The economy is a volatile financial space, going through ups and downs that not even market experts can predict with pinpoint accuracy.

 

While there are moments of steady financial growth, the stock market is one bad policy or event away from having a turn for the worse.

 

One recent example is the worldwide recession following the announcement of COVID-19, causing a flurry of liquidations from March 2020 to May 2020.

 

Following that, there has been no major recession, but there have been occasional market crashes, like the August 2024 crash that followed after a tumbling Yen value and a bad job market report.

 

That said, time goes on, and growing your income passively is a critical activity to combat inflation, fund your retirement, and achieve your financial goals.

 

It's best to stay prepared. This article will highlight some ways you can leverage your capital and use it wisely even in the event of a recession.

 

Let's jump right into it.

 

What is a Recession? 

A recession is defined as a sustained decrease in economic activity on a global (or nationwide), scale spanning multiple industries. Specifically, an economy is said to be in recession when a country's gross domestic product (GDP) consecutively falls for two quarters.

 

During a recession, economic growth halts and companies lose money as customer spending tightens. This can lead to job losses, high unemployment rates, and business closures, significantly affecting the lifestyle of the affected country's citizens.

 

Another sign that a country is in a recession is if there are fiscal and monetary policy interventions that governments utilise to stabilise the economy. For instance, governments may spend more on social programs and fund unemployment insurance to help mitigate the effects of declining market conditions.

In one way or another, every societal participant is affected by a recession"and mostly for the worse. It's important to be well-prepared to overcome this financial hurdle, and we'll list out some tips to help you stay financially stocked amidst this prolonged market crash.

7 Ways to Outmaneuver a Market Recession

1.  Prepare an Emergency Fund Beforehand 

One of the most important funds every adult should have is an emergency fund. 

 

This fund consists of three to six times your monthly income and should only be opened for emergencies, like if you're savings have ran out or if any adverse personal or economic condition, like a recession, is taking place.

 

Having an emergency fund helps keep you and your household afloat during turbulent economic times. 

 

That said, even before a recession, you must work towards developing one as soon as you can. It should be the second thing you should prioritise in the financial hierarchy, coming just after paying off debts on time.

2.  Diversify Your Investments 

Think about it: if you invest in one stock and it's experiencing a market nosedive, this can be an extreme setback to your financial goals. Unfortunately, most individual stock prices take a big dip during market recessions, leaving you in financial shambles.

To remain financially secure, it's a good idea to diversify your investments beyond paper stocks. 

 

Consider making investments in industries that have few overlaps. For instance, you can invest in both a stock in the healthcare industry and a real estate property. 

 

You can also consider investing in an international index fund that mirrors the top public corporations in the country, like the S&P 500 in the United States. 

 

Another consideration is investing in industries in developed markets locally, like the telecommunications industry. Take a look at this TLS share price on HALO to see if it fits your investment profile.

 

The more asset classes you have, the better it is for your financial situation. Having multiple investments helps you mitigate the risk of one investment tumbling in a freefall, giving you ample opportunity to bounce back from a recession.

3.  Prioritise Spending Appropriately 

During recessions, it's important to refrain from spending more than what's appropriate. Sit down and make a list of things you need to clear off first, then work your way to things of lesser priority.

 

In most cases, you have to repay any outstanding debts first. This decreases your total money spent over time. Consider making a debt consolidation strategy to make it easier for you to manage your debt streams.

 

Second in priority are your bills. You're likely spending for rent, food, utilities, internet, phone, and insurance every month. Ensure that these things are covered before anything else.

 

If possible, try to decrease your expenses by opting for generic or more affordable alternatives. This can help keep more money in your pocket to hold off any adverse effects that may arise from the recession.

 

Finally, keep the remainder of the cash in savings or investment channels. Try to minimise non-essential purchases for the time being. This way, you can overcome unforeseen challenges that may come your way during this turbulent time. 

4.   Create or Readjust Your Budget 

A good way to reinforce positive spending habits is by creating and sticking to a budget tracker. This financial tool helps you visualise how much is entering and leaving your pockets. 

 

It can be broken down even further into distinct cost categories like food, entertainment, and utilities, giving you a full visual of what category is responsible for the bulk of your expenses.

 

A budget can easily be made using templates found in online tools like Canva or GSheets. It can also be made simply using Microsoft Excel's default page. If you want your budget to be accessible, you can also install a dedicated app that manages your finances. 

 

In any case, it's important to continuously update your budget to reflect your real-time financial status. This way, you can see your financial wellness more clearly and be able to make informed decisions to improve your situation. 

5.   Read up on Financial News 

During a recession, conditions can change rapidly"governments may impose new policies, the market could rise or fall dramatically, interest rates could change, and so on.

 

Any of these events can affect your investments, for better or for worse. In such events, it's important to keep your finger on the pulse of these news sources to empower your financial knowledge and refine your strategies. 

That said, be sure to be rational with your decision-making process. Avoid panic selling and deal with developments rationally. You can consider talking with a financial advisor for more insights on current market conditions.

6.   Live Frugally 

A market recession can lead to big losses in your personal equity, especially if you have invested in stocks and index funds. 

 

If you regularly utilise these fund stores as a capital source, then it may be best to adjust your spending habits to compensate for the downturn in market conditions.

 

This means lowering your spending for non-essential goods, like dining out and new clothing. This may also require you to unsubscribe to subscription services to keep yourself afloat.

 

Even if you don't have stock investments, it's best not to remain complacent. Professionals working in companies affected by the recession can experience layoffs as companies restructure their organisations to survive.

 

As such, tighten your spending during these down moments and store it in bank accounts or slow-growing investments. This can help keep your finances in a stable position and create more opportunities for you to grow even in poor economic conditions.

7.   Increase Income Sources 

A surefire way to remain stable during poor economic times is by finding additional income sources and increasing your current one.

 

If your full-time employer permits, consider looking for additional work on the side, like a part-time job at a restaurant or doing consulting services. Alternatively, you can also create a business side hustle selling products like DIY crafts or services.

 

You can also consider actively looking for new jobs that pay significantly higher than your current one. A 30% increase should be sufficient to convince you to make a jump, so long that the company is reputed and established in its field. That said, refrain from quitting before securing a new job"as this can put you in an even more precarious financial situation.

 

Getting additional income streams or increasing your current one can help bring additional money into your pockets before and during a market recession. It also safeguards you from abrupt job losses as you have a fallback when you get laid off or when your business dries up.