None of us is really looking forward to the next great depression, even while we’re all expecting it to come. The reality is that rough financial times are worrisome for everyone, including the most prepared preppers amongst us. While you and I might be better off than our neighbors are, there’s still the possibility of losing our jobs, followed by our cars and then our homes.
Since one of the marks of depression is high unemployment, there’s no guarantee that any of us will manage to keep our jobs or even find another job if we lose ours. While 75% of people managed to keep their jobs back in the Great Depression of the last century, it is the 25% of them who lost their jobs that we all focus on.
This shaky job market, coupled with a potential for high inflation make for a rough financial time for just about everyone. Oh, there are always those who have enough money that it doesn’t really matter; I’m not one of those people and I doubt that you are either.
While we don’t know just when that next depression is going to come or what will be the actual trigger, there are plenty of things going on in the current economy to give us concern.
More and more economists and financial planners of all stripes are warning people about the collapse that’s coming. Some even going so far as to say that it will be much worse than the Great Depression of the last century.
So, what are we going to do when it comes? Or, perhaps even more importantly, what should we avoid doing when it comes?
The first thing to realize is that the shape of the economy, including the shape of the stock market, is largely psychological. Stocks rise and fall in value due to people’s perceptions, more than anything tangible that can be pointed to.
Once those people realize the mistake they’ve made, things can turn around just as quickly. It’s easy to fall into fear during times of uncertainty.
But that fear will cause you to make poor decisions, just like those people trading on the stock market.
While there may be plenty to be fearful about, you don’t have to fall for it, even if everyone else does. Rather, think through your situation and make the best possible decisions to protect yourself and your family.
Remember, even though 25% of workers lost their jobs during the Great Depression, 75% of the people managed to keep theirs. Work on being part of that 75%.
Don’t Quit Your Job
Whatever you do, don’t quit your job, no matter how bad you think it is or how much you feel they don’t appreciate you. At least you have a job and you can pay the bills.
If you quit, without already having another job that you’re contracted for, you may not end up being able to get another job for months or even years.
If you don’t feel that the job is meeting your financial needs, then the answer isn’t quitting, it’s reevaluating your spending and looking for a way to lower your costs.
Chances are that you’re living above your means. That’s not your employer’s fault, so you can’t expect them to pay for it.
Related: How to Reduce Fixed Expenses
Don’t Take Your Job for Granted
With so many people losing their jobs, the one thing you want to do is make sure you keep your own. In many companies, that means becoming the indispensable person. The last one they would want to lay off.
That won’t work in jobs which are controlled by unions, as all that matters then is seniority, but if that’s not an issue for the job you have, then do whatever you have to, in order to make them think that they can’t live without you.
More than anything, this means going above and beyond on a regular basis.
I did this in my engineering career, earning myself a number of promotions. I then passed that work ethic on to my children. When my son’s company (he works for a petroleum company) was laying people off left and right, he got a 40% raise, because they couldn’t afford to lose him.
Don’t Buy Anything on Credit
The people who have the most trouble dealing with any financial downturn are those who are saddled with a lot of debt. That can be exacerbated even more by losing a job.
But even for those who manage to keep their jobs, unnecessary debt becomes a burden that’s hard to bear.
It’s not a hard and fast rule, but inflation generally goes hand-in-hand with times of economic downturn.
While that doesn’t mean that the cost of those debts will climb in any way, it does mean that the amount of disposable income available will shrink, leading to making some hard decisions, like paying for the new car or eating.
For those who lose their jobs, all those debts make it harder to survive, financially speaking.
Not only are they likely to lose whatever they bought on credit, but in trying to do everything they can to keep their heads above water, financially speaking, they might end up losing something even more important, like their home, because of that car payment.
Don’t Become a Cosigner on a Loan
Cosigning on a loan is a risky move at any time. By doing so, you’re promising to make the payment, if the borrower can’t. That puts your finances in captivity to their ability to pay their obligations.
If they don’t follow the kind of advice I’m writing in this article and end up losing their job, you’re going to end up being legally forced to pay for whatever you cosigned on.
During a time of financial depression, that could be enough to sink your own finances.
Don’t Switch to an Adjustable Rate Mortgage
The “Great Recession” of 2008-2009 was caused by adjustable rate and balloon mortgages. Written in the time of President Clinton’s presidency, these were intended to make it possible for people who couldn’t otherwise afford a home, the ability to buy one.
The idea was sold on the basis of some financial projections that didn’t come to pass.
When the interest rate or mortgage payment went up, the people who had taken out those loans found themselves unable to make their payments.
It was even worse for those whose mortgages included balloon payments, as they hadn’t prepared for that huge payment.
The result was that thousands of people lost their homes, pushing the nation and then the world into the recession.
There’s nothing wrong with refinancing, if it can be done in such a way as to save you money. But take care when doing so, that you understand exactly what the terms of the loan are.
Don’t accept something which will cause your payments to go up sometime in the future. As we’ve all seen, that’s dangerous.
Don’t Make Investments that Aren’t Secure
The last Great Depression came about largely due to people investing money they didn’t have, in stocks they didn’t understand. They were essentially buying stocks with borrowed money. That still happens today, with people “leveraging” their funds to buy more than they otherwise would be able to.
The problem with that investment, like any other investment, is that it can go down, just as easily as it can go up.
The “sure thing” your buddy talks you into may not be anywhere near as sure as he thinks it is. While some percentage of those really do pay off; most do not, leaving people with a sizeable loss.
My personal philosophy about investing is that I see it as a gamble. As such, I won’t invest any more than I feel I can afford to lose. While I’ve missed a lot of opportunities that way, including a recent one that could have paid me 30 to 1, I haven’t lost any money that way either.
Don’t Upgrade Your Lifestyle
Perhaps one of the more foolish things that someone can do during a depression, besides taking on new debt, is to upgrade their lifestyle.
Even if you get a promotion at work, with a nice fat raise, there’s no real security that you’ll hang onto that during a time of depression.
Rather than spending that money to buy a new car or a boat, use it to pay down your debt, so that later, when the economy is on steadier ground, you can afford to really enjoy it.
If anything, a depression is a time to bring down your lifestyle a bit; doing everything you can to lower your expenses. That will give you more flexibility with your finances, especially if things take a turn for the worst.
Don’t Keep Your Wealth in Cash
I know this is going to sound like a contradiction to the last item; but don’t keep your money in cash either.
Rather, put it into some sort of investment that is secure; while at the same time not requiring any borrowing on your part.
Assuming that you are buying at the beginning of the inflationary cycle, probably the most secure investment would be in precious metals.
That isn’t the only secure investment though. Bonds, especially federal and municipal bonds are secure investments. So are utility stocks and some of the blue chip stocks. Look to invest in things that will have to exist through the depression because people need them. Those are the places to invest.
My favorite investment, for people who don’t have a lot to invest, is to invest in non-perishable food. On the average, food has been going up about 8% per year, even while the general inflation rate has been hovering under 1%.
So, if someone buys $1,000 worth of food and holds onto it for five years, it will be worth almost $1,500 at the end of that time. They don’t even have to sell it to cash in either; all they’ve got to do is eat it and use the money they would normally spend on that food for other things.
Don’t Defraud Your Creditors
Finally, do everything you can to avoid defrauding your creditors. There are things you can do to protect your relationship with them, even if you can’t make your payments.
The last thing that any creditor wants is to have one of their customers default, causing them to repossess property. They’re not in the business of selling that property; they’re in the business of selling loans.
While loan forgiveness is rather rare, you might be able to get a forbearance or deferment on that loan. Both are common for student loans and mortgage companies are amiable to working with you in that way as well. Make contact with your lender, telling them what your situation is and asking them what they can do for you.
Remember, you won’t be the only one going through hard financial times. They’re probably going to be even more aware of the problems going on than you are, as they are going to have a wider picture to look at. As such, they would rather work with you, than have to go through foreclosure.
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