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  • Writer's pictureBen LeFort

How to Survive a Recession and Come out Stronger

Updated: Apr 1, 2020

The COVID-19 pandemic is first and foremost a health crisis. However, it also poses an economic crisis. The most effective way to slow the spread of the virus is to shut down large portions of the economy.

This will almost certainly cause a recession. To understand why it helps to know the formal definition of a recession. Economists define a recession as two consecutive quarters of economic contraction(negative growth).

Are we in a recession right now?

Shutting down the economy for a few weeks or a few months means a recession is inevitable. It won't be "official" until the end of the second quarter of the year, but it's safe to say that we are in a recession. You need only to look at the 3.3 million increase in U.S unemployment claims last week to know we are experiencing an economic contraction.

The two most important questions are how bad will the recession be and how long will it last?

The scary truth is that we have no idea.

That depends entirely on how long social distancing measures are necessary.

It could be a short recession with a quick turn around.

Or, it could be a long and painful recession with a slow recovery.

In this article, I am going to share my two-pronged approach to survive the recession and come out the other side in a stronger financial position.

I'll focus the discussion on two points;

  1. Circling the wagons

  2. Going on the attack

Circling the wagons

A lot of things tend to happen during a recession.

  • The unemployment rate goes up.

  • Wages stagnate.

  • Home prices fall.

  • The stock market goes down.

  • Households, businesses, and governments take on more debt.

From a financial planning perspective, the only thing that should truly matter is whether or not you lose your job, lose hours or see your income drop for any reason.

It does not matter if the stock market goes in the tank or if the price of your home drops. Asset prices can be volatile. During recessions, stock and real estate prices will fall. When the economy rebounds, so will your investments.

Maintaining your current income during a recession should be your first priority for two reasons.

  1. It will keep you from piling on debt or losing your home.

  2. It will allow you to take advantage of a discounted stock market.

Make yourself indispensable at work

To a certain extent, job security might be out of your hands. If the company you work for goes out of business, you will lose your job.

A lot of people are going to lose their jobs at companies that are not going out of business. In these situations, the best way to maintain your job security is to make yourself indispensable at work.

If you want to make yourself indispensable at work it's important to keep a simple truth in mind. Our employers don't pay us for our time, they pay us for the value we provide.

We don’t get paid for our time. If we did, work would simply be an exercise of walking into the office sitting down and staring at the wall for eight hours.

We get paid for value. Specifically, we get paid for the value we add to our employers. If we did not provide any value to our employer, why would they pay us anything at all?

Whether it’s adding more revenue to the organization, finding ways to cut costs, providing exceptional customer service, helping a co-worker with a problem, cleaning out the staff kitchen, taking a work call after hours or on the weekend, there is an opportunity to add value to your organization in almost every interaction throughout the day.

The more value you can provide, the more indispensable you become. You can't control what happens in the economy and the job market. The only variable you can control is how much value you provide your employer.

Okay, but what if I still lose my job?

The COVID-19 virus does not care one bit about how much value you provide to your employer. It is still going to force businesses to shut down either temporarily or permanently. That means millions of people will lose their jobs either temporarily or permanently.

How do you survive a recession when you have lost your job?

First, let's start with the good news. The response of the government both In Canada and the U.S to this recession is vastly different than the response to the 2008-2009 financial crisis.

That is because the cause of this recession is completely different and therefore requires a different solution.

In 2008/2009 the recession stemmed from the fact that banks were at risk of going out of business. That would have completely cratered the global economy because we need banks to keep money moving through the economy.

Since the banks needed more money, the government response was to inject money into banks and other financial institutions.

It was great for banks and what the economy needed at the time, but it did not do a lot for workers who lost their jobs.

This time around, the recession is not being caused by an internal problem within the economy. It is being caused by an external problem, a global pandemic.

Luckily, banks are in a relatively strong position. It is businesses and workers that are most severely impacted in this recession. That is why government stimulus packages in both Canada and the U.S have strong provisions aimed at workers and business owners.

In Canada, the federal government will be subsidizing the wages of employees to help prevent layoffs and job losses. They are also providing up to $2,000 per month for workers who lost their job due to COVID-19.

In the U.S, the federal government has put together a $2 trillion stimulus package that includes aid directly to workers and businesses to help them get through the COVID-19 crisis.

The point is that unlike in 2008-2009 you may qualify for government benefits that can help you ride out the economic storm.

If you have lost your job your number one financial priority should be to fully understand what government benefits and financial relief, you qualify for and apply for them immediately.

Income is everything during a recession. If you can't secure an income from work, make sure you get every dime you are entitled to from the government.

Stop all unnecessary spending

It should also go without saying but it's important enough that I am going to say it anyway.

During a recession, it's important to cut all non-essential spending.

The one silver lining of the COVID-19 recession is the very nature of self-isolation removes a lot of non-essential spending. If you are not leaving the house, you are not spending money on things like eating out, shopping, travel or transportation.

If you can sit at home and avoid online shopping, it will be easy to avoid wasting money on things you don't need in a time you can least afford to do so.

Going on the attack

You've probably heard the saying that "every crisis is an opportunity". That is absolutely the case with this and any other recession.

During a recession, the price of assets like stocks and real estate drop. Sometimes those prices drop significantly. That is certainly the case with the stock market. At the time I am writing this, the S&P 500 is down nearly 25% compared to where it was 5 weeks ago.

When the COVID-19 crisis is over, the economy and the stock market will recover. Those who invest boldly and wisely during the recession will set themselves up for exceptional returns when the economy enters a new expansionary period.

If the idea of investing seems scary right now, that is a good thing. Anyone who isn't a little afraid about investing in a time of so much uncertainty would be a fool. It's times like this I am reminded of Warren Buffett's famous advice to investors "Be fearful when others are greedy. Be greedy when others are fearful".

We all need to decide what level of risk we are comfortable with and it would be foolish to invest in the market if you do not have a strong emergency fund set up that would allow you to cover 3-6 months' worth of expenses if you were to lose your income.

Since I have not lost my income and I have more than 6 months worth of expenses set aside in cash, I am in a strong position to be able to invest right now.

Each month I make more money than I spend. I am taking the difference between what I am making and what I am spending and investing that in the stock market.

Which brings me to the other way I am “going on the attack” during this recession. I am focusing on growing my side hustle.

Being self-isolated inside my house for an undetermined amount of time is an opportunity I will not waste.

While I could dwell on the negative aspects of being cut off from friends and family, I am instead choosing to grow my side hustle, which luckily for me is 100% online.

Every extra dollar I can make from my side hustle during this period of self-isolation is going straight into the stock market.

Every action I take during this period is done with the intent of moving me and my family into a stronger financial position.

Final thoughts

There is little doubt that we are in a recession. How severe that recession is and how long it lasts remains to be seen.

The fallout of COVID-19 is not only a recession it is an economic crisis. Every crisis provides an opportunity.

However, to be able to take advantage of the opportunities within an economic crisis you need to maintain your current income. This means doing everything humanly possible to improve your value to your employer and job security.

A side hustle is a great way to boost your income or replace some of your lost income if you lose your job.

Cashflow is extremely important right now. The more you can increase your income and reduce your spending, the more you can invest in assets that are significantly cheaper than they were a few weeks ago.

Now is the time to step up and work like you never have before. Those who go on the attack during this recession will come out on the other side in a stronger financial position.


This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.

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