Preparing Yourself for the Next Recession

Getting prepared to face a recession can be less painful if you follow these best practices.

A recession is a period of economic decline characterized by a significant contraction in economic activity, typically lasting for two quarters or more. During a recession, businesses cut back on their operations, and consumers reduce their spending, leading to a decline in Gross Domestic Product (GDP) and rising unemployment rates.

Recessions can occur due to several factors, including a decline in consumer confidence, a reduction in government spending, or external factors such as natural disasters or pandemics.

Recessions are inevitable, and they can be a challenging time for most individuals. Economic downturns can cause massive layoffs, stock market crashes, and even business closures.

Therefore, it’s crucial to be prepared for the next recession to avoid being caught off-guard. In this article, we will explore ways to prepare yourself for the next recession, specifically in the context of Malaysia.

Our Country’s History With Recession

Malaysia is a small, open economy, highly dependent on exports, and is susceptible to external economic shocks. In the last two decades, Malaysia has experienced two significant recessions, the Asian Financial Crisis of 1997-1998 and the Global Financial Crisis of 2008-2009.

During the Asian Financial Crisis, Malaysia’s GDP contracted by 7.4%, while during the Global Financial Crisis, it contracted by 1.5%. Both recessions led to significant job losses and business closures, causing widespread economic pain for Malaysians.

Most recently, the Malaysian economy has experienced a recession during the COVID-19 pandemic, with a record-high unemployment rate of 5.3% in May 2020. The hardest-hit sectors were tourism, manufacturing, and construction, leading to financial difficulties for households and a decrease in consumer spending, which further impacts the economy.

Preparing for the Next Recession

With the past in mind and a future recession looming, there are several steps that you can take to prevent the worst from happening to your financially.

Depending on the severity of the predicted recession, measures can range from learning new skills to improve your soft skill set, to an in-depth look into your financial health and stability to generate enough backup funds for a lengthy recession.

The objective is to lessen the impact of the recession to you and your loved ones, until it rides its course out.

#1. Build an Emergency Fund

An emergency fund is a savings account set aside to cover unexpected expenses, such as job loss or medical emergencies. Having an emergency fund is crucial during a recession, as it can help you to cover your expenses during tough times.

Financial experts recommend having at least three to six months of living expenses saved in your emergency fund. In Malaysia, the average monthly expenses for a single person are around RM3,000 to RM4,000, while a family of four would require at least RM8,000 to RM10,000 per month.

Therefore, it’s essential to have an emergency fund of at least RM12,000 to RM60,000, depending on your family size and monthly expenses.

#2. Pay Off High-Interest Debts

During a recession, you may experience a job loss or a pay cut, making it difficult to make debt payments. Therefore, consider paying off high-interest debts such as credit card debts or personal loans as soon as possible.

Bank Negara Malaysia reported that household debt to gross domestic product ratio rose to a new peak of 93.3 per cent as of December 2020. It’s crucial to prioritize paying off high-interest debts first to avoid accumulating more debt during a recession.

#3. Buy Used Goods

Buying used goods is another way to save money during a recession. Instead of buying new items, consider purchasing used items such as furniture, appliances, and clothing. Not only can buying used save you money, but it’s also better for the environment, as it reduces waste and consumption.

#4. Learn to Fix Things

Learning how to fix things can be a valuable skill during a recession. Instead of paying for repairs or replacements, you can save money by fixing things yourself. Consider learning basic skills such as sewing, plumbing, and car maintenance.

Additionally, repairing items can be a satisfying and fulfilling hobby that can improve your self-sufficiency and sense of accomplishment. With tradesmen skills regarded as a dying art, you could be in to have some pocket money by advertising your newfound skills in your community.

#5. Invest in Your Skills

Investing in your skills is an essential strategy to prepare for a recession. During tough economic times, companies may lay off employees or reduce salaries, making it essential to have valuable skills that make you an asset to your employer or potential employers. Here are some ways you can invest in your skills during a recession:

One of the most popular and convenient ways to invest in your skills during a recession is through online learning. Numerous online platforms such as Udemy, Coursera, and LinkedIn Learning offer a wide range of courses on various topics, including finance, coding, project management, and more.

In Malaysia, the government has also launched several initiatives to encourage online learning. For example, the Malaysia Digital Economy Corporation (MDEC) has launched the Digital Skills Training Directory, which is an online platform that provides access to various digital courses and training programs.

#6. Seek Out Opportunities in Good Times

Building professional relationships can open doors to new opportunities and help you stay informed about industry trends and job openings. Consider joining professional associations or attending industry conferences and events. You can also use social media platforms such as LinkedIn to connect with other professionals in your industry.

Take on side projects that allow you to learn new skills. During a recession, it’s essential to be proactive about your career and seek out opportunities that allow you to grow and develop. Consider taking on freelance work or starting a side business that allows you to build new skills or expand your knowledge in your field.

In Malaysia, the government has also launched several initiatives to support entrepreneurship and job creation. For example, the Ministry of Entrepreneur Development and Cooperatives (MEDAC) has launched various programs to support small and medium-sized enterprises (SMEs), including the MySTEP program, which offers training and coaching for aspiring entrepreneurs.

Conclusion

While the impact of a recession on Malaysia’s economy can be significant, there is reason to remain optimistic. Malaysia has weathered past economic downturns and has demonstrated resilience and adaptability in the face of adversity.

The government has implemented various initiatives to support businesses and households during the current recession, such as wage subsidies and financial assistance programs. Moreover, individuals can take steps to prepare themselves financially, such as investing in their skills, building an emergency fund, and paying off debts.

By working together and taking proactive measures, Malaysians can overcome the challenges posed by a recession and emerge stronger and more resilient than ever before.

Got any good strategies that can help your fellow Malaysia weather the coming recession? Let us know in the comments down below.