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How to respond to a recession in just 15 minutes

Young people recession

Is the country you live in experiencing a recession? With Australia officially in a recession, many other countries are also likely to experience a recession in the near future. Scary headlines yes but those scary headlines can be made a lot less bloodcurdling if you take action. We break down some actions you can take to respond in just 15 minutes. Grab a cup of coffee and let’s get started.


After months of speculation, it’s finally happened: We’re in a recession. While I hold multiple passports and haven’t travelled in so long that I’m experiencing plane withdrawal (thanks COVID-19), I’m officially based in Australia and was here for the news yesterday that we officially entered a recession. Many countries are in or sliding into recession so this is relevant reading for our readers worldwide.


What is a recession?

Here are three different answers to what a recession is, with different levels of difficulty:

  • Short answer: A recession is defined as 6 months of the economy going backwards.
  • Slightly longer answer: A recession is defined as two back to back quarters of declining economic growth.
  • Long answer: Australia’s Gross Domestic Product (GDP) shrank 7% in the second quarter of the year, the largest drop in GDP since 1959. This is the second consistent quarter of economic decline, which means we are officially in a recession.


Why is this recession important?

Australia hasn’t been in an official recession for 30 years. Economists will tell you that we didn’t go into recession during the Global Financial Crisis in 2008 to 2009 but young people in those years and their experience tells a different story. The reality for young people seemed more in line with a recession. It was harder to get into graduate programs because more experienced people who were let go from their jobs were also applying. Some employers, consultancies chief among them, were also getting rid of entry level staff under first in first out policies

This was a real experience that many young people have – economists simply ignore it because Australia didn’t go through a recession on paper thanks to demand for natural resources.


What does it feel like to be in a recession?

Ask any of your friends who graduated in 2008 or 2009. Graduates in the USA, particularly around financial services or real estate will have their own stories too. It leaves very real consequences including labour market scarring, which impacts young people beyond the recession itself.


How to respond to a recession in 15 minutes:

A recession brings scary headlines which can make it seem like we have no longer have control over our finances. Taking action will help you feel more in control and all you need is 15 minutes. Grab a coffee and take 15 minutes now to respond to this recession:

1. Plan to build an emergency fund

You’ve heard me talk about an emergency fund and why you need one before. And when it comes to emergency funds, I will never let this one go. An emergency fund is the money you can draw on to take time off work to look after a sick family member, to fix the broken washing machine or to pay the bills if you lose your job and its income without notice. It is essential to have for any recession.

  • Action: Identify at least $1,000 that you can quickly access in an emergency. If you don’t have $1,000, here’s how you can build an emergency fund, including selling items you no longer use – if you don’t know everything in your wardrobe, that’s a good place to start.

  • Stretch goal: Open a savings account in a different bank to your bank you have your transaction account with aka. the account you use to tap and go your morning coffee or evening cocktails without thinking. This tap and go account is not the home of your emergency fund. Your emergency fund will be housed in another account so that you can’t access it quickly. Jump online to check the different accounts options and open one that charges no fees and if possible, throws in a competitive interest rate so that your emergency fund makes you money.

  • Marathon goal: Up your $1,000 to $5,000 and then if you can, up to 3-6 months’ worth of your expenses. Put in however much you feel you need to not worry about money at night.


2. Identify your debt

How big is yours? Debt is a led weight that can avoid you pursuing the goals you want because the money you would spend on those goals is first dedicated to paying for the choices of your past. For this reason, debt can ruin lives because it eats away at your life plan and thanks to compound interest working against you, debt grows larger over time if not paid down quickly. If you’re carrying bad debt like credit card debt, that needs to go now to avoid limiting your future options.

  • Action: Know where your debt is. Look at your credit cards, look at your buy now pay later accounts and student loans if you have them. Work out the specific amount of debt you’re carrying and where it is.

  • Stretch goal: Work out how much the interest rate is on each debt that you owe. For example, your credit card interest rate is 13% and your student loan, known as HECS in Australia has an indexation rate (basically an interest rate) of 1.8%. In Australia, you are better off focusing on paying down the credit card because a HECS debt will only be paid down if you’re earning income so during a recession, if you lose your job, you get some relief from that particular debt.

  • Marathon goal: Make a plan to pay down your debt. You may want to speak to a financial advisor to work this out. If you’re finding debt overwhelming, you may want to contact the National Debt Hotline, a free financial counselling service for Australians that is listed in our Money Resources.


3. Know how much it costs to be you

Some people don’t like budgets. Those people are very lucky because they clearly have enough money to not have to care about where it goes. Luck runs out eventually and however you love or hate to budget money, you absolutely need to know how much it costs to be you.

  • Action: Work out how many bills you pay each month that must be paid. How much rent is due each month? What is your monthly repayment on any debt you’re carrying? These are questions you need to know the answers to so that you know how much you need to earn to cover those bills each month?
  • Stretch goal: Keep note of your expenses each month. Many of us just tap our card and don’t necessarily think before we do this. It’s really easy to monitor your expenses via a budget app that is linked in your bank card. We prefer a budget app that automatically identifies your expenses for you, with several budget apps to choose from that we’ve detailed here.
  • Marathon goal: Look at where you cut back on your expenses. I would suggest that you create a budget first based on your current spending and then identify where you can cut back on expenses that you pay for but that you don’t get real value from. YNAB is a great budget app that does this, assigning every dollar in your budget a job so that you can see what dollars deliver you and which dollars you can assign elsewhere in your budget. 


A recession is the big bad event for global finances.


A recession has been a regular occurrence throughout history and is likely to happen multiple times in your lifetime. A recession is in some ways in inevitable but how you respond to it is within your control. Taking 15 minutes to look at your finances now will put you in a better financial position to weather whatever challenges a recession may throw your way.


Read more: 5 steps to prepare for a recession

Written by Kate Crowhurst


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