I’m a big money nerd. For years, I’ve heard finance experts speculate on when the bull market would end, and many predictions that it would come crashing down. I was in college during the 2008 recession, so honestly, I was already so broke that it didn’t make much of a noticeable difference in my life. Now, as a new mom with house payoff and college savings goals, significant changes in the economy matter to me a lot more.
Beyond gloom and doom predictions, I’ve heard many stories of people who built their wealth and got a jumpstart during an economic downturn. As Warren Buffet has said, be “greedy when others are fearful.”
As we look out into the unknown future in this midst of this 2020 pandemic, no one knows what the next few years hold. In my last post, I covered the basics of how to survive an economic downturn and keep your life afloat. In this post, I want to go a step further beyond mere survival and explore ways to get ahead and launch forward during downtimes.
Hopefully, we don’t lose money and at least break even. But ideally, I hope to come out in a stronger position. Here are a few tips I’ve gathered through years of research, for thriving in an economic downturn.
1. Don’t Panic
After seeing toilet paper shelves empty and the stock market tank in the first few weeks of March, we all know what panic looks like. In Facebook groups, I saw panicked people asking if they should sell off shares, even though the market was already down significantly. When you see the stock market in a free fall, it’s tempting to sell in fear, without deeply evaluating if that is the right strategic move. In most cases, it’s recommended to keep your money in the market and ride it out. Obviously, not everyone does that (hence the market slump), and they pay dearly in the long-run. Be smart and strategic with your choices, and don’t just make them based on emotion. Play the long game, and be okay that things might look ugly for a while.
Also, be smart with your purchasing decisions. There are currently people sitting on 500 roles of toilet paper, 97 bottles of hand sanitizer, and 150 tubs of Clorox wipes they’ll never use. While it’s wise to get a reasonable amount of what’s needed in whatever environment causes an economic downturn, don’t panic and blow your money on a bunch of stuff you don’t need. That money could be used on investments that will pay off 10-fold in the long-run.
2. Protect your income
If you still have a job, do everything you can to make yourself as useful as possible. Continue to build your skills and work to go above and beyond your basic job requirements. If you start seeing company layoffs, volunteer to pick up responsibilities from eliminated positions. Rather than feeling relief making it through layoffs, fight for your job as though your employer could be evaluating another round of layoffs soon. If you’re self-employed, brainstorm ways you offer more value to your clients.
Also, try to earn more money you can invest. Think through side hustles and extra income streams. Even if it’s not glamorous work or below your typical pay grade, people will still need lawns mowed, dogs walked, groceries delivered, virtual assistance, etc. If you do get laid off or feel financially strapped, do all you can to find extra work and avoid dipping into savings. That money can otherwise be strategically invested to help you launch ahead in this season.
3. Free up money to invest
One of the biggest advantages of a downturn is that everything is on sale, including stocks and real estate. You can get bargains on things that will costs thousands of dollars more when things recover. I’ve heard many wealthy money experts say that they wait and hope for a downturn, as it’s when they make some of the biggest leaps in their wealth. That said, you want to free up as much cash as you can.
Start by re-evaluating your expenses and see where you can cut. Do you budget? If you don’t… start! Use an app like Every Dollar or YNAB to see where your money is going and control your spending. Evaluate where you can cut back, cut down, or negotiate lower rates so you can have extra cash to pour into the market and take advantage of deals. Perhaps you can refinance your home for a significantly better rate? If you have credit card debt, can you refinance for a lower rate or, better yet, pay it off. In my last post, I discussed many ideas for freeing up money.
Taking advantage of rock bottom prices is one of the best ways to leap your net worth forward in tremendous ways. When things don’t look good in the market, many people pull their money out. They end up losing more money than if they would not have touched anything. The wise investor, however, will either stay put or, better yet, pour in more money.
You might be thinking, “how the heck am I going to get all that cash to invest?” Here’s the thing. You don’t need “all that cash.” Many people mistakenly believe that they have to have vast amounts of money available to make investing worth it, but that couldn’t be further than the truth. Little bits matter. If you only have the $50 you saved by lowering your cable bill, start with that. $50 saved per month over 30 years is nearly $50,000! And that is just with a moderate 6% interest rate, not factoring you buying at a discount during the downturn. Whatever you can invest, invest.
5. Prepare in advance
If you’re reading this when we’re not in a downturn, awesome! Save and prepare for the next time there is a slump. Historically, significant recessions have happened about every ten years, give or take. If things are good now, they will slump again in the future. And if you are in a downturn now but don’t feel you have much to invest or take advantage of, then use that as motivation to prepare for future downturns. If you still have several years before retirement, then you’ve got to think of your finances as a marathon versus a sprint. Run as hard and strategically as you can now while keeping a firm eye on 10 or 20 miles down the road. Build your savings, pay off debt, have cash on hand, and get ready for next time.
I hope these tips are helpful to you. I’m still a newbie to this type of downturn, and I hope we will come out of this bumpy season of 2020 ahead of where we started! If you have any tips that have worked or strategies from previous downturns, I would love to know them! Please share them in the comments below or shoot me an email.