Financial Stress From A Recession: Face Your Fears

There are many things on your mind during a recession, but know that everything can be overcome.

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Many people are afraid of the “upcoming recession” assuming one even does come. Although I am not going to lie, signs do point towards some financially tough times. In a previous post I explained one of the most common signs of a recession. This indicator is still present months later. This is not the best sign for the future of our market to say the least, but it may also be a self-fulfilling prophecy.

In my opinion, we have been through a bear market last year and the market has been volatile ever since. There has been distrust in the markets for a long time. This, to me, means that the bubble is not as inflated as it could be. So while we could face a fall in the market or even a recession, I do not believe it will be as large as the Recession of 2008. Despite this, I still do believe there will be some fall in the economy in the near future.

If a recession does occur, this means many will face financial stress. Some of the financial stress is normal, and even healthful. Some say stress is a killer. I believe stress is a natural tool meant to increase your chances of survival. Like any other tool, stress can be used and handled improperly, and if they are not handled properly they can mess up your life.

The financial stress you face during a recession should be present so you remember that you must handle your finances well for the incoming recession. In a previous post I established what some of the best practices are for surviving the recession. This post will lean more towards motivation to tell yourself to carry on with your good financial practices.


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Financial Stress #1: Unemployment

The sad reality is that one of the most common symptoms of a falling economy is an increased unemployment rate. Some people, maybe even yourself, will be out of a job. There are currently a broad number of industries that have had major layoffs or at least plan to. These include media, schools, banks, and more infamously retail. To everyone working jobs in these areas, do not panic. I will explain in a future post how these layoffs may be a bit overblown.

There is good news though. The Inc. claims it is actually easier to apply and find a job during a bad economy than during a good economy. The reason for this is that during good economies people feel confident and that they can find better jobs. During good economies there can be hundreds of applicants for a single job. When the economy finally goes down, these confident people suddenly hear friends and family are out of jobs, or at least a friend of a friend. They become more nervous and try to keep the job they have, and the total applicant pool decreases significantly. However, there is potential for fewer jobs so that may balance it out. Note that the average recession does only last for 18 months. The economy will rise back up and maybe you will have a similar job back.

If you have a hard time finding a job that is similar to your old job, find any job. Finding work that pays less than your old job (even outside your area of expertise) is better than no job. You can still apply for work while working the other job.

There are still many options out in a bad economy. Do not be too down on yourself if you get laid off. Many people get laid off. I was one of them.

Know There Are Still Options

I know layoffs are tough, but you are tougher. If you are one of the unlucky people out of a job, I recommend taking a few days to recollect yourself. Do not do anything too drastic in the first few days when you are feeling down. After that, look around for jobs, tap into your network, try some freelance. There are still many options in a bad economy, you just may have to settle a little bit, especially at first. But in the end, if you play your cards right, you will come out of the recession like nothing happened.


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Financial Stress #2: Income Shock

Usually with the loss of jobs many people, even those who have lived below their means, are now living above them. This is the primary reason I advise keeping an emergency fund for 3 to 6 months of expenses. You should be able to live off that emergency fund until you find a new job in the area, or be able to relocate to a new job using that money.

Another thing you may have to do is downsize. Now if you bought a well maintained house or rent a good apartment with nothing more than 30% of your monthly income you probably will not have to downsize except maybe in the most extreme recessions that people will call “great,” or a “depression” in the history books. Unfortunately, the reality is that after a housing bubble pops the value of the house will likely decrease and the mortgage may be too great in these scenarios so you may have to select a new place to live. But moving to a smaller house or apartment may be the right call.

Furthermore, if you have a vehicle that is not paid off or is otherwise a money sink, it may be time to let that vehicle go. Instead, settle for a beater or some other form of transport.

Living Below Your Means Is The Key, When You Figure That Out Does Not Matter Too Much

Do not worry too much if you face an income shock. If you live well below your means then the income shock may just pinch at the amount you are saving or investing. In other cases you may have to rethink your budget and try to cut back. I strongly believe most people who are any good at their personal finances will only have to make small changes in their lifestyles if any at all after a recession.

If you live at or above your means, know that you are not the only one. Luckily there are many options in a bad economy. These options will more than likely require sacrifices, but take a deep breath and analyze your situation. Ask yourself honestly what you need to make it through the next few years regardless of how the market is going. Downsizing is far from uncommon in life. In fact, Americans seem to be leaning towards downsizing their lives even in a good economy. Not because they must, but because they know their lives will be better with lower taxes, utilities, and maintenance. The only difference between you and them is that they realized they may be better off with a downsized life a little earlier than you. There is no shame in being a little late to that revelation.


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Financial Stress #3: Loss Of Assets In The Stock Market

If you have assets, you are at least very likely to lose some value in your financial assets. I will start with probably the assets most likely to take a hit, your stock market assets. One of the main reasons the stock market declines during a recession is because of decreased revenues. Note, everyone has bills, and when people pay these bills slower than before due to less money it causes a chain of events where altogether revenue decreases in multiple different areas. However, it does not help when investors very suddenly sell their shares as it pulls out the decreasing revenue a company makes and limits the growth of the company. The stock market can be significantly affected by this alone.

Do not sell anything in the stock market unless you absolutely have to. And by absolutely have to I mean otherwise you will have to live in a cardboard box, not because you do not want to downsize. Hold your assets in the stock market if possible. The market will come back up, and if it does not, you can rest assured literally nothing about the economy would matter if that is the case. In fact, if you have any money to spare, now would be the time to buy more shares while the price is low.

It Is Hard To Fight Your Instincts

It is natural as humans to feel like they must withdraw resources when needed. This can be either a time you give in to your fears or a time to embrace an opportunity to grow your wealth.

At least holding your assets will be better than selling them cheap. Holding your assets will still pay you even if you bought them literally before the markets fall. Let’s say you invest $2,000 each year and regularly increase investments, but only invest all the money at the peaks of the market, you could easily be a millionaire in 40 years. If you invest at the perfect time, you will make only twice as much money. The specifics can be illustrated in this story. And remember, you should never count on investing at the perfect time.

In short, holding your investments in the stock market is one of the most guaranteed ways to grow your wealth even in the worst situations. Worrying about whether your assets will grow in the stock market should not even be a financial stress, on average, it is almost a guarantee.

Retirement Fund

Some people may be planning to retire and do not plan to hold their assets for years. The sad truth in these scenarios is that you may have to hold off retirement for at least a few years for the market to recover. You may have to settle for a lower paying job. But this is why I highly recommend building a portfolio that will pay you dividends. In addition to being an excellent reinvestment tool, they can be used as fairly consistent income which can pay you without any withdrawals from the portfolio. This will allow you to have at least some income for retirement, but maybe not all that you need.

Business And Real Estate

Every business will likely have financial stress during a recession. Whether it is in service or real estate you will likely have loss in revenue. Like it or not you may have to delay new purchases, recruitment, and maybe even downsize your business. I am not an expert on this area so try to find courses and consult experts in this field. One good source for this information is the Jay Morrison Academy.


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Final Thoughts

Recessions are tough, but you are tougher. While you will likely face financial stress during the next recession there will also be many options to overcome that stress. Financial honesty and creativity will help you not only survive, but thrive in the next recession so you can forge your wealth.

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