While the economy is bound to have highs and lows, there are times when an economic downturn will turn into a recession, which is “a significant, widespread, and prolonged downturn in economic activity” (Investopedia). A recession can significantly impact income levels, which is why it’s important for everyone to have a game plan for making money during a recession in case they face any of the following challenges:
- Job loss and unemployment
- Reduced access to credit
- Increased cost of living and inflation
- Rising debt levels
Anyone willing to do the hard work during tough economic times could reap advantages such as:
- Innovation – Some of the most successful companies and business models have been born out of recessions due to necessity-driven innovation.
- Resilience – During a recession, people learn how to pivot, find new revenue streams, and manage risk more effectively leading to long-term success.
- Lower Competition – Many businesses retreat from the market as they go into survival mode during a recession.
So, what are the steps you can take to help you survive a recession?
Step 1: Evaluate Your Current Financial Situation
Assess Your Income, Expenses, and Debt
You can’t make effective financial decisions without knowing what resources you have available.
- Income Assessment – This includes reviewing all sources of income including salary, side gigs, freelance work, passive income, etc. Is there a risk of any of these income streams being disrupted?
- Expenses Review – Categorize your monthly expenses into essential (e.g. housing, utilities, groceries) and non-essential (e.g. dining out, subscriptions, entertainment).
- Debt Analysis – Assess your debt obligations such as credit card balances, student loans, mortgages, and other loans. Identify high-interest debt so you can prioritize which debts to handle first, and look into loan consolidation as an option to reduce monthly payments.
Create a Lean Budget
While it’s always prudent to be budget-conscious, it’s especially necessary during a recession.
- Prioritize Essentials – Limit your spending on luxuries or non-urgent expenses such as entertainment while prioritizing necessities like housing, food, healthcare, and utilities.
- Identify Areas to Trim – This could include canceling unused subscriptions, putting limits on dining out, negotiating lower rates on services, and finding more affordable options for essential goods.
- Set Spending Limits – Set realistic limits, and use a budgeting app to track spending and stay within those limits.
Build or Replenish Your Emergency Fund
Why? An emergency fund is money that you set aside to be used in the event of an unexpected expense, job loss, or income reduction, which are more likely to happen during a recession.
How? You can build your emergency fund by consistently setting aside a portion of your income. Even small amounts will add up over time. It might be helpful to automate transfers to a savings account that’s designated as your emergency fund.
Where? You should keep your emergency fund in a low-risk account (e.g. high-yield savings or money market account). Make sure you can quickly access the funds without penalties or delays.
Step 2: Look for Recession-Resistant Side Hustles
Taking the time to build a side hustle is a great way to continue making income during tough economic times. A few ideas to consider include:
- Recession-Proof Business – While a recession often makes it more difficult for a business to operate, “…for a select group of professionals and companies, a recession may actually be an opportunity to thrive and grow” (Investopedia). This is known as a recession-proof business. A franchise is a great option when looking for recession-proof business ideas as it offers access to an established brand and business model.
- Gig Economy Opportunities – This might include freelancing (get started on platforms such as Fiverr and Upwork), delivery and ride-share services (e.g. DoorDash or Uber), or selling products online (e.g. Poshmark or Etsy).
- Monetize a Skill – There are many hobbies or skills that can be monetized including art, photography, content creation, tutoring, coaching, pet care, childcare, handyman services, and more. There are many franchise opportunities that allow entrepreneurs to put their personal skills to use. A few examples include: a pet service franchise, a tutoring service, daycare franchise, and more.
Step 3: Invest in Stable and Defensive Assets
This will allow you to preserve capital and even grow your wealth during a recession. A few examples of safe and defensive assets include:
- Defensive Stocks and Bonds – These are shares in companies that provide essential products or services (e.g. consumer staples, utilities, healthcare).
- Bonds and Fixed-Income Investments
- Government bonds and short-term bonds tend to have lower interest rate risks.
- Corporate bonds come from companies with strong credit ratings that offer both safety and higher returns compared to government bonds.
- Municipal bonds tend to be stable and offer tax advantages.
- Real Estate Opportunities During Downturns – Recessions present an opportunity to invest in discounted property prices. Types of real estate to look into include: rental properties, commercial real estate, and REITs (Real Estate Investment Trusts).
Step 4: Learn and Develop New Skills
Learning new skills or “upskilling” allows you to remain competitive and adaptable in every economy. Not only can a versatile skill set increase your job security, it can also help you find new income opportunities.
Start with identifying in-demand skills during recessions. This could include the following areas:
- Digital Marketing and E-Commerce
- Information Technology (IT) and Cybersecurity
- Healthcare and Allied Health Services
- Trades and Skilled Labor
- Financial and Crisis Management
Upskilling can improve your income opportunities in the following ways:
- Freelance Work and Consulting
- Launching Your Own Business/Franchise
- Teaching and Content Creation
- Improved Career Prospects
Step 5: Start a Business or Freelancing Venture
A low-cost way to create a business in a recession economy is to start small and scale up gradually. This means finding something with minimal overhead which allows you to reinvest profits to grow while adapting as needed. A few ideas include:
- Freelance Services (examples include: writing, editing, content creation, virtual assistance, digital marketing, and social media management)
- Online Retail and E-Commerce
- Consulting and Coaching
- Handyman and Repair Services
- Health and Wellness Services
Step 6: Network and Collaborate
Having a network of relationships with like-minded individuals to lean on is a great way to find opportunities during economic challenges. You can leverage your network for freelance or contract work. Ways to build these relationships include:
- Joining professional groups (such as your local Chamber of Commerce)
- Attending industry events and webinars
- Engaging with thought leaders and peers
Make sure you do the following in order to maximize these relationships:
- Inform your network about your services
- Ask for referrals and recommendations
- Use your network to find hidden opportunities
- Stay active and keep in touch
Step 7: Capitalize on Discounted Investments
A recession is a time of uncertainty, and it’s a good time for investors to act strategically.
A few stock market downturn opportunities include:
- High-quality stocks at a discount
- Dividend stocks (companies will continue to pay dividends during tough economic times to demonstrate financial stability)
- Index funds and EFTs (you can buy these funds at a lower price during a recession and reap significant gains long-term)
- Dollar-cost averaging (spread investments out over time, which will reduce the impact of market volatility and lower the average cost)
Real estate is another area to consider investing in during a recession, particularly foreclosure deals.
Step 8: Reduce Debt and Improve Credit
If you improve your credit scores now, this will lead to lower interest rates on loans and credit cards during a recession. It will also give you access to a greater credit amount in the event of an emergency. Renegotiating loan terms and interest rates is an effective way to reduce debt and improve credit. Consider the following strategies:
- Request lower interest rates – Lenders are especially willing to do this if you have a history of on-time payments.
- Refinance existing loans – This could reduce monthly payments and make your debt more manageable.
- Extend payment terms – This provides short-term relief during times of income uncertainty.
- Defer payments or forbearance – Lenders might allow borrowers to temporarily pause or reduce payments in cases of financial hardship.
- Debt settlement and negotiation – While this should be a last resort, you might be able to negotiate a settlement with creditors for less than the full amount owed.
Step 9: Explore Government and Community Resources
There are various government programs, non-profit organizations, and other community initiatives that will provide financial support and other services during tough economic times.
Do your research to find out what’s available to you including grants, loans, and relief programs. Taking advantage of these resources can help you improve your overall financial stability.
Step 10: Stay Adaptable and Proactive
“The wise adapt themselves to circumstances, as water molds itself to the pitcher.” Chinese Proverb
Those who are able to pivot quickly during a recession are much more likely to succeed. However, you must be proactive if you want to effectively adapt to a changing economy. A few ways to prepare include:
- Monitoring economic trends by tracking the following:
- Economic Indicators
- Industry-Specific Trends
- Government Policies
- Financial and Business News
- Diversifying income streams
- Having a flexible business model
- Reskilling and upskilling
- Creating contingency plans (i.e. emergency savings, backup suppliers, alternative revenue streams lined up, etc.)
Looking to Buy a Recession-Proof Franchise?
Starting a franchise business during a recession is possible, and individuals willing to push forward often reap the benefits of lower competition, as well as an innovative and resilient business model from the start. If you’re interested in buying a franchise, FranNet is here to help. Our expert franchise consultants can work with you to identify your skills and goals and match you with the right franchise opportunity. Reach out today to schedule your free consultation!