How can you protect yourself if there’s a recession?
The economy goes through different cycles and sometime enters a bad time, often called a recession. I personally graduated college at the start of the last major recession, in 2008. (I’m guessing most people reading this remember that time well.)
How will we know if we are living through a recession?
There are many indicators, the most official one being when the economy shrinks for two straight quarters (six months). That means there’s been less purchasing by companies and therefore less production.
Generally speaking, a recession is defined by a significant decline of economic activity for an extended period of time in many sectors of the economy across multiple locations.
A significant decline in economic activity means that people have stopped spending money on goods and services for a while, causing businesses to make less money. In turn, those businesses cut costs by buying less from other businesses and cutting jobs. So real income, the employment rate, industrial production and both wholesale and retail sales drop. Read more about real income.
The 2008/2009 recession was heavily associated with a housing bubble. That time the value of homes rose too high, then the bubble “broke” and many people were left with mortgages (debt) on homes that were greater than the value of the home.
Many people lose their jobs, but a recession hurts everyone, even if you still have a job. The costs of goods usually rise, and there is more uncertainty about whether you will keep your job.
For it to be a recession, it generally has to affect many different industries across the country. So it’s not just that people aren’t spending as much on, say clothing, but pretty much all spending declines. Similarly, the issue doesn’t just occur in one location, say because of a natural disaster, but in different states and in rural, urban and suburban areas.
Often a recession is technically over before it feels like it’s over. The economic shrinking of the last recession lasted from the end of 2007 to late 2009, but the unemployment rate didn’t return to its pre-recession level until 2014.
After some time, the situation changes, either due to attempts to revive the economy or natural forces. But people start buying again and the economy grows.
Recession is defined by economic decline. But even as the economy grows again, it takes time to return to the employment levels that existed before.
So, how can you best protect yourself?
Two things you could try to do today are paying off as much debt as you can and trying to save money for later. But those are pretty hard, so how about this?
Start preparing now to look for a new job in case you’ll need it.
- Reach out to people in your network and work on growing it now.
- Redo your resume.
- Take any educational opportunity your job is offering.
- Look for a second, even super part time or freelance job so you’ll be in the door with that company already.