Living through the Economic Recession

The reality of the COVID-19 health crisis is that the economy has taken a huge downward plunge. The current health crisis did not start the recession, it just sped it up. Historically, recessions occur when consumers lose confidence in businesses; this is when people stop purchasing as much, high-interest rates, stock market crashes, falling housing prices, manufacturing slowdowns, and deflation are of just some of the things that can cause an economic recession.

The best way we as individuals can prepare for recessions is to learn to not live paycheck to paycheck. We need to learn to budget and live on less, saving for a rainy day. Nothing is worse than financial stress. A happy, peaceful life starts with having our finances in order so that if a job was lost or a recession hits, we can pay our bills.

Steps that we all can take:

  1. Save an Emergency Fund

Save three to six months’ worth of your wages so that when the economy is down you don’t have to rely on credit. This seems daunting to many who live paycheck to paycheck, there are simple methods to help. Dave Ramsey’s website has great tips and there is a savings calculator in the reference section you can use as a tool as well.

  1. Establish a budget and pay down debt.

Dave Ramsey is probably the most well-known expert in this field. There is nothing better than financial freedom. Creating a budget will help you identify areas that you can cut from. Recently, I heard someone admit that their downfall was the automatic subscriptions. This includes Netflix, Hulu, Disney+, Amazon Prime and costs for phone apps just to name a few. You and your partner/family need to have a hard-honest discussion, do you need all of these streaming options? Which one(s) do you watch the least? Cancel the things you don’t use, yes this includes the gym membership all those things you signed up for with good intentions of using but do not.  The thing about ACH (automatic payments) is that it is easy to set up and easier to forget to cancel.

Be brutally honest with yourself. It is easy to convince ourselves that we have to have something. There is a big difference between need and want and too often we confuse the two saying we need something when it is a want. Start practicing saying “It would be nice to have…but it would be nicer to pay off my debt.” The more you say it the easier it becomes.

  1. Downsize to a more frugal lifestyle

A frugal lifestyle is learning to make do with less. You will have the opportunity to grow your savings account and won’t find yourself struggling to adapt to a new lifestyle when a recession hit. Living frugally doesn’t mean that you become a miser like Scrooge in a Christmas Carol. It is about making conscious spending choices that reduce expenses with minimal impact on your lifestyle.

When I had my first child, my ex-husband and I went from a two-income household to a one-income household and graduate school. We downsized from two vehicles to one, we cut the entertainment and reduced our dining out budget. I had fun experimenting with new recipes, discovering some great recipes that were adopted as family favorites.

  1. Cut the credit cards

It is much more difficult to overspend if you don’t have plastic. When you only have your debit card and cash it slows your frivolous spending down.

  1. Set up automatic savings deposit

Set up a savings account with an automatic deposit.  Trust me you won’t miss the money and you will be amazed how quickly it can grow. For example, if in your budget you and your family agree to cut the cable, put the money you normally spent a month on the cable into a savings account. The goal is to pay yourself. Budget a minimum of 10% of your income, if you can afford to pay yourself more than do so.

  1. Diversify your Investments

It is never wise to put all your eggs in one basket. If you have investments talk, with a financial adviser and diversify across many industries.

  1. Keep working

Since the great depression, the government developed programs to help people during an economic downturn. These include things like unemployment programs. These programs are great and help many people in times of difficulty however they drive taxes up and individuals are better off working. You earn more by being employed (even with a pay cut) then what your weekly unemployment disbursement.

The key to keeping the economy thriving is to have people working, keeping small business and manufacturing operations and learning to live within our means, saving for the rainy day. With the unemployment rate skyrocketing because of the current health pandemic, we need to stop and ask ourselves which is better in the long run, to get the unemployment check or to go and apply for the available jobs? The answer is to keep people working.

We are blessed with a plenitude of available jobs. The Idaho Department of Labor has over 600 listed and there are more jobs on individual company websites, like Walmart, Magic Valley Electric, Idaho Milk Products, Agropur and so on.

A recession is something beyond our control, we can control how we prepare for tough financial times. Taking precautionary measures now will make a world of difference in the future. Learning to live within your means on less than you earn is the key. You can still live a happy, fulfilled lifestyle.

Cheryl Viola, MBA, Executive Director