the case, then we've recently survived a recession.
So I want for you to think about four different things to kind of emotionally weather this recession, and survive this recession. One is just what I said, I've survived past recessions, and I'm certain I'll be okay to survive this one again. The second thing is to learn how to get emotionally regulated and grounded before you make big financial decisions. Before you leave a good job that you have, before you cash out of the stock market, before you buy or sell a house--make sure you're emotionally safe. And when I say regulated and grounded, I mean, literally making sure that you can breathe, you can think through your thoughts, rationally, maybe take a 24-hour/48-hour cooldown period before you make that financial decision. But be in a space where you feel like you are making the decision from a wise place and not a reactive place, emotionally. And then start thirdly, start or restart regular money dates. I know this is kind of a financial one, but it's integrated with our emotions. When we don't know what's going on in our financial landscape, personally speaking, it can be really hard to make wise financial decisions. So when it comes to recession planning, we need to get back into the habit or create a habit of having regular money dates. And that means looking at what's coming in and what's going out. What are the things that I can tweak? And am I spending in alignment with my values? And am I earning enough to feel safe? So being able to answer those questions readily will help you to kind of emotionally buoy or buffer yourself from recession stuff. And then the fourth thing is to get creative. And I mean, literally figuring out what are some new creative outlets that I can use to take care of myself. That could be lower cost hobbies or activities. Because when it comes to a recession, when people think about tightening the purse strings, they often think about pulling back from all spending. But we know that to be emotionally well-rounded and regulated, we have to have some fun in our life. So making sure that you're taking care of yourself, and finding ways to implement healthy self care, and healthy hobbies and activities into your life. And when I say healthy, I don't necessarily mean like physically going for a walk though it can be. I mean, literally emotionally, making sure that you're taking care of yourself, making sure that you have time to do something creative, like sing a song or complete a puzzle or engage in some watercolors or plant in your garden. Getting used to having creative outlets to help process some of that anxiety and literally move that anxiety out of your body can be a great way to cope with and plan for a recession, emotionally speaking. All right. Now moving on to recession survival tips from the financial perspective. Again, on an individual level, there are things we can do to buffer ourselves from a recession. But on a global level, or even on a country wide level, we cannot stop a recession from happening, we can only take care of our personal financial landscapes.
And before we go get into what to do to help cope with a recession, I want to talk about a few bad takes going around about how to deal with a recession. And this is my opinion, I'm entitled to my opinion, and you're entitled to yours. So I'm going to share three not-hot takes that I think you should avoid. But of course you know yourself best. Maybe these things work for you. And I'm not going to judge well, I might judge a little bit but you don't have to tell me about it. Okay. So a bad take that I heard on a podcast that I generally enjoy. I was listening to The New York Times' The Daily podcast, I think last week it came out and they had on, I think it was an economic reporter, Talking about how asking for a raise is a bad thing to do during a recession, because then it makes other people ask for raises. And then it means more people have money and if more people have money, more people are willing to spend and if more people are willing to spend it, makes the economy worse. It like truly made no sense in my head and I rewound it and listen to it again like no they literally were like don't ask for a raise, get a side hustle and I was like that is the most "I've bought into the capitalist kool-aid" that I've ever heard. I don't agree with that, I think it's totally fine to ask for a raise, if you're going to ask for a raise anyway, I don't think it's bad to get a side hustle. But I think telling somebody, don't ask for a raise, because it's going to make inflation worse and prolong the recession, I just think that's like a bad take. Another bad take that I have seen floating around is take out a personal loan, so you have more cash on hand. Let's think about this one. I'm not against loans. I'm not against credit cards. I'm not against that. But what I do think is important to consider is why? Why do you want to take out a personal loan? And also what is the rate? And finally, what are you leveraging to have that personal loan right now? Meaning, if you take out a personal loan, are they going to come after your house, your car, your belongings, in the event that you can't pay it back? We have to really think through this for some people, they like, Okay, I'm just going to take out a 10k personal loan so I can have cash on hand. Okay, great. And what are the terms of that loan? How do you know that after that 0% interest time ends, you'll have the cash available, some people will, and I think it's a great choice to do something like maybe reconsolidate your loans or reconsolidate credit cards from a high interest credit card to a low interest or no interest credit card. But this idea of taking out a personal loan just to have more cash on hand, feels really short sighted and risky to me. And the final tip that I heard to help you survive a recession that I think is just straight up garbage was to tip less if you go out to eat, like you cannot see my face right now because this is a podcast, but I can assure you, I am making the most scrounged up troll-like judgment eyes that I can find. Because in my opinion, if you can't afford to tip, you can't afford to go out to eat. Yes, this system is broken. But we don't punish the workers who rely on tips for sustenance and to sustain their livelihoods by saying like, Oh, I'm going to tip them 10% instead of 20%? Because it'll save me money. Well, yeah, but you're fucking somebody over in very real time if you do that. And yeah, I was a server from age 16 to 24. So maybe I feel this a little bit more. But I think anyone in the service industry would agree, look, if you can't afford to tip us then don't come out. It's actually really harmful. And maybe somebody out there saying, Well screw the system, I'm with you. I would love it if people in the service industry actually made thriving, livable wages, because that's really hard work. But until that system changes, don't screw over your server, don't screw over your DoorDash driver, if you can't afford to tip don't go out. Okay, so those are three hot takes that I think are not takes, okay?
So onto takes that I think are actually helpful when it comes to financially planning for a recession. Bulk up your emergency fund, I've said it before, and it bears repeating your emergency fund is cash you have on hand. And when I say on hand, I do not mean under your mattress, I mean, in a credit union or bank account, that is FDIC insured so it's safe there. In the event that you do lose your job in the event that your landlord does raise your rent in the event that something happens, you have cash on hand, and you don't have to put it on a credit card that is charging like 22% interest. So yes, bulk up your emergency fund $20 a week is better than $0 a week. Do not shame yourself for however much you do or don't have in your emergency fund. But I would say just throw a little bit more money there right now. I think it's fine. Okay. The second thing is to dust off your resume, it is true that in recessions it might be harder to find a new job. But there's also a potential risk of people laying off more workers or cutting your hours. So it's worth making sure that your resume is up to date. So in the event that you get pink-slipped or you lose your job, you have a resume ready to go that is up to date and can easily be you know, one click Apply on LinkedIn or you can easily upload it to a job application. So make sure that your resume is up to date. Make sure that your email is all fresh and gussied up make sure all of your current responsibilities are there. Okay. Then number three is pay down high interest debt especially anything over 8% interest, the more debt we have as we head into a recession that in my opinion, just it's more undue financial anxiety. So if you can put some money towards that high interest debt that will help with that emotional psychological burden of having some of that debt available. Forth, dial back non-values aligned spending, I will never tell you to cut spending for things that you need. But make sure that when we are heading into a recession, or are in a recession, you aren't spending on things that you don't really love spending your money on. Okay, so if there is spending, that is going out, going back to that money date from our emotional section, if there's money going out of your bank account right now, that is not really something you're super proud of, see, if you can dial back, you might not have to cut it entirely. Maybe you're going out to Starbucks two or three times a week, can you cut it back to once a week or once a month, can we really make it a treat? So dialing it back and then with that extra money that you have from not going out two or three times a week, maybe only once or twice a month, take that extra money and put it into your emergency fund or put it towards paying down that high interest debt, choose your own adventure, you could split it up, you could put a little here a little there. But when we're dialing back our spending, we actually have to take that money that we are saving and make sure that we are saving it by putting it into an emergency fund or putting it towards high interest debt. Next, if you are more than 10 years away from retirement, I'm actually going to give you full permission to put your head in the sand around your retirement account. Don't stop contributing, don't stop contributing, keep contributing as you've planned, but don't look at it. Truly, it's gonna make your emotions go haywire, to log in and see a red arrow pointing down and seeing this money that you quote unquote, have lost remember, you do not lose money in your retirement account unless you actually sell off whatever you own, okay? So don't look at it, full permission to not look at it keep contributing as you've planned, if you're more than 10 years away from retirement, because if history repeats itself, we will come out of this recession and you will continue to earn money on the investments that you have in your retirement account. And finally, I haven't really seen this floating around anywhere. But let's not forget that there are assistance in place that is available to you, if you qualify for it. Look into community mutual aid and government assistance. If your income drops, or maybe you thought you didn't qualify for aid in the past, check again. You might not have thought of things like apartment subsidies, Medicaid, food assistance, and transportation credits is things that are available to you, but double check. In the US we've made government help like a dirty word or dirty phrase, but it is there for a reason. And I encourage you, if you qualify for it, use it. That is what it is there for. And to me taking the aid and assistance that is available to you is kind of a part of being a part of the system. We forget that when we pay our taxes, we are supporting things, like additional assistance for people in our community. So make sure that you check in and see Hey, maybe I can get that farmers market bag of produce once a week, maybe that is something available to me through community aid, community mutual aid, maybe I've been paying out of pocket for my health insurance, but my income is such that I actually qualify for Medicaid and probably can get insurance for free or at a very low cost. Look around for different apartment subsidies. Depending on your income, you might qualify for apartment subsidies that cover things like first and last month's rent or cover a portion of your rent. There's nothing to be ashamed of by getting the help that is built in and is there to be available to you. So those are the things I would recommend to you: one, bulk up your emergency fund. Two, dust off your resume, make sure it's up to date. Three, pay down high interest debt. Four, dial back non values aligned spending. Five if you're more than 10 years away from retirement, don't look at your retirement account, keep on contributing as planned. And finally, six, look into community mutual aid and government assistance and see what you might qualify for.
So those are some financial and emotional tips on planning for and surviving a recession. And if you take nothing away from this, just remember that you will get through it and we will get through it when we cope with our emotional side and our financial side. Okay, and I'll see you in a couple of weeks while we cover a sunnier side of things. We're going to talk about money stories and money mindset. I'll see you then!