Today I want to discuss things you should not do in a recession. A recession is a period when there is a general decline in economic activity in a business cycle.
This is a time you cannot afford to make any mistakes as the potential for heavy losses is big.
Actually, the riskiest time in any economy is when the economy is struggling or in a recession. It is a time when your finances are in choppy waters where anything can happen.
Recessions are indeed difficult times for companies and individuals too. All of a sudden you will see companies struggling to stay afloat and some companies failing.
As companies struggle they do what they know best to cut costs and that is reducing the payroll. People who a year before felt safe in their jobs, find themselves all of a sudden out of employment.
The result of all this is loan defaults as incomes fall and people losing their houses as they are repossessed by lenders.
A recession is therefore a time when you have to be extra careful in making any financial decisions.
Below are a few things you should never do in a recession.
If ever there was a time when you have to be cautious about making any investments it is during a recession. This is no time to be taking finance to finance risky investments.
After all, there is less business activity happening and therefore any investments will likely struggle to make it. This is therefore a time to hold off any investments and wait until there are signs of an economic activity pick up.
If the business activity is low as is the case in a recession, it will affect your cash flow and finances too. And the less cash flow you have the more difficult it will be for you to pay back any loans.
I know that some of you are saying, but Warren Buffet says the best time to buy is when everybody else is avoiding the market. That may be the case some times but only when you start seeing a pickup in business activity as I have pointed out before.
You need to be very careful about making investments at this time as any mistakes can have serious and grave consequences.
Not a Good Time To Take On New Debt
It is not advisable to take on new debt in a recession even though the rates may be low. This is because in difficult economic times you never know what will befall you or your business.
During a recession one can easily lose a job and how are you going to pay back these loans when you are laid off. Being unemployed is challenging in itself without debts.
You don’t want to lose your job and have to worry about debts too.
And even if you manage to get another job, you are likely to find a job that pays less than the job you lost. In such a situation you may find yourself struggling to pay back this loan.
Not a Time To Guarantee Other People’s Loans
When you are living in a recession you better avoid guaranteeing other people’s loans. This is because of the risk that they will default increases during this period.
And if they default you could end up losing your assets too.
Unless it is absolutely necessary, it is better to avoid it. I know there are situations that involve your children and relatives where you may feel compelled to assist.
But even in this case you should try to discourage them from taking on debt.
Not a Good Time To Play Around With Your Job
If ever there was a time when you need to be at your best in your job, then it is during a recession. This is because this is the time when companies are likely to lay off workers.
You, therefore, need to make yourself indispensable so that when it comes to the time they are deciding who to fire you may avoid the chop.
If you have not been putting in more hours, this is the time to start doing so. This is the time to start meeting your deadlines.
When employers decide to reduce staff they want to keep their most productive workers. And you need to be in that number if you are to survive.
Otherwise if you lose a job during a recession, it will be tough to find another job.
I hope that you have learned one thing or two on things you should not do in a recession. These tips can preserve you financial wellbeing.