Just hearing that word can cause some people to clench their teeth, clutch their chest, and run to the bank. And with the impact of coronavirus being felt worldwide, you’ve probably heard rumblings to brace for a recession.
Yes, it’s a good idea to be ready—always. But we’re here to tell you how you can be prepared but not frantic. So, relax. You don’t need to build a bunker, you don’t need to stuff all your cash under your mattress, and you definitely don’t need to wear a tinfoil hat on your head.
Bottom line? Don’t freak out! Here’s how you can make sure you’re prepared for a recession, whether one is coming or not.
What Is a Recession?
Be honest: You were thinking it. If it’s been a hot minute since you’ve been in an economics class, allow us to get you up to speed.
Start budgeting with a free trial of Ramsey+ today!
The National Bureau of Economic Research says a recession happens when there’s a “significant decline in economic activity spread across the economy, lasting more than a few months.”1 This shrinking is measured by the GDP (gross domestic product), which is otherwise known as all the goods and services made and produced by the American economy.
Still with us? A recession is just a big word to describe when the economy stops growing. And instead of things eventually hitting an upward swing, the economic growth continues to shrink for two quarters (that’s six months, folks).
And when that downturn starts looking like a continued trend, people tend to get . . . uneasy.
Will the Impact of the Coronavirus Cause the Next Recession?
With global supply chains cut off, 6.6 million Americans filing for unemployment in one single week, and people not leaving the house or spending their money—it’s easy to see why the economy could take a major beating.2 The International Monetary Fund (IMF) expects to see a recession of at least the same level as the recession of 2008, but the silver lining is they say we should see the economy recover by 2021.3
But remember, to call it a recession, we need to see a sharp decline in the economy for six months (two quarters). So, at this point, we aren’t in a recession yet. We still need to see how this whole crazy thing shakes out. And that’s going to take time. The important thing to remember here is no matter what the economy does in the months to come, this economic trouble is temporary.
With that being said, it is a good time to prepare as if a recession is coming.
How to Prepare for a Recession
We know talk of a recession on the rise can be scary. And with the economy taking a hit because of the coronavirus, a recession feels more real now than ever. Having concerns right now is valid. It’s logical. It makes sense. So hear us on that. But it’s important not to give in to all the fear out there. You should instead focus that energy on making sure your own personal economic standing is where it should be.
At the end of the day, you need to have your own house in order and ready to weather a recession. That’s going to matter a lot more than what’s happening on Wall Street or at the White House.
So recession or not, our proven plan remains the same: Live on a budget, pay off debt, save for emergencies, invest, and live and give like no one else.
If You Have Debt . . .
If you’re out of work or have a potential job loss on the horizon, go ahead and pause your debt snowball. After all your hard work, it probably pains you to read that (we get it too!), but for right now, you’ve got to prepare for a storm. Make sure you cover your Four Walls first—that’s food, utilities, shelter and transportation. These are the necessities you need to pay for before you do anything else. Stop paying any kind of extra payments toward your debt, but do continue to make the minimum payments if your Four Walls are covered (so your debt doesn’t go into default). The most important thing right now is to take care of you and your family and stockpile as much cash as you can during these uncertain times.
If you do have a steady job that’s secure right now and not impacted by the coronavirus or shifting economy, then you can keep working your debt snowball and paying extra on your debt just like you have been.
And remember, no matter how scared you might feel right now—do not take on more debt. You’re already in a rough patch, and debt is only going to make it worse and leave you with lasting effects. Debt is dumb—even when you’ve lost a job, even when you’re scared, and even in a recession.
If You’re Saving . . .
Keep saving! Having an emergency fund is never a bad idea. Think of it this way: If a recession were to happen, you could rest easy knowing you have your emergency fund in place. Your emergency fund is the buffer you need between you and life all of the time, not just when there’s talk of a recession.
And right now is the time to make sure your dollars stretch even further. If you’ve been kind of, sort of budgeting all along, buckle down and give every single dollar a job to do by making a zero-based budget. Download our free budgeting tool, EveryDollar, to get started.
If You’re Investing . . .
When you hear the word recession, you might think you need to sell your stocks and step away from investing. But hold on, take a breath, and don’t do anything out of fear. We say it time and time again: Investing is a roller-coaster ride, and you don’t want to hop off the coaster while it’s still going!
Instead, wait. Ride it out. Stocks rise and fall all the time. And even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. So don’t pull your money out right now. Keep your investments where they are and wait for the upswing to happen. Stocks are basically on a huge clearance sale right now. If you continue investing, you’re buying stocks at crazy low prices. And when the market picks back up (and it will), you’ll still be on that roller coaster, smiling as you see the big returns roll in from your “sale” stocks.
Bottom line: Don’t pull your stocks because some dude on the news told you to do it. If you’re feeling stumped when it comes to investing, connect with a trusted SmartVestor Pro who can help you make good investment decisions and talk you through your options.
Get Your Own Personal Economy in Order
Remember, a recession means the economy as a whole is in a slump for six months. And at this point in the game, that hasn’t happened yet. But what is happening is your life. The money decisions you make every day impact you more than anything an “economic expert” could predict.
What have the last six months been like at your house? Think about it. Have your finances been in a recession of their own? If you’ve had a downturn or are currently out of work because of the coronavirus, now is the time to really dig in and get serious. Don’t wait for a recession to get your money in order. Get intentional about how you handle your money now.
And maybe you don’t even know where to start. It’s easy to spot a red flag and know things need to change, but it’s hard to know exactly how to make it happen. So set aside three minutes to sit down and take our assessment. Answer a few questions about your money habits, and get started with a plan you can put into action today!
Are you looking for something new to binge-watch these days? Maybe you’re on the hunt for a productive way to spend this two-week staycation you’ve found yourself in. Right now, you can get a free trial of a Ramsey+! You’ll have access to tons of extras, like The Baby Steps app, EveryDollar Plus and our Ask a Coach feature. Get all the tools and resources you need right now to take control of your money and change your future! You can do this!