A recession can be a challenging time for individuals and economies alike. As Australia faces economic problems bordering on possible recession, it’s essential to understand not only what actions to take but also what to avoid. Surviving a recession often hinges on avoiding certain detrimental behaviours and decisions that can exacerbate financial hardships.
Is Australia In A Recession?
An August 2023 survey by KordaMentha and the Turnaround Association of Australia, polling Australian business leaders, bankruptcy professionals, and others, noted that given the economic climate of the time, there’s no recession in Australia – but it might break out within a year. Potential factors they evaluated as harbingers include frequent interest rate and wage hikes and higher costs – both commercial and residential property markets, plus construction, are also feeling the pinch.
In January 2024, Macquarie Group economists Sophie Photios and Graham McDevitt hinted in a new study that there was a “per capita recession” in progress, with much of the inflation pressures affecting households in a number of angles. They later noted a 50 per cent risk of recession coming for Australia because a surge of net migrations in the past year compounded inflation pressures and there’s no other growth avenues.
The following are essential tips on how to survive a recession by focusing on what NOT to do, helping you stay resilient and financially secure.
Panic Selling of Investments
In times of recession, the value of investments, including stocks and real estate, can drop significantly. It’s crucial not to panic and sell off your investments in a frenzy, because you may lock in losses, missing the potential for recovery when the economy stabilises.
Assess your investment portfolio with a long-term perspective and rebalance it to help in risk tolerance. Diversify your investments to spread risk and reduce the impact of market volatility.
Cutting All Spending
While it’s wise to cut unnecessary expenses during a recession, cutting all spending indiscriminately can hinder economic growth and harm your quality of life. Austerity to the extreme can lead to missed opportunities and increased financial stress.
Prioritise essential expenses such as housing, groceries, and healthcare. Create a realistic budget that allows for some discretionary spending and savings. Look for areas where you can reduce costs without compromising your well-being.
Avoiding Education and Skill Development
In recessions, people often become wary of investing in education and skill development due to financial concerns. However, this can lead to stagnant career growth and missed opportunities when the economy recovers.
Consider upskilling or retraining in areas with strong job demand. Seek affordable or online courses, scholarships, or government programmes that can help you acquire new skills or certifications.
Ignoring Emergency Savings
Some individuals might be tempted to dip into their emergency savings to cover daily expenses during a recession, depleting a crucial financial safety net.
Maintain an emergency fund that covers up to six months’ living expenses.
Use emergency savings only for genuine emergencies, such as medical bills or unexpected car repairs.
Taking on High-Interest Debt
Using credit cards or loans with high-interest rates to bridge financial gaps during a recession can lead to a cycle of debt that’s challenging to escape.
What to Do Instead
If you need to borrow, explore low-interest options like personal loans, lines of credit, or balance transfer credit cards.
Consider debt consolidation to make repayments more manageable.
Ignoring Retirement Planning
Many individuals may put retirement planning on hold during a recession, but this can be detrimental in the long run, as it reduces the time available for your investments to grow.
Continue contributing to your retirement accounts, such as your superannuation, even if you need to reduce your contributions temporarily. Review your retirement plan and consult a financial advisor for adjustments that align with your goals.
Not Seeking Professional Help
Fearing the cost of professional financial advice, people may refrain from seeking guidance during a recession. However, professional advice can provide invaluable insights on how to navigate turbulent economic times.
Consider consulting a financial advisor or counsellor to create a personalised financial plan.
Look for nonprofit organisations or government agencies that offer free or low-cost financial counselling services.
Neglecting Health and Well-being
Recessions can take a toll on mental and physical health due to increased stress and financial anxiety. Neglecting your well-being can lead to further complications.
Prioritise self-care, exercise, and a healthy diet. You must tap friends, family, or support groups for emotional support and consider counselling if necessary.
Just One Income Stream
Depending solely on one income source, particularly if it’s unstable during a recession, can leave you vulnerable to financial shocks.
Explore diverse income streams, such as part-time work, freelancing, or investments that can provide some financial stability.
Consider the gig economy or the sharing economy for additional income opportunities.
Neglecting Networking and Job Search
In a recession, job security may be a concern. Failing to network and keep your job search active can limit your employment options.
Continually build and maintain your professional network. Keep your resume updated, and actively search for opportunities that align with your skills and interests.
Conclusion
Surviving a recession in Australia, whether or not is actually present, requires a mix of proactive strategies and smart financial decisions. Equally important is knowing what not to do to avoid exacerbating financial challenges. Remember, a recession is a temporary setback, and making the right decisions now can help turn things around.
DISCLAIMER: This article is for informational purposes only and does not constitute official financial advice. QUICKLE has no relationship with any financial or business advisory. Please consult your financial advisor for more tailored solutions.
