When I was studying business in college, I remember being a little disturbed by the stories of those who benefited during times of economic crisis. Being a sensitive Sally, I couldn’t imagine making money so easily while those around me were suffering. For example, in the aftermath of the stock market crash of 1929, a man named Charles Darrow (who was struggling to pay the bills) developed the game Monopoly. Once Darrow realized how much his friends were enjoying the game, he started selling it for $4 apiece. The game became so popular that Parker Brothers bought it, paid Darrow’s fee, and the rest is history.
Then there is Warren Buffett, who saw the Great Recession of 2007-2009 as a great opportunity to buy discount stocks. While investors were fleeing the market as if they were fleeing a house fire, Buffett ran into the flames. By 2013, Buffett had made at least $10 billion from the financial crisis.
It may come as no surprise that I developed a very different view of those who manage to make money when everyone else is so lucky. There’s nothing mercenary about coming up with a plan to make a profit – even when everything seems to have gone south.
Here are some ways you can make the upcoming recession work in your favor.
Stay on course
One of the first things you’ll hear as the next recession approaches is how many people have sold their investments and moved their money somewhere 100% guaranteed. Emotionally, this step makes sense. Who wouldn’t want to protect their hard-earned money?
Unfortunately, this practice is short-sighted.
There is a phrase in the financial world called “dollar cost average.” In short, dollar cost averaging means investing a fixed dollar amount on a regular basis, regardless of what happens in the market. Let’s say someone invests $100 a month in Target. Whether the target stock sells for $125 per share or $50 per share, they are investing the same amount of $100.
When the target stock price reaches $125 per share, that $100 won’t go away. However, when the market goes down and Target’s stock value drops, $100 buys more. Over time, they will end up getting much more than they would have if they had left the market when the values started to fall. Over time, the dollar cost averaging may also lower the average cost per share.
For you, it’s about deciding how much you’ll invest in your future each month, and sticking to that plan no matter what.
Sell things that others need
According to OfferUp’s 2022 Re-Commerce Report, 82% of Americans buy or sell used items. And it’s not just clothes. 76% of used goods purchased come from product categories such as electronics, home goods, sporting and outdoor equipment, auto parts, furniture, and home improvement.
Even people who aren’t usually frugal are looking for ways to save money during a recession. Take the opportunity to put up for sale anything you no longer need or use. Whether it’s a room full of baby gear, home decor, or auto parts, selling allows you to clean out your home and earn money that you can store in your savings account.
Business purchase
A recession can be a good time to buy a business. Business owners don’t always have enough money set aside to survive when sales are delayed, or they may own several small businesses and are anxious to lighten the load.
Naturally, you’ll need to dig deeper into the company’s financial records and day-to-day operations before making an offer. If you are not an experienced business owner, you will need the assistance of a neutral third party with business valuation experience to guide you through the pros and cons of the business.
Keep an eye on layoffs
Finally, keep an eye on which companies are laying off their employees during the upcoming recession. According to research published in the Harvard Business Review, the companies that emerged from the Great Recession in the best shape were those that relied least on layoffs to lower company costs. Instead, they focused on operational improvements and innovative ways to retain employees.
These are the companies you might want to invest in. This is not only because it did the right thing by its people (which is a huge bonus), but also because the leadership was smart enough to save jobs while promoting business practices.
The one thing we all should do, whether we’re worried about a recession or not, is create an emergency savings account with enough money to cover expenses for three to six months. That way, we have a financial cushion to fall back on when money is tight.
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