We are all thinking about this. How can I prepare for a recession? How can national lockdown not lead to it? As the COVID-19 continues to sweep across the globe, it’s disrupting industries from restaurants to hotels, to airlines, to event planning. How can basically a worldwide quarantine not lead to a global recession? The coronavirus crisis is likely to negatively and severely impact not only the US but the global economy and individual economies of countless impacted countries.
What is a recession?
The National Bureau of Economic Research says a recession happens when there is a “significant decline in economic activity spread across the economy, lasting more than a few months.” This is measured by the GDP (gross domestic product), which is otherwise known as all the goods and services made and produced by the American economy. In other words, a recession means the economy stops growing and experiencing negative growth.
When is the next recession?
Economists don’t have a strong track record for predicting downturns before they start. No one knows when the next recession will hit. However, it is most likely we are going into it right now. You will know that we are in a recession when there will be an economic downturn (negative GDP growth) for 6 consecutive months (2 consecutive quarters). It’s likely by that definition that we are heading for one right now. However, it is difficult to say how long it will last or how severe it will be.
How will this downturn be different from 2008?
This crash is different from 2008. As Nick Maggiulli pointed out, the big difference is that long term Treasury bonds this time around crashed with the S&P 500. Whereas, the risky assets and less risky assets, generally, show little to no return correlation with one another. Of course, this is not so surprising during times of panic. Look at the correlation chart from the article. Nick Maggiulli writes, “If you direct your attention to the right side of each of the subplots above, you will notice the spike in the return correlations that happened recently across every asset class. This behavior is expected among risky asset classes (i.e. gold, EM, U.S. REITs), but not for less risky asset classes (i.e. bonds).”
What does it mean? For us, it just further confirms that it is much better to invest in yourself and your business (if you have one) or in starting a business versus investing in other people’s businesses and various financial instruments too much.
It is generally worthwhile to continue buying indexes in some tax-advantaged funds. But the rest of the resources should be channeled towards focusing on increasing your earning potential and the value of your work.
Things you can do to prepare for a recession
This is a difficult time. We know that. But this is also a state of war. So how can you prepare for a recession? You need to be skilling up and making yourself an indispensable asset, preparing to help your organization and use this crisis to transform your career.
1. Slash costs
The first step to help you prepare for a recession is, well, certainly conserving cash should be a priority. You should cut costs but not costs related to your health and health of your organization (the health of your career). In other words, cut back on eating out and nights at the bar, buying expensive lattes, buying unnecessary and unnecessarily expensive clothes and accessories, unnecessarily high phone and cable bills. For example, if you are paying over $50 per person for a cell phone plan you should consider switching to a lower-cost provider. You can also use TheStreamable.com to replace your cable bill with more cost-effective streaming services.
Do not cut costs on required dental and medical procedures, professional development, and nutrition. The same goes if you are running an organization or managing a part of an organization. Cut costs that will not impact the long-term health of your organization. In other words, cut such costs as team dinners, team building offsite events, entertainment at your annual companywide events. And, do not cut such costs as factory maintenance and skills development. If you want to dive deeper into health and performance as it pertains to managing organizations you will enjoy the recent interview we did with McKinsey global lead of Organization Practice (change management), BillSchaninger.
2. Increase your rainy day fund
Use the money that you will be able to save by slashing unnecessary costs to increase your rainy day fund. Your emergency fund is something you need even when there is no recession. It allows a margin for error and for unfortunate circumstances such as God forbid, illness. Aim for at least 6 months of living expenses saved in your emergency fund.
3. Pay down debt
You need to pay down debt, starting with high-cost debt such as credit cards, as much as possible to create some breathing room in your budget. However, load up your emergency fund with cash equal to at least 1 month of living expenses before accelerating paying down debt.
4. Manage Investments carefully
The worst thing you can generally do in a downturn is to freak out and offload your investments at rock bottom prices, being afraid it will just keep going down. If you were investing prudently in solid companies your position should recover after the downturn. In a recession, a stock market will easily fall 30 to 40 percent. So, stay calm and remember that generally selling in such an environment is usually the worst thing you can do. Do not make changes that endanger your long-term financial security based on short-term economic events.
5. Keep Up-skilling
This is the time when you need to start focusing on excelling at your work, even more, to avoid layoffs during a likely economic downturn. It is much easier to get through a recession if you do not lose your job.
In a downturn organizations will be cutting dead weight, then under-performers. The last people standing will be top performers. Now more than ever you need to make yourself indispensable for your organization. Recessions increase the pool of labor so it will become harder and harder to stand out and easier and easier to be replaced by someone better and cheaper. So, now is the time to go to war and become an irreplaceable asset for your organization.
It is crucial for you to demonstrate your worth. You have to make yourself irreplaceable. Literally, your employer should not be able to cost-effectively replace you with someone who can get similar or better results at a comparable cost.
6. Start a side business
If you are not prohibited by your employer and you think you do not have sufficient time or ability to make yourself indispensable for your organization, consider if there is a side business you can start to create a plan B. Follow our start-up series to help you select an idea and start implementing it and getting results, while you still have a day job.
7. Update your Resume
Another important step to help you prepare for a recession is to start updating and improving your resume in case you lose your job. Harvard Business School found that more than half of people do not have their resumes updated. If you are a Premium member or an FC Insider use our The Consulting Offer series to help you maximize the effectiveness of your resume. And, if you are not a member, How to edit a resume article and related video will be helpful for you to start the process of updating your resume.
8. Update your Linked-In Profile
Once your resume is up to date use the final text to update your Linked-In profile. However, make sure you switch off notifications for your network before making updates so your boss does not get notified that you updated your Linked-In profile.
9. Start networking
A further important step to help you prepare for a recession is to start networking now, in case you lose your job and will need the power of the network to help you find another one. Remember, it is much easier to network and to find a job when you have a job. And, if you think it is likely you will be losing your job, start looking for your new role right away.
What FIRMSconsulting is doing to help you prepare for a recession?
So we are doing two things.
We released two significant programs for one month only into Premium which have until now only been available to FC Insiders. The MasterPlan Program is the most viewed program in the history of FIRMSconsulting. It is a powerful program to use now to plan your life. How to Manage a Crisis is the other program we are releasing from Insider.
How to manage a crisis
Our clients are often facing crises and catastrophes somewhere in the world. From the coronavirus to earthquakes, wildfire evacuations and more. And they write to us about their immediate plans to manage the situation. What we find is that they almost always take actions that damage their careers and hurt their lives. They let external factors, the media narrative, and their social network influence them to make poor choices that handicap their lives. Often severely.
They don’t realize that the biggest, fastest and most sustainable way to transform one’s life and career is to leverage a crisis. So, don’t run from a crisis. Run into a crisis. In this fast-paced and very practical program with numerous examples, we present a blueprint that any client anywhere in the world can apply in those few weeks during a crisis to dramatically improve their careers.
The world is not coming to an end. So be one of the few who will seize the opportunity.
The MasterPlan Program
We summarize the critical skills and strategies we developed for our most successful executive coaching clients and give you a blueprint to significantly alter your career.
How did we train Andrew to go from senior manager to senior equity partner in 3 years?
What are we doing to build a multi-million dollar luxury brands business with Tatiana in 2 years?
How are we trying to do the same for Richard’s electric car startup?
What did we do to help Fei outperform her peers at a major PE firm?
How did we coach CEOs of multi-billion dollar companies?
What do we do to simultaneously manage so many studies and businesses to such high quality of insights?
Why do we take on such punishing work?
In the span of 2 years we have co-founded an electric car start-up in China (targeting a production date of late 2020 to early 2021 – maybe pushed forward because of the unexpected disruption due to coronavirus), a cosmeceuticals start-up in California, a luxury brands business in Europe and co-own a precious metals mine. We may soon launch an insurance business in Central Asia.
These ventures are core to our mission of teaching business strategy in a compelling manner. Because we meticulously track the development, tactics, strategies, meetings, finances and trials and tribulations of every single business, to produce detailed training programs.
I get asked this question a lot: How do we achieve so much and to such high levels of quality while remaining so energized? This program answers these questions. We will help you build your master plan.
We designed The MasterPlan program to help you completely reinvent and revive your career. This is a program about doing big things. Things that you would not believe were possible.
We have condensed all the key lessons from our most popular programs and, based on member feedback, provide more advanced tools and techniques. We have done the thinking for you so you do not need to spend hours reading and researching.
You do not need more degrees to prepare for a recession
You do not need a fancy degree, or any degree, to be successful in business. You do not need a degree to follow these programs. You just need to be in a career or pursuing an idea. Success comes from doing a few things consistently well.
Tatiana had a Wharton MBA and struggled to get her business moving until we completely changed the way she managed herself, then her team and finally her business. The MasterPlan program will be hard but if you stick to it your results should be no different from that of the clients above.
These programs explain how we keep our performance high and how we help clients keep their performance high, and it is based on Michael having personally advised CEOs of multi-billion dollar companies from the time he was just 25 years of age. How do we accomplish what we do?
Focus on what you can control to prepare for a recession
So what is the bottom line?
It is difficult to predict the future. There are many different sources that can lead to a recession. It is likely the economy will at least noticeably struggle as a result of the current pandemic and not just nationwide but global shutdown, unprecedented in our lifetime.
But what you can do to prepare for a recession is to focus on what you can control. Ask yourself, what can I do personally to put myself in a stronger financial position and in a stronger position within my organization? How can I make myself irreplaceable? What can I do to become an irreplaceable asset for my organization? You can follow The MasterPlan Program and How to Manage a Crisis (temporarily available within Premium membership) to help you figure out an action plan.
WHAT IS NEXT? If you have any questions about our membership training programs (StrategyTV.com/Apps & StrategyTraining.com/Apps) do not hesitate to reach out to us at support @ firmsconsulting.com. You can also get access to selected episodes from our membership programs when you sign-up for our newsletter above or here. Continue developing your strategy skills.
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