A recession is widely defined as a decline of the economy; particularly in the Gross Domestic Product (GDP), employment and trade. In order to be classified as a true recession, the decline must last for at least six to twelve months. Some economists argue that we are already in a national, (if not quickly approaching a global) recession. The actual term is an economic term, but the effects are felt by everyone. If you yourself have not begun to feel the effects of the current downturn, you surely know someone who has.
The best way to prepare for a recession and the effects it can have on your situation, is to take a multi-pronged approach. Realize that you could take hits from this economy in different areas of your life. Take stock of each area and determine the likelihood that the recession could cause trouble there, then prepare yourself accordingly. Below are some tips.
Your Job
One of the most critical and likely ways the recession could distress your financial circumstances is losing your job. Thousands of Americans have already lost their jobs, and unemployment is at an all-time high. If you start preparing now for the possibility of having to replace your source of income, you will have the upper hand on the competition (who may or may not also be prepared). Update your resume and polish off a base cover letter to edit and use for each opportunity you come across. Be more active in your networking circle, and start talking about your achievements or positive accomplishments you've made at work. Also, be open-minded and consider what alternative career paths or ways of making money. Be creative. Don't forget to try to put extra money into savings while you do still have a steady income. This can help stretch the limited dollars that unemployment benefits will pay you.
Your Home
Another event that is happening more and more across the nation is that homeowners are losing equity in their homes or going to foreclosure. There is much speculation about what is going on with the real estate market and the effect that more stringent lending qualifications are having on it. If your monthly mortgage payment is starting to become unmanageable, you are not alone. Create a contingency plan for what you would do if you were no longer able to pay your mortgage. Include calling your bank and speaking with an attorney to investigate the chance of getting your mortgage modified according to the stimulus bill passed in February. Finally, prepare for the worst. Understand that if a true recession lasts, it will not be uncommon that you, friends, family members or other loved ones may lose your homes. Swallow your pride and make a plan B budget that allows for expenses involved in finding a rental home or apartment, even if it is temporary.
Your Retirement Account
Whether you've been contributing to a retirement account for years or just barely started, you've surely heard that risk flattens over time. Surely this statement is more comforting to young people with years to go until retirement. Unfortunately, you may be reaching retirement age during a recession, when the markets are down and most invested retirement accounts are down too. If this is the case, you may realize that the current state of your 401K, pension fund or IRA will not be enough to support you into retirement. The best advice is to expect the best and prepare for the worst. It is a good idea to plan on extending your retirement age by a few years, or to plan to work a part time job after you retire. This can be a pleasant thing if you choose something unrelated to what your career was and if it is something you enjoy.