5 Key Signs You Can Weather a Recession and Come Out Financially Stable

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In a modern capitalist economy such as ours, recessions are inevitable. Their inevitability doesn’t make them any less scary. Recessions cause job loss, lower wages and a wide drop off of growth opportunities. They can push people who were previously getting by into poverty.

Weathering a recession and coming out of one with financial stability intact is more a matter of preparation than anything else. These are the five key signs you’ll be able to handle a recession without losing it all. 

You’re Living Below Your Means and Budgeting 

If you’re already living below your means, you’re well on track to weathering a recession. By spending less than you make, you’re able to save for retirement as well as for an emergency. You’re investing while maintaining a lifestyle that doesn’t hinge on high-interest debt and are used to tracking your spending so that you never lose track of your goals. 

You Have a 12-Month Emergency Fund

Many financial experts say that having as little as three months’ worth of savings at the ready for emergency expenses is enough. To ride out a recession without taking a heavy hit in the form of credit card debt, you’ll need to have a lot more than that stashed in a high-yield savings account. Suze Orman recommends having 12 months’ worth of easily accessible emergency savings. 

Your Investment Portfolio Is Well-Diversified 

The stock market takes a beating during a recession. A well-diversified portfolio is a must. That means you will likely want to be invested in the following assets: 

• Dividend-paying stocks 
• U.S. Treasury bonds 
• Gold 
• Real estate investment trusts (REITs)

You Have a Plan for Income If You Lose Your Job

Jobs are always lost in droves in a recession as consumer activity drops off and there’s a lowered demand for goods and services. Some jobs are safer than others, but you should never assume that yours will be 100% recession-proof. You need to be prepared with a plan for an income should you or your spouse lose your primary source of income. Your 12-month emergency fund will come in very handy here, but you’ll need to be proactive, too. 

Learn how to apply for unemployment insurance and have a list of material items that you can sell if you must. Slash expenses by getting rid of anything nonessential such as subscription services. Sign up with a temp agency to get access to temp jobs and get a side hustle. Now is also a great time to learn skills that will help spruce up your resume.

You’re Not Making Financial Decisions in a Panic 

Recessions get worse than they need to be because investors panic and sell off their stocks once they falter. The savviest and wealthiest investors, like Warren Buffett, strongly caution against panic selling — or panic anything, really. In fact, they often advise people to buy high-value stocks during recessions when prices hit record lows. If you can remain levelheaded about your investment strategy and keep cognizant of the fact that markets always recover, you’re likely to not only survive a recession with your finances intact, but to come out on top. 

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