Another Great Recession is coming - and not like the one we had in 2020. This next Great Recession will be longer and more impactful. Unfortunately, I don’t know exactly how long and how deep, but I know there will be a bigger recession. But, an upcoming recession doesn’t have to be all bad.
During the Great Recession of 2008, and subsequent years , Amon and I were able to really take advantage of the situation around us. We both got promotions, got new jobs, started a side hustle, and started investing more heavily in the real estate market. We did really well for ourselves during that time, and now, in anticipation of another great recession (whenever that may be!), I want to share with you guys how you can not only survive during the next great recession, but thrive!
First, how to survive . . .
1. Understand your Unemployment Benefits
This one may seem obvious to some, but considering the fact that at the height of the 2008/2009 recession, only 50% of eligible people actually applied for unemployment benefits, it's something that can’t be overlooked. During the Great Recession, half of the people who could have been receiving money didn’t even apply! Make sure you’re not one of those people by taking some time out now to: 1) determine if you’re eligible; and 2) understand how the system works. Specifically, you need to understand how much money your unemployment payments will be and how long you will be receiving those payments for. This information is crucial to developing a budget and managing expenses.
2. Have an Emergency Fund
An emergency fund is a separate fund where you keep savings that you can live off of for at least 3-6 months. As I’ve mentioned countless times before, this is SUPER IMPORTANT - not only in case of recessions, but also for your regular day-to-day life.
3. Don’t Overextend Yourself
When the economy is doing really well, it's pretty common for people to go out and start splurging on new, expensive toys like luxury cars, bigger homes, and fancy electronics. If this sounds like you, I'd advise rethinking these purchases. By overextending yourself, you’re essentially putting yourself on the hook with even more debt, while at the same time spending money that you could be saving/investing instead. Personally, I find that it is NEVER a good time to overextend yourself, and this is especially true with an impending recession. Quite frankly, you never know what’s going to happen during a recession and how badly you might be financially impacted. So just don’t put yourself in that position.
4. Pay Off Bad Debt
Bad debt can include things like high-interest loans, high-interest credit card debt, balloon payments, and even auto loans. This type of debt should always be paid off as soon as possible. Like I mentioned, anything can happen during a recession. You could lose your job or have your hours cut and suddenly no longer be able to make even the minimum payments. If you’re caught in this kind of situation, any bad debt you have can eat you alive. So take the opportunity now, while things are going well, to prioritize paying off this bad debt.
5. Do NOT Go Back To School
During the Great Recession, the number of people applying to grad school shot up, with a 20% increase in people taking the LSAT and a 13% increase in people taking the GRE. I mean, it makes sense that people would gravitate more to higher education during recessions, when job security becomes less certain and it becomes harder for new grads to find jobs. And this isn’t necessarily a bad decision, but problems arise when people treat school as a “useful” way to kill time instead of a carefully thought out investment. It seems like going back to school has sort of become the default for a lot of people during a recession simply because they don’t know how else to spend their time and figure getting another degree or diploma can only be a good thing.
To be clear, I’m not saying that going back to school is always a bad move- there are a lot of situations where doing so could absolutely be the right move. What I am saying though, is that going back to school should not be the default option because there are some significant drawbacks.
For instance, there is an opportunity cost to going back to school, especially if you go back full-time. All the time that you’re in school is time that you otherwise could have been working and making money. Also, when you go back to school, it is likely that you’ll be taking on more debt in the form of student loans. So when you’re thinking about going back to school, just make sure you really evaluate the cost-benefit analysis and make the best decision for your future.
So, now you know how to survive. Let’s talk about how to thrive!
1. Consider Starting a Business
It may seem counterintuitive at first, but there are a lot of reasons why starting a business during a recession is a great way to thrive! Many iconic businesses like IBM, General Electric, General Motors, and Disney started during a recession . . . and for good reason. Generally speaking, during recessions things are cheaper, there are lower interest rates, there is less competition, and there is an abundance of qualified people to employ. On top of that, there are also often great government incentive programs available because during recessions the government is looking for people to start businesses, create jobs and help kickstart the economy.
If building your own business from scratch isn’t really your cup of tea, you could also consider buying a struggling business out right. During a recession, there’ll be a lot of failing businesses out there, and this might provide you with an opportunity to buy a promising business at a bargain price. Similarly, during recessions people are just more willing to make deals, whether that be for land, labor, or buying a business right out. Don’t be afraid to take advantage of this!
2. Buy Real Estate
During a recession, land owners and property owners are more motivated to sell and are therefore more willing to make deals. Because of this, you have access to a number of creative strategies that can end up saving you a bunch of money. For example, you might be able to take advantage of things like owner financing or lease options, which sellers might not be so willing to negotiate on in a better market.
3. Be Mobile
Amon and I were able to take advantage of some really great professional opportunities because we were willing to be mobile. We didn’t let the fact that we had two kids and owned real estate stop us from picking up and moving to Japan during the last recession. Because of this Even if opportunities may be limited in your area, they might be plentiful elsewhere, so don’t be afraid to step outside your comfort zone and look beyond your own backyard. If you are willing to move around, you can always take advantage of new opportunities!
4. Invest in the Stock Market
Amon and I have dedicated many a YouTube video to discussing stock market investing, and I’ve already espoused the virtues of stock market investing in other blog posts, but this topic just would not be complete if I didn’t mention it again. If you have the money, a recession is one of the BEST times to invest in the stock market!
Now this is actually easier said than done because you’re going to have to work against your own psychology. It's really hard to invest in something when it looks like it is losing value. But how you should really be looking at it is like you are bargain hunting. Continue to be consistent in your investments and consider yourself lucky for having the opportunity to buy stocks that you were already interested in, but on SALE. Remember, the market has ALWAYS rebounded, and the cheaper you can buy the stocks, the more significant your eventual returns will be!
So remember, a recession will come. Why not take steps now to prepare for it? Take action and put yourself in a position where you not only survive (financially speaking, of course!) the next recession . . . but also thrive!
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