How to prepare for a recession in Europe.


Not investment or financial advice. This is not an endorsement or recommendation to buy, sell or hold.  The staff of this site may own the asset/s mentioned on this page. Investing is risky and you may lose all your capital. Do your own research. See full disclaimer.

We receive no direct payments from the mentioned companies. Some links on this page are affiliate links, at no extra cost to you, we may receive commissions when you use them. However, we try our best to keep our articles fair and balanced.


   

This is not financial, budgeting or economic advice, do your own research, consult a financial advisor. This article is intended as a starting point of your research, nothing more!

What is a recession?

A recession is an economic slowdown. What this means, is that during a recession you can lose your job or services you depend on.

Recessions are an essential part of the economic cycle, they cull the economic entities that do not create value. Without this process, we are left with zombie companies occupying market space. In a healthy recession, zombie companies are replaced with more efficient ones.

In recent times, it seems that recessions have been suppressed through financial wizardry. This probably just postponed the bad times and did not actually make them go away. Usually, before a recession central banks have higher interest rates, this would allow them to cut interest rates, which reduces the debt burden on families and companies during a tough period.

Technically a recession is 2 quarters of negative economic growth.

Europe has been chugging along and there has been growth, albeit in small increments. In the last few years, I have been to Thessaloniki, Naples and Reims, when walking down the back streets of these cities I did not get an impression of economic growth.

How will a recession start?

Who knows. There could be many triggers, at the end this is irrelevant for the common man. A recession will come at some point and it will affect everyone. Here are some examples:

  • Trade war
  • Negative economic outlook by the media,
  • Political uncertainty
  • Populist politicians
  • Defaulting banks
  • Currency wars
  • Kinetic wars
  • Italian Government Budgets or an Italian exit from the Euro
  • Greece defaulting again
  • France
  • Trouble in the Balkans
  • Euro diving in two (North South)
  • Eurozone diving in three (North South East)
  • Immigration / Integration challenges
  • Unsustainable social welfare programs
  • Ageing populations

What are the potential impacts of a European recession?

  • Inflation: The more QE the higher the money supply, the higher the chance of inflation. Many have been talking about “helicopter money”. This means direct payments from the government or tax refunds, which increases the money supply, which could increase economic imbalance and a recession.
  • Euro Split: The less economic activity, the more likely countries are tempted to print their own currencies. Whilst in the Euro they cannot do this. Italy is looking through loop-holes in the system; they are trying to issue government IOUs as currency.
  • Russian / Chinese influence: When European countries are weak, the Chinese are on standby to buy off the family jewels, ports airports and the like.
  • Stringent regulations on Crypto Economy: If the value of the Euro falls, then the more likely it is EU countries will regulate cryptocurrencies or tax them.
  • Unpaid Rents: If you rent out a property or own REITs there is a higher chance that your tenants will not be able to pay their rent because there is a likelihood they lost their job.
  • Unemployment: Higher chance you might lose your job and more difficult to find a new one.
  • Criminality: The more desperate people are the less likely they will consider the consequences of justice relevant.
  • House prices: Less demand means lower prices

Preparing for recession The basics (in a nutshell)

This stuff you should do anyway, irrelevant of an impending recession or not.

  • Budgeting: Understanding where your money is going. What is essential and what is nice to have.
  • Finances: Emergency 6-month fund.
  • Get more financial education.
  • Health: Take care of any pending tooth work, medical checkups, get in shape and eat well.
  • Friends and Family: Get rid of bad friends and accumulate good ones.
  • Networking: Network with others in your field and with people in connected industries.
  • Your Commercial market value: Become indispensable at work, get certifications, but yourself at the centre of your firm.
  • Your Sexual market Value: Groom yourself. Get in shape. Up your game. Create more value for your partner. You might end up depending on that to keep your partner attracted to you or to attract others.
  • Debt: Get unproductive debt under control.

Money

Budgeting is your cornerstone prep for a recession. Budgets give you an overview of your financial needs today and in the future. A budget is the amount of money you need for various items; Medical, Food, Accommodation, Schools and Transport.

With this info, you can determine the amount of money you need to survive each month. A 6-month buffer is a good starting point. In addition, learning how to be frugal will make you save more and spend less.

Protect your cash reserve, diversify it between physical cash stored in different places and bank deposits ideally in more than one bank, ideally located in 2 or 3 different countries.

You do not need to create this in reserve in one go, you can build over a period of time. In Greece, Cyprus and other countries cash withdrawals were limited for periods of time, prepare accordingly.

High-interest Debt is a killer in both times of prosperity or recession. Control it. Find out the root cause of why you are in debt and then deal with it!

Manage your investments

Finances are probably the most difficult thing to manage and prepare for a recession, this is because there is no clear safe-haven asset.

Learning how to diversify, finding low-cost investments and learning on how to judge the risk of an investment based on its regulatory framework and audits will give you an advantage. (ICOs, Agri investments and some p2p investments are less regulated that quoted stocks)

The traditional advice is that during or prior to recession assets are best placed in less volatile vehicles such as Bonds and Cash. There are arguments to hold precious metals and also Bitcoin or maybe even a basket of cryptocurrencies

Another option is The cockroach portfolio pr the permanent portfolio. In this case, a portfolio is split equally between stocks, bonds, cash and gold.

Gold

When buying gold it makes sense to consider both physical forms and professionally stored. If you are based in Europe, then holding some gold outside of Europe can give you an extra level of security.

CryptoCurrencies

Buying Bitcoin or a basket of cryptos could make sense if you want to diversify out of traditional assets and reduce your counterparty risk.

P2p investments.

If you are determined to keep your p2p investment even in a recession it makes sense to diversify your holdings among good p2p companies. The question is what is a good p2p company!. We learnt from the Lendy collapse that even property-backed loans are not as safe as some investors assumed. Here are some potential ideas for diversification, there is no guarantee that these are safe options.

Opportunities in a recession.

A Recession could bring investment opportunities. The famous line by WB “buy when there is blood in the streets” What this means is that keep an emergency investment fund, will give you options, i.e. keep cash in hand. Identify any investing opportunities beforehand. During a market correction which is more likely during a recession, assets might fall below their actual value during times of financial calamity.

Your Job and income

There are four potential sources of income.

  • Passive Income investments
  • Your Job
  • Your Side Hustles
  • Welfare payments.

Your job and income determine your health, longevity and quality of life both for yourself and your dependents. Being able to maintain a cash flow in, will ensure that your family needs can be met. Staying in a job could be difficult in a recession because companies are cutting costs.

To keep your job, you need to be part of the core revenue-generating machine of your employer. You need to become essential and irreplaceable. You move into this position, by outworking your colleagues, networking and taking over important jobs essential to your companies success.

If the hard recession will come in less than a year, probably now is not the right time to leave. If there is more time, then the right time to move to a new job now. This will give you enough time to establish yourself in your new job. In a recession, the last one in is the most at risk to be the first one to be kicked out.

Another third source of income is side hustles, these have the potential to grow into something bigger to jumpstart your financial freedom. There are several potential opportunities

Governmental welfare can come from local, governmental or even European commission or European parliament. It can take any shape such as contracts, work, grants, free training, free wifi, pensions and medical coverage. Know what is available. These programmes require certain conditions to be fulfilled in order for you to become eligible and some of these conditions take time to fulfil.

Your health

Your health can be an asset or a liability. It can be an asset because it can be a pillar of your actions. It can become a liability because if it goes downhill, then you will have less energy to work and protect yourself and your dependent ones during a recession.

Make us of your medical coverage, especially if you have it through your employer, now as you do not know when you will lose it. Get checkups and followups!

Basic Home preparedness

Home preparedness; making your home more hardy in case of a recession. You do this on the level of security, maintenance and backup systems. With a few simple steps, you can make your home better prepared for hard times.

  1. Network with your neighbours and join local organisations. Knowledge is power
  2. Get to know more people from various backgrounds that live in your neighbourhood.
  3. Lose friends which bring no value to your life.
  4. Fix any items in the house, especially structural issues
  5. Automate what payments you can so you have more free time
  6. Work on yourself. Unresolved traumas can be a burden in a recession. Getting to understand yourself better, will help you to better prepare yourself. In a recession, there is a higher chance that you will have to deal with a loss so get your pride in check.
  7. Share the house duties with your partner
  8. Find cheaper ways to relax.
  9. Upgrade your house security how you can, alarms, locks or a dog!

Conclusion

It is important to prepare for a recession as know one knows when the next one will be upon us.. Being prepared will give you an important advantage to deal with the challenges. This comes in the form of some peace of mind in terms of your finances, your income, your health and your home prepared. Thinking about dealing and avoiding loss in good times gives you the advantages of taking slow and unemotional decisions.

Such decisions usually turn out to be better than rushed ones!

Learn more:


Not investment or financial advice. This is not an endorsement or recommendation to buy, sell or hold.  The staff of this site may own the asset/s mentioned on this page. Investing is risky and you may lose all your capital. Do your own research. See full disclaimer.

We receive no direct payments from the mentioned companies. Some links on this page are affiliate links, at no extra cost to you, we may receive commissions when you use them. However, we try our best to keep our articles fair and balanced.


   

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on NodesOfValue.com. He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.


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