Coping with Economic Downturn: How to Survive a Recession

Recent predictions that Australia could be headed for a recession in 2023, combined with surging inflation and ongoing interest rate hikes, are causing financial concern for many. While a recession is not a foregone conclusion yet, it’s a good time to assess what you can do to be financially prepared. So, what can you do? Be prepared for what you can control and find ways to mitigate the risk for what you can’t.

Prioritise paying off high interest debt
While saving is important, paying off any high-interest debt should be your first priority. Check what interest rate your lender is charging you and consider calling them to see if they can reduce the rate. Having a strategy for paying off debt, even if it takes time, will help you build up your cash reserves too.

Build your savings buffer
A general recommendation that is always wise, but which can be a real life saver in times of economic downturn, is to have an emergency fund that can cover three to six months of your essential expenses. This can help you weather any financial challenges that may come your way. It’s hard to save when your budget is already stretched, but if you can add to your financial cushion, even in a small way, now’s the time to do so.

Employment security
Your employment situation is a critical factor to consider. For example, if you are part of a dual-income household working in an essential service, you may be better positioned to weather a recession than a single-income household dependent on an industry likely to feel recessionary pressures. Understanding your job security and having a backup plan can help you feel more financially secure in uncertain times.

Investment portfolio and risk tolerance
A well-diversified portfolio that includes stocks, bonds, and alternatives can help protect your portfolio against market volatility, whereas a highly concentrated portfolio focused on a particular asset class sector, style, or security can be riskier. It is always crucial to ensure that your portfolio aligns with your risk tolerance. A portfolio that is too aggressive for your risk tolerance can leave you vulnerable to significant losses in a recession.

Have a plan
Having a financial plan in place is also essential to riding out a potential recession. Do you know where you stand in relation to meeting your long-term financial goals? Is your plan built with the understanding that there will be both growth and recessionary periods over your lifetime? A well-designed financial plan can help you stay on track and give you peace of mind during times of economic uncertainty.

Strengthen your financial position
Once you have a financial plan in place, it’s easier to make small adjustments as needed, such as rebalancing your investment account, adding to your emergency funds or reassessing your risk profile. You may also want to explore opportunities that a recession may bring, like purchasing real estate or stocks at a lower price for longer term growth.

Get professional advice
Working with a financial advisor to create a financial plan can also be helpful. We are always happy to help our clients work through their personal circumstances and suggest ways they can improve their financial position – in both good economic times and bad.

The prospect of a recession is daunting, but a good financial plan takes into account volatility in markets and the economy. Taking proactive steps to prepare now can help you feel more financially secure.

Would you like to assess your financial situation to prepare for a recession? Callus anytime on (02) 8268 2900 for an obligation-free chat. We’re always here to help.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Please consider whether the information is appropriate to your circumstance before acting on it and, where appropriate, seek professional advice.