Stop freaking out about “the recession”
Hi Personal Finance!
I see an awful lot of threads here about people wondering how on earth they’ll possibly survive this horrible doomsday recession that is just absolutely going to happen any day now. Here’s some tips:
1) There is not a gigantic country-destroying recession that is coming to ruin your life in the coming weeks. Talking heads have been predicting one ever since the last recession. The current news cycle is little more than fear-mongering (full disclosure: I used to be a journalist). IF the current indicators that people are looking at end up holding true, it’s still well over a year before things are “expected” to go south. Plenty of time to shore up those savings accounts, make sure you’re budgeting properly (see below), etc.
2) The last recession was called the Great Recession for a reason – it was a harder-hitting one than those that came before. And since it was largely based on a housing crisis, it felt even worse because people were losing their homes due to ridiculous mortgages that they never should have been offered, or agreed to, in the first place. Which leads me to…
3) Just be smart. Are you living within your means now? Great! Make sure your emergency fund is in good shape, and continue about your business. If you’re overspending, take a look at your budget and see what you can cut out of it. This is something you should be doing regardless of how the markets look. Find a cheaper cell phone plan, ditch that $100 / mo cable bill, subscribe to a slower internet package, go out to eat less often, etc.
4) “What about my stocks? Should I sell all my stocks?” NO!!! Do. Not. Sell. Your. Stocks. The only exception here is if you really are completely and utterly broke otherwise and absolutely need the money. Look, I invested almost all of my life savings in late September last year. And then watched a LOT of it go away – on paper. But guess what? It’s all back already, and then some – because I didn’t panic sell. In fact, the best thing you can do in a recession is buy more stock! A bad market just means that stocks are on sale. Who doesn’t love a discount? Again, I wouldn’t advise buying unless you have the budget to do so.
So there you have it, friends. The world isn’t ending. Be smart with your money, use some common sense, and be prepared to make some small sacrifices in the short term if a recession hits.
update 1: thanks for the silver!
update 2: I was working my first “real” job in 2008, but the pay was so bad that I was not investing much. Then over the next nine year, I didn’t invest one single cent out of fear of another big market drop (just left it in savings). I ran the numbers, and if I had been investing in the S&P 500 at my original rate that whole time, I’d stand to be up about $200,000 at retirement. I potentially lost $200k by not investing out of fear of a market turn.