Financial Advice to Ignore During a Recession

Recessions occur on average every six to seven years in the U. S. Almost every time, recessions bring unpredictable money problems and bad financial advice.

Smart steps, like exploring debt relief strategies, shoring up your emergency fund, cutting spending, and making sure you're networking professionally can help you to get through the recession with your finances as strong as possible. So can avoiding the following bad financial advice, which could lead you down the wrong path. 

1. Don’t Worry About the Future 

You always have to consider the future. Like it or not, it's coming. If you’re advised not to worry about it, you could lose focus on your long-term financial goals. 

One day, the recession will end and your finances will likely be more stable. Before you make any financial choices, think about how they will affect your net worth in a few years. For example, taking money from your 401(k) to pay bills could mean giving up tens of thousands of dollars in retirement because you'd lose the compound interest your money would have earned.

Our advice: The better course is to explore other ways to meet your current needs besides turning to credit cards or your retirement savings. 

For example, if you're having a hard time covering your credit card bills, credit counseling could be a better solution than just stopping payments without a plan. If you can't cover the bills, a side gig could make more sense than withdrawing money from your retirement plan.

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2. Hold Out Until You Find the Perfect Job

Things cost money. And in tough times, they seem to cost more. You need a job to cover your expenses. 

You may be set on finding a rewarding new position at the same pay and salary level. But this may not be possible during an economic downturn when there are more job-seekers than jobs.

While you may have unemployment benefits to help cover the bills while you’re job-hunting, holding out for the perfect new job could be a mistake. Unemployment benefits don't last forever, and a long gap on your resume could hurt your future prospects when you try to rejoin the workforce.

Our advice: If you can find a job that uses your skills, isn't a huge step down, and that covers the necessities, you should probably take it even if it isn't your dream job. The work might even turn out to be enjoyable—and even if it doesn’t, the job doesn’t have to be forever. It's far better to be employed during the recession and change jobs after when more opportunities open up. 

3. Follow the Stock Market Closely

The danger of watching the stock market is that your fear of losing money could push you to sell at the wrong time. 

If you have money invested in a 401(k) or IRA, it’s natural to think you should do something during a recession. You may hear that it’s smart to buy stocks at rock bottom prices, or that you should sell before the stock market plunges.

Experts recommend you avoid selling or buying out of fear. Have a portfolio that’s balanced the right way for your individual tolerance for risk and your age. If you’re in your 20s or 30s, you have many decades for the market to right itself. No one—not even the experts—can accurately time the market. 

If you leave your money invested, your account balance could dip. Recoveries are inevitable after recessions, so eventually your investments are likely to bounce back. If you sell, though, you lock in the losses.

Our advice: The wise way to invest is to create a sound, long-term plan that you stick to even in turbulent times. When the market is rocky, you’re better off avoiding your financial statements or obsessively following stock market news. Instead, just stay the course. 

4. Don’t Worry About Paying Down Debt

Putting a pause on making extra debt payments could mean you end up paying more in interest over time. 

You might hear that it’s smart to keep more money in your savings account in case you lose your job.

If you have no emergency savings at all, this might make sense, since things could go sideways during a recession and you'll need money. However, if you already have an emergency fund, there's no good reason to stop your debt paydown efforts.

Our advice: Continue to make as many extra payments on your debt as you can. Getting through a recession is easier if you're debt-free. Explore strategies such as debt consolidation, as recessions often drive down interest rates. Reducing the rate on your debt through consolidation, could make it easier to pay off. 

We Have Some Good Financial Advice For You

Now you've seen four pieces of bad financial advice during a recession and you know what not to do. For all the stress you might feel during an uncertain economic time, forming your own financial plan can ease the pain. 

Find out more about the type of help we can offer.