Recession and Stress: How to Cope

It’s hard to ignore all the news about an economic downturn. But we have been here before, and there are strategies we’ve learned that can help you survive, and even thrive.

Written by Elaine King CFP® / June 17, 2022

Quick Bites

  • Recognize that losing money has a powerful effect on our brains, and can cause us to make poor financial decisions.
  • Being proactive and taking practical steps to prepare for a poor economy can help relieve stress.
  • Define what’s financially healthy for you for the next few years and make a plan to get there.
  • Watch your triggers for overspending.

A recession will be the end of a cycle that on average gave us five wonderful years of shiny growth, and since it is a laggard indicator, you will feel the dark recessionary economic wind way before you are officially living in it. Depending on what phase you are in your life, it may or may not heavily affect your finances long term. However, it will cause additional stress not matter what phase of life you are in, and you must be prepared to mitigate it.

During the last recession, from 2007 to 2009, I lost some money in my investment properties and half the value of my home. Even though I had to cut down on monthly expenses and get rid of some non-necessary items, it did not stop me from continuing to study, write and frugally travel—knowing of course, that this was temporary.

I also took advantage of the drop in prices and appealed my real estate taxes to halve the amount. And with homestead taxes capped at 5% annually where I live, it’s still saving me money after 13 years.

So my best advice to handle stress, having survived several recessions, is to understand what losing does to your brain, learn ways to mitigate some anxiety triggers and project your finances for the next three years—playing these things out strategically will strengthen your finances and well-being.

Be present, and know that losing hurts more than winning

It is not just emotional. Losing money activates the same part of the brain as when we feel physical pain, which then can become loss aversion (this is where your mind avoids losing, making us react faster to avoid late fees as a punishment than growing your money as a reward).

We then can start developing a scarcity mindset and get blurred vision to bad decisions, like going on a desperate survival mode driven by fear. For example, you take out a loan with a high interest rate instead of using your extra savings fund. In the book Your Money and Your Brain, the author Jason Zweig notices an increase in his pulse rate from 75 to 145 after a small loss during a card game. Imagine what this means to your body when it is not a game?

To help lower your stress, prepare yourself for what may come. Know there will be losses in the stock market and stay invested conservatively, because if you let fear defeat you, you may just lose the biggest wins and be reluctant to invest again.

Also, be present and take a deep breath before you take any action over a certain amount of dollars (i.e., $1,000). And adjust your goals to reflect less risk, but don’t give up on them.

Identify your triggers: Anxiety can be mitigated

Research studies of purchase behavior have shown that credit cards lead to overspending since it lowers the immediate pain of a cash payment.

For example, a recent experiment between cash and credit-card buyers resulted in the cash buyers choosing a less expensive product. Choosing cash or debit cards over credit cards in this recessionary cycle can lower the stress of an unknown credit card balance since it will help you avoid the anxiety of figuring out where the money will come from.

Also, keep an eye on conditional behavior that you may have developed when the economy was growing, and cash was more available. These could be automatic dopamine mood boosting neurotransmitters that are released after you reach a goal such as getting enough credit reward points to travel to Rome for example or online shopping to match that travel experience using a credit card vs. using your debit card.

Instead of shopping, try doing things that activate endorphin neurotransmitters that help you cope with pain and stress, such as exercise and activities like arts and crafts that relax you and don’t require much extra funds. You must be careful after doing things you love, though, since these also release the “good” feeling and may lead you to extra spending.

Triggers can also be “bad” feelings. For example watching too much negative news can increase your stress. At this time, limit yourself to headlines and summaries.

Finally, keep an eye on both good and bad conditional behaviors you may have developed during the pandemic (when time was abundant) and the economy was thriving (when money was less expensive), like buying more than you needed and giving into impulse shopping.

Practice financial well-being

Visualizing your best- and worst-case financial scenario will help reduce your daily stress.

For this to work, project your balance sheet and your cash flow for the next three years. In one column, write goals, in another column, write plan A and then plan B , leaving out a column with the word “how.”

This exercise will focus your brain on growth and challenge it to solve for what you will need to do to get to plan A vs. plan B. For example, are investing more in marketing if you own a small business, going back to school, asking your boss for tuition reimbursement, or involving yourself more in the community helpful for reaching your goals?

Some other steps people commonly take that can also help:

  • Pay your bills before they are due

  • Limit your outstanding credit card balance to less than 30% of your total credit limit

  • Reduce your bad debt

  • Divide your monthly income between your checking and savings

  • Have an automatic investment contribution plan (i.e. IRA, 401k, or brokerage)

  • During the last recession of 2007, I was the director of financial planning for a regional trust company by day and by night, a volunteer at the community’s phone bank to help those who were suffering financially with credit cards, social security, investments, and job loss. After volunteering for a couple of years, I created workshops and books about financial well-being.

There will be many opportunities for you that will come out of this recession, you just need to be ready and open to the chances that will present themselves.

About the Author

Elaine King

Elaine King CFP®

Elaine has served as the Family’s Financial Planner for over 1,200 families and 100 multigenerational family enterprises crafting actionable family financial plans.

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