What Not to Do During a Recession


Once the economy shut down due to the Coronavirus, the United States quickly dove into a recession. Millions of people lost their jobs, people stopped spending money, and no one was traveling. These economic issues have made many people feel nervous about their finances. They are unsure of what to spend money on, what to do with their savings account, and if they should keep investing. In a time like this, what you do with your finances can have a large impact on your financial stability. Keep reading this article to see what not to do during a recession. 

What Not to Do with Your Finances During a Recession 

There are many things you shouldn’t do during a recession. Not to mention, there are many things you should do when you are trying to save money. No matter the state of the economy. The changes you need to make to the way you spend your money will vary depending on your lifestyle. Also, it will vary depending on the success of your job, and how you already spend. To know where you are spending your money the most, we recommend looking at your credit card statements and keeping track of your spending. Then, take steps to decrease your spending in those areas. With that being said, below are some financial decisions you shouldn’t make during a recession. 

Dip into Your Emergency Fund 

Many people make the mistake of dipping into their emergency fund when they face financial hardship. Even though they have money in their account to cover their bills, or are still making an income, they dip into this emergency money. No matter if your lifestyle is starting to get a little uncomfortable, you should never dip into your emergency fund unless there is a true emergency. The emergency fund is set in place to be there if you cannot make your payments on necessities. For example, say you and your spouse are laid off. You have emptied your checking account or other savings accounts, then you can use your emergency fund. However, you should not use your emergency fund because you would rather spend your checking account balance on new shoes or a new suit. 

Also, the stress that you may get laid off can make you feel as though you are in a financial emergency. However, if you still have your job, you are likely still financially secure. Do not let the stress of the poor economy pressure you into emptying your emergency fund. Hopefully you never need to use it, but if you do, you will regret spending it when it wasn’t necessary. 

Splurge on a Luxury Lifestyle 

Many people are used to living a financially stable lifestyle. This is completely acceptable, and is even considered a great privilege. However, when the economy enters a recession, or you lose your job, cutting out luxury living is essential. Although it can become a habit to continue spending money on high-end items such as clothing, organic groceries, or new furniture pieces, these items are not necessities. Purchasing these luxury items can be put on pause when you are in a difficult financial situation.

Keep in mind that one day you will be able to live luxuriously again when your financial situation improves. Although it can be difficult to break the spending habits you currently have, it will be worth it in the long run. Focus on saving money in the smaller areas rather than continuing to live as you did before. At the end of the day, any monetary splurge, big or small, may not be a smart financial decision when trying to save money. 

Build More Debt 

One of the worst things you can do during a recession is to build more debt. Even if you have not been laid off, it’s still not a good idea to make risky investments. It is best to wait to make purchases on your credit card or take out a loan when the recession is over. Although it is tempting to take advantage of low-interest rates right now, refrain from getting in more debt during a recession. This will be incredibly helpful to you in case you do end up struggling financially. It will also be much less of a burden later on. 

Stop Paying Off Your Debt 

A common financial mistake people make is they stop paying off their debt. This goes for credit card debt, car payments, mortgage payments, student loans, and more. Most people do this because they are afraid of losing their job, so they save as much as possible. The truth is, failing to pay for your debt can destroy your credit score. Doing this will impact the way you can invest your money in the long run, making it more difficult to recover from a recession. 

You may be wondering what to do when you have debt and you have been laid off or your income is limited. The best thing to do is make your minimum payments each month, and then saving what you used to spend on your debt. For example, if your minimum credit card payment is $25, but you typically pay $50, you may want to consider saving the extra $25. This may not seem like a lot of money, but it could come in handy if you continue to have financial difficulties. 

What If You’re Doing Well During a Recession? 

Keep in mind, some people do great during a recession. For example, during the recession caused by the Coronavirus, the household product, grocery, and cleaning agent industries soared. So, if your job was not impacted, and actually improved from this recession, you may not need to live frugally. In fact, you may want to invest your money to potentially grow your wealth. In this case, we recommend getting in touch with a financial professional to help you make smart investments. The economy is still tricky, so let an experienced professional provide guidance for your investments. This way, you may end up with more wealth once the economy improves.

About Dayton & Sydney

Dayton & Sydney Wealth Strategies Group is a financial advisory company built on a legacy of hard work and customer service. As an elite producer group of AXA Advisors, we use a solid, innovative and long-term approach to help you accomplish your biggest dreams.

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