If time’s taught us anything, it’s that the economy can’t be great forever. What goes up must come down, including the stock market. But don’t get frightened just because you hear the word “recession.” Here are a few smart money moves for preserving and even building wealth despite an economic slowdown.
Smart Money Move #1: Mindful Spending
When the threat of a recession comes lurking, most people over-correct and stop nearly all their non-essential spending. That kind of behavior actually accelerates an impending recession, rather than helping you avoid the effects.
Instead of halting all spending, start eliminating things from your budget that are truly unnecessary. We’re talking about things like cable, unwanted subscriptions, and even the extra guac. Stay on top of your money with tools like Mint and Personal Capital. The more you know about your spending habits, the easier it will be to keep them under control.
And if you’re like me, you probably think that your car payment and student loan payments are “unnecessary” too. Approaching a recession is a great time to buckle down and get rid of any debts you might have, which will free up extra room in your budget. That way, if things get tight later on, you won’t fall into the risk of missed payments and damage to your credit score.
Smart Money Move #2: Avoid (Most) New Debts
The only new debt you should take on during a recession is a mortgage — more on that later. In general, a recession is not a great time to bank on having more money in the future. Most people lean the other way and fear that they’ll have less money in the future. So put a halt on new credit cards, car loans, and any other type of loan.
As tempting as it may be, avoid new student loans during a recession. Many people who get worried about losing their job turn to higher education as a back-up plan. While there’s nothing wrong with advancing your knowledge, you should only do so if you can afford to pay the price tag. Otherwise, you risk finishing your coursework and landing in a world where better jobs are still limited or even impossible to come by.
Smart Money Moves #3a and 3b: Negotiate the Non-Raise and Network
The biggest risk during a recession for most people is the loss of a full-time job. During an economic recession, companies try to slim down their bank roll by eliminating as many unnecessary positions as possible. To be honest, if a company decides to do a round of layoffs, you may not have a lot of control over the situation. However, an economic recession does give you some unique ways to make the most of the job you do have by negotiating for a non-raise.
A non-raise is a type of perk that an employee can receive from their company that isn’t in the form of a salary increase or bonus. A recession becomes the perfect time for an employer to incentivize their employees creatively so that they can keep employees performing at their best without spending a ton of money. Some great non-raises to ask for include:
Remote Working Schedule
It generally costs an employer little to nothing to let an employee work remotely. What it means for you as an employee is greater freedom, flexibility, and time saved from not having to commute. If you’re someone who’s not as interested in remote working, you can ask for some kind of alternative perk, like more flexible scheduling.
Attending a Conference
Most employers can write off the costs of sending an employee to a non-local business event. The opportunity to learn and network will be good for your career as well as the company’s reputation, so it’s a win-win ask.
Better Equipment
If you’ve had your eye on a better computer or standing desk, a recession is a time to ask. Not only are these purchases a small drop in the bucket for most companies, but the depreciation rules also make them a good buy for companies to make during a downturn.
More PTO
While this one might be a stretch, it’s completely possible that your company would rather give you an extra two weeks of vacation next year than try to find the money for a raise. My favorite rule of thumb: if you don’t ask, they can’t say yes!
And while you’re enjoying your new non-raise perks, consider using your extra resources to double down on your career path. Make sure your LinkedIn profile is updated and take the time to network with both new and existing colleagues in your industry. That way, if you do suffer from an unexpected job elimination, you’ll already have the most important pieces in place to get back on your feet swiftly.
Smart Money Move #4: Build Up Assets
During an economic downturn, you have the advantage of the “buying low” part of the timeless “buy low, sell high” advice. A slow economy may make you feel like investing is a bad idea, but in reality, it’s one of the best times to lay the groundwork for growth.
Instead of lowering your 401(k) or IRA contributions, try to contribute as much as possible and increase your contribution, if possible. The reality is that if you pull out of those savings vehicles, you might never be able to make up the difference. Plus, even in a downturn, most employers offer some kind of 401(k) matching program that you won’t want to miss; the recession is the worst time to turn down free money!
If you’re truly too nervous to put money in a pre-tax retirement account, there are still other options that are better than a savings account. For example, a Roth IRA will let you take out your contributions if you need them because contributions are made with post-tax dollars.
Smart Money Move #5: If Possible, Buy Property
During an economic downturn, the real estate market usually moves quite slowly. While there will be fewer properties on the market, the ones that are being sold will likely be priced to move. Plus, interest rates are likely to be lower during a recession.
Many people may be too risk-averse for this money move, and that’s totally OK. But if you have a strong safety net and don’t fear losing your steady income, then this is the best time to buy a property. Whether that’s your first home, an upgrade, or a rental property, a recession is the best time to buy. That’s because even with minimal maintenance, your property value should go up after the economy recovers.
If you’re a property owner and you’re still unsure, an economic downturn is still a great opportunity for other projects. For example, spending money on upgrades like adding a garage or renovating an outdated bathroom can help add value to your property – immediately and long-term – making it a more valuable asset.
Remember, a Recession is Temporary
As intimidating and nerve-wracking as it may seem, remember that recessions always end. The uncertainty will eventually wear away as the economy recovers. Having a plan to get through the tough times will put you in a stronger position for both the short- and long-term. So prepare for the worst, and rest assured that the best is yet to come.
