What happens during a recession and how to survive from it
It’s official! Last August 6, the Philippine government declared that the country has dived into recession.
A recession occurs when economic activity declines, causing widespread job loss, weak trade activity, falling prices, and more government relief, which obviously caused by the COVID-19 global pandemic.
What happens during a recession?
Typically, during a recession, businesses see less demand. There will be fewer availability of jobs and cost-cutting measures will follow, which unfortunately includes laying-off employees.
As people and businesses stop spending as much, the stock market may also go down. The share price of most companies will definitely decline, if not sideways.
Moreover, the government will most likely come out with several monetary policies to stimulate the economy. Among these is cutting interest rates for banks or lending institutions to encourage businesses to borrow money. Again, these measures are done to stimulate the economy.
READ: Take a look at the Financial Crises in the Philippine Real Estate Sector to better understand the economic downturn brought by the COVID-19 pandemic
How long will it last?
The safest answer would be a year or more. Well, that’s how economists say it. But one thing is for sure, it will not last forever. Recessions are generally short-term and our economy will soon cope up with this.
What to do during a recession and how to survive from it?
Rather than worry about recession, you can prepare yourself by taking precautionary measures to protect your finances and survive from it. The following are ways you can do to make sure your finances are in good shape even if the economy falters.
#1 Value your job
As said above, during a recession, people may lose jobs, or find it difficult to secure jobs. So, if you have one, treasure it. Make an extra effort and provide quality outputs, but do not overdo. This might lower your chances of getting laid off or even might secure you a promotion. Plus it also helps your company to be productive and stay afloat.
#2 Minimize your spending
Lessen your expenses and find cheaper alternatives to your costs of living. Downsizing your lifestyle will definitely save you during this time. There are lots of ways you can start living frugally especially during quarantine. Since travel and going out is restricted, you can actually incur your travel or “personal” fund to your emergency or investment fund. Learning how to get by with less is your key to survive in recession.
#3 Avoid unnecessary debts
Paying down or avoiding unnecessary debt is one sure way to survive a recession or any economic storm. Carrying high levels of debt is very risky during this time because a slight change could actually affect your ability to pay your debt. If you have existing loans or long-term debts, then check if it makes sense to restructure them when the government cuts interest rates.
#4 Make ways to earn extra income
Having multiple streams of income can really help. If one income source starts to dwindle – or gets eliminated completely – you have other sources to fall back on to help keep you afloat. Investing during a recession isn’t for the faint of heart.
#5 Diversify your investments
In addition to having multiple income streams, it’s also important to diversify your investment. Remember that how you invest during this time can be just as important as what you invest in. Go through your investment portfolio. Honestly assess and look for ways to spread out your investments across different industries rather than trying to time the market.
When it comes to investment vehicles, real estate investing -whether it’s buying a home, a condo, or even land- property investing is a good investment option despite a crisis because it generally appreciates with time. If you don’t have enough funds yet to buy your own property, there are other ways to start investing in real estate.
A recession is a normal economic cycle. Although this one is caused by extraordinary reasons and is something beyond our control, what we can control is how we prepare for tough financial times.
Saving more. Downsizing lifestyle. Managing debt. Increasing cash flow and diversification are just a few tips that can help you survive a recession. Instead, have peace in mind knowing that while you can’t control the world, your finances are under control.