Winter is coming…
And just like how Singapore is a year-round summer island sparred from natural disasters,
Singaporeans have been experiencing a cushioned impact from global issues plaguing the world today.
On 1 May 2022, PM Lee said that there may be a recession in 2023 or 2024.
You might’ve already felt the impacts of rising costs of living or heard of longer hiring freezes, even at big corporations such as Meta and Google.
In my opinion, a global recession is not a matter of if but a matter of when,
We’ve already been through the COVID-19 pandemic, and we’ve seen how being prepared can help us fare much better.
So here is the ultimate guide to preparing for and surviving a recession in Singapore.
TL;DR: Surviving a Recession in Singapore
A recession occurs when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.
Here’s what you can do to prepare for a recession (click to jump to the respective sections):
- Clear your high-interest debts
- Build up your emergency funds
- Cut back on spending
- Live within or below your means
- Focus on the long-term when it comes to investments
- Continue learning and upskilling to remain competitive and employable
1. Clear Your High-Interest Debt First
To create some breathing room in your budget, you need to pay down any outstanding debts ASAP.
Especially high-interest debts from credit cards that can be more than 20%!
With interest rates rising, you may want to clear your loans before taking on other liabilities like a car loan.
If you own a house, you might also want to consider refinancing your mortgage amid high-interest rates.
The worst that you could do is not take action and choose to be like Gudetama (the lazy egg)…
The interest will compound and come back to hit you like a truck.
2. Build Up Your Emergency Funds
Like all economic crises, we have to prepare for the worst.
In this case: the possibility of retrenchment.
As a rule of thumb, it’s recommended that you have at least 6 months’ worth of living expenses saved up for a rainy day.
This will give you enough time to search for a new job to replace your primary source of income.
That said, recessions typically last more than 11 months, so if you want to be extra safe, try going for 12 months worth or more.
Moreover, your emergency funds must be liquid, i.e. withdrawable within three to five days max.
Aside from parking these funds in your bank’s savings accounts,
You can also consider cash management accounts that offer higher interest rates but with slightly longer withdrawal times and a slight (but still very low) risk.
While you’re at it, the world is very unstable now, and anything can happen.
So you might want to consider having some emergency food supplies on hand… BUT there’s no need to hoard!
3. Identify Ways to Cut Back on Your Spending
The key to surviving a recession is to minimise your expenditure.
Go through your monthly expenses and identify items that are necessities as well as stuff which are discretionary.
Basically, you’ll want to differentiate between your wants and needs.
If you have some time to spare, consider going through the Seedly Money Framework for a more holistic approach to your finances.
4. Live Within Your Means
Whether we’re facing a recession or not.
It’s always good to live and spend within your means.
If you can keep your expenses as low as possible, this allows you to have more to save and invest for your future!
Generally, if you have to choose between a high SES or a low SES option, it’s wiser to go for the one that you can afford comfortably.
So when you’re in a pinch and have to cut back, you won’t feel a need to make a drastic change in your lifestyle.
While we can treat ourselves once in a while, we must remember that desperate times call for desperate measures.
So it’s important to not splurge frivolously during this period and always live within your means!
5. Focus on the Long-Term
If you’re invested like me, I feel your pain too.
With the stock markets in a sea of red and the S&P 500 dropping 19% YTD,
The urge to panic-sell is real.
Be that as it may, take heart that the markets will trend upwards in the long-term and that we should look at the bigger picture.
That being said, understand your risk tolerance and adjust your risk exposure accordingly.
6. Continue Learning and Upgrading Your Skills
As evident through initiatives like SkillsFuture, the Singapore government has always been advocating life-long learning.
To recession-proof your life, you need to continue to learn skills and upgrade yourself to stay relevant.
By becoming more valuable, you increase your chance of employment and reduce your chances of retrenchment.
This way, you always have options!
How Do You Survive a Recession?
Singapore has already survived the 2008 recession and, more recently, the COVID-19 pandemic.
While it is imperative to prepare for a recession, not everything is doom and gloom as we have gone through this before.
So let’s keep our heads strong and work through this together as a community and as a nation!
If you have more tips to share about surviving a recession, head on over to the Seedly Community to help one another!