Ask HN: How are you preparing for the recession?
Obviously, if you believe there will be one in the next 3-6 months!
My question is for someone in tech, but of course, please feel free to chime in even if you are not in tech
1. What are the obvious Dos and Don'ts?
2. Were you around during the last one? How did you survive it / What got you through it?
3. What did you learn from the last one? Any dumb mistakes you made last time that you wish you didn't? What are some of the common mistakes people make?
- aggressively trim unnecessary expenses like media subscriptions, the "extra coffee", immaterial luxury goods. you don't have to live like a monk, but all of us could easily trim our fun spending by 20-50%.
- have 6-12 months of emergency cash that can sustain you if your main source of income fails. something will always happen, whether it's an appliance or car that breaks down, or an unexpected medical expense. slush funds are good.
- 'if it ain't broke, don't fix it'. make stuff last the extra mile, if you can. stretching electronics and clothes .... fixing electronics (when realistic) instead of buying the new shiny thing ...
- don't sell stocks. if anything; if you're fortunate enough to truly have extra cash, buy that stock at rock-bottom prices you've been eyeballing for a while. buy low, sell high.
- if you have dependents, be extra conservative with your cash. you will need each other.
- this too, shall pass.
I used to keep a 12 month e-fund in cash. Then it became 6. Not too long I moved it to be almost 0. Which yes, that sounds very wrong.
But the thing is, if we get to a place where my investment accounts & credit card can't cover me for several months we as a society have much bigger problems. I'd prefer to not have to eat into those, and yes if the markets crash enough I'd have fewer months buffer in there. But if the shit hits the fan enough that I can't live off of it for a while I don't believe cash will help out a whole lot either.
Granted over the last couple of months the net value of that money would have dropped less if it were cash than in my investment accounts. But that's another matter altogether.
I agree except for the part about "buy low, sell high."
Timing the market is a fool's errand, and it gets no easier during a time of recession.
I am shocked. No one has yet said 'Buy Crypto' :)
Unironically, my friends who ran up their credit cards to buy Bitcoin during the last recession are rich and secure now because of it. They thank me for turning them onto it.
Unfortunately for me, I followed conventional advice. I saved a cash emergency fund and only allocated ~20% of my investment budget to Bitcoin. The cash inflated away and I have orders of magnitude less Bitcoin than my friends.
You can do it now again if you're feeling risky...
Bitcoin hasn’t crashed at all. It’s still at similar prices it was early 2021. Let it go to under $5k then I will load up
These days we're more likely to see comments of the "HN is hostile to crypto" variety.
Diamonds hands!
imagine being able to save for 6 months
imagine owning property
Why not sell stocks? Suppose you’re already at a loss, might perhaps sell to tax loss harvest and rebuy after the wash sale period.
> buy low, sell high.
for many, it's been buy high, sell low. it's always a gamble.
I think the thing to realize is that a lot of it is out of your control.
I was working at a startup during the 2007-09 recession. Before that things were going great and they were hiring, and hiring, and hiring.
Then all of the sudden things weren't great. The startup had two products they were working on, all of the sudden they only had money for one. One morning I came into work early and all the conference rooms already had people in them with the doors closed, they axed everyone working on product A and walked them out the door. I was on product B, I was fine.
Some of those people didn't work for almost two years. It was just random. I had quit a software developer job in the real estate industry to work at the startup because I thought it was obviously going to be a bad time to be in the real estate industry. Which it was, but I had no idea that it was going to affect everything else.
All of this is the opposite of what the government will want you to do, since (arguably) the best way out of a recession is to spend one's way out, but, tragedy of the commons aside:
- Get rid of debt, right now. Interest rates are skyrocketing and unsecured debt is the last thing you need. Restructure it, consolidate it, pay it, but get rid ASAP.
- Emergency fund. Cash is good, but inflation depreciates it and it's too easy to spend. Buy precious metals (gold can be bought by the gram, you don't need to be rich already) or some other reasonably stable store of value that tracks inflation long-term.
- Trim the sails on your unnecessary spending - not all, but some. Try and have something left at the end of every month.
- It's musical chairs time for jobs. Find a comfortable job at the highest pay you can muster that has long-term stability, best measured by longevity and number of employees. Now is not the time to join a funky equity-paid two-man startup.
- Fill the cupboards with tinned and dry foods. Perhaps not in the US (you guys are fairly self-sufficient) but in Europe we're already seeing gaps on the shelves, not least because of the blockades in Ukraine, rising cost of transportation, Brexit and so on.
- Fill some fuel cans if possible (store them OUTSIDE), fuel prices are unpredictable at best, at worst there will be shortages.
- Try not to read too much news. Walk the dog. Focus on your family.
I’m afraid that storing fuel doesn’t work like that, especially if you leave it outside. You’ll get back to a can of varnish by the time it makes any difference
That's good to know (no sarcasm intended) - I was intending on holding onto my modest stash of diesel for a few months at most, but probably worth finding out a bit about how quickly it goes off!
Yeah, fuel degrades over time. There are different numbers out there. Exxon [1] says up to six months. "In general, gasoline should be used within a month of purchase. When the engine will not be used for an extended period of time, it’s best to drain the fuel tank and then run the engine until it stalls. If you choose to store gasoline and follow proper storage guidelines, the gasoline can be expected to remain of good quality for at least six months."
https://www.exxon.com/en/gasoline-safety-storage
While I'm sure this is good advice, anecdotally I filled up a car with gas just as lockdown started, and then didn't use that car much for the next two years. Still seemed to run fine when I sold it this year.
More: this was a 1997 car with gas not diesel.
Diesel goes off fairly slowly. One year old diesel can be put into any modern car. Two year old diesel can be mixed 50/50 with fresh diesel and put into a modern car 10+ year old diesel can go into a tractor or an old (pre 2005) diesel car.
Water ingress into stored diesel is calamitous. See also ‘diesel bug’.
Yeah, algae growth in diesel fuel can be even more catastrophic than putting stale gasoline into a fuel system. It can infect the rest of the system. A family member is a farmer, and 3 years ago had a semi develop algae growth in the fuel system. The tank needed to be removed and power washed, the entire fuel system needed to be extensively flushed. This ended up costing thousands.
In general, I wouldn't recommend storing fuel for the average person beyond a gallon for lawnmowers. It isn't worth the safety hazard, and the only way to actually save money is if you are using & purchasing enough that you can contract your fuel purchase (sign a contract to purchase $x by y date) for bulk delivery.
Why getting rid of debt ? I think that if your job is secure then on the contrary it seems like the perfect time to borrow as much as you can at fixed rates to benefit from inflation..
I was writing from the perspective of the debt-holder, that if you have expensive unsecured debt (and many poorer householders do), then as bills rise there is less disposable income to work with, debt payments eat a larger portion of outgoings and consequently is detrimental to quality of life.
If debt is not at a fixed interest rate then there's also the risk of interest rates going up, which we're seeing now. Theoretically a recession might help cap that, but it's a big gamble - an interest rate rise of, say, 5% would see an incredible amount of foreclosures. In the UK in the 80s, the interest rate topped 18% during a major recession and period of intense civil unrest.
Seems counterintuitive but those are all things people should do when things are going smoothly. Now would be the time to take calculated risks, bet on a few horses and lean on savings etc. if necessary. Now would be the time for courage and a sharp view. There will be stronger things that emerge, that’s where you want to be.
1. Keep 6-12 months of expenses in cash on hand. Cash. Not SPY, not I bonds, not HELOCs or lines of credit. Cash. When you are in financial peril, you don’t want to deal with a closed credit line, deeply depressed assets, or locked up instruments.
2. Don’t lose your job.
3. Network in case #2 doesn’t pan out.
(lessons learned from the 2001 and 2008 crises)
With #1, you count money in a checking account as cash right? Even though it's technically a line of credit that happens to have an insurance policy attached?
Or do you mean strictly physical cash under the mattress(or in a safe)?
When the debit card does not work due to network failure or bank holiday, crisp paper money will still spend.
Cash in a deposit account is entirely reasonable. Money market funds a bit less so. If FDIC fails, the fiat in the database won’t matter.
>Even though it's technically a line of credit that happens to have an insurance policy attached?
Dear god. If your federally insured bank goes belly up and the federal government doesn't fulfill it's promise to make you whole, what will make the federal paper under your mattress have any value? Libertarianism is a cult.
not I bonds? Why not? after 1 year they are not locked up.
A recession is not the worst thing in the world. It's a business cycle, and happens on a regular basis. A recession might (hopefully) chase out some inflation; and it might clarify where some opportunities reside (like new infrastructure, or worker retraining/relocation).
A little bit of inflation isn't too bad, either. It helps people pay off debt with less valuable dollars. Bottom line: A little bit of inflation is OK, and periodic business retrenchments are OK. A whole lot of inflation, or a deflationary spiral, is horrible.
In a macro sense sure. If you’re stuck with a mortgage and kids but no jobs in your area anymore, a lot less so.
Inflation causes people to become investors/speculators just to keep up with loss of purchasing power. Inflation is theft by decree of the money printer.
Start a new business. Recessions are great for that especially if you already have funding or if you can bootstrap. Did it in 2001 and 2008 as well; great stuff.
I would say though; be careful with with spending cash. Depending on your situation, it might be harder to come by. Many people I know who got fired in 2001/2008 and who had too high mortgages, debt and little cash fell on hard times for a few years.
Could you elaborate on why it's a good idea to start a business in a recession?
Reduced competition. Fewer other businesses are trying to start up at the same time and existing companies have less money to spend to compete against you.
Suppliers will also be eager for new business, same with landlords if you have a physical store. Also easier to hire.
Wouldn’t there also be reduced market/customer demand though as well? Guess it depends on the startup and business model, but could see a challenge with actually selling whatever it is your business is providing (e.g., services, product, etc.).
The economy won’t stay depressed; you have time during the recession to build up, get ready while there is less competition or your competition is very weak. When the market moves up again, you can go full in. It is just a lot cheaper to do the startup part of the startup (building the product, market research, hiring, or, marketing, sales, getting first clients, etc) part of the startup. After the recession, you are the one ready, the ‘old ones’ are licking their wounds (they lost trust by alienating clients with sudden price hikes or policy changes and alienated employees by firing large portions of them etc) or gone.
As I commented in another thread, it's because it's harder to get a job and get a raise. I took a full time job because it's where the money is, but back when the tech industry wasn't as hot, it's easier to make money as a business or contracting.
Because investing in everything else is suboptimal and the new business can be ready to make money when the market inevitably returns to strength.
How long does it take on average for a new business to become profitable? Years if I'm not mistaken. The markets won't stay depressed for that long.
So, here's the thing: unlike the pandemic, your life will basically go on normally.
But you might get laid off.
The goal is, should that happen, to be annoyed but entirely unconcerned about how you're going to pay bills while you look for the next thing.
Keep an emergency fund, update your resume and reference list.
And know your budget. There are expenses like eating out that are easy to pause if you need to—disregard every idiot yammering about avocados and coffee, as long as you're saving money at the end these don't come with any risk. There are expenses that can't be cut quickly easy (rent, car payments, utilities, gym memberships with year long commitments)—these are the enemy.
That's it. You'll be fine.
1a. Don't Go out on a limb, now is not the time to scatch that itch. 1b. Do batten down the hatches in any and every way you can.
2. I was a self-employed freelance consultant. I survived by being good-ish at what I did. What got me through it? The alternatives.
3a. Boom-and-Bust are cyclic. 3b. The rich get richer each time the music stops. 3c. That which is old becomes new again. 3d. Always know how to fix something because when times are bad the rich will either want something fixed or want some new shiny thing installed. Times are seldom tight for the rich (or rather they tend to be the last to suffer before 'something is done about it')
I’ve been paranoid since before you were born ;) Here is what I did long before the current downturn.
* Cleared up credit card debt (actually all debt) 25 years ago
* Paid off mortgages
* Sold office and bought farm with year-round creek
* Stored lots of freeze-dried food
* Bought precious metals
* Kept my coding and writing skills up to date
* Moved some investments to cash positions so we have 1 year of expenses (arguably not smart due to inflation)
* Made friends with my neighbors
* Guns, duh
* Did massive infrastructure work like new plumbing, electrical, generators, roofs, decks, etc. before prices went up too high
> Kept my coding ... skills up to date
What are you up to date about now?
Building database backed websites using Go and PostgreSQL. Also C just because I like it
I quit my job during the last recession to do a startup (which ultimately failed). A lot of people thought I was crazy, but in hindsight it was the right move, as I learned a lot of things that I was able to parlay into a 2nd startup.
Arguably recessions are terrible times to get jobs, so starting a startup might actually be a good thing. I've paid the bills with my startup and contract work, back when the tech industry was lackluster.
Contracting is not bad either. A company today might freeze hiring expecting things to get worse in 6 months. Nobody wants to fire, for economic, legal, and emotional reasons. So people are much more willing to outsource work, even at higher prices.
Wow, that's a ballsy move. Did the startup fail because of the recession time/lack of funding?
"Why to Start a Startup in a Bad Economy" http://www.paulgraham.com/badeconomy.html - Paul Graham
It failed because I didn’t execute well and chose the wrong market.
Don't save cash, invest. Inflation will eat your money if you save the cash under your bed.
Open new business, people will stop spending on unnecessary things, but think what every people needs every day.
Labor will be cheaper, think about that.
38 years living in Argentina, you move fast or you die.
With stuff like crypto and stocks plummeting, they might be worse than holding on to the cash.
Personal skills are always a great investment IMO. If a country's economy implodes, there are still other countries doing better and hiring. Someone with good skills is going to have an easier time.
No, they're better for holding* (and buying). So long as you won't need to cash out during the recession, it's the ideal time to hold and to buy.
Conversely, a bull market is the ideal time to cash out.
aka "Buy low, sell high."
*Assuming they'll still exist after the recession. For example, I would be weary of equity in the subset of relatively young companies which DON'T have record lay-offs in the next two quarters. (Failing to preemptively trim more than just fat is a big red flag.)
I have a year of living expenses in cash, several more in low-risk investments. I've been practicing interview skills (but I was doing that anyway). Making sure I have local copies of any personal creds from my work machine – 401(k) login, Carta, health plan, etc. Holding off on some home improvements – I'd probably like to have the money if I lose my job in a downturn, and I might get a better deal on labor in a downturn if I don't (or be able to snap up cheap assets or whatever). I chose to keep living in a HCOL tech hub even after everything went remote because I wanted exposure to both local and remote jobs – that's helpful in a good economy, and could be the difference between a job and no job in a bad one.
A lot of prep is done years ahead of time. Live within your means, save for retirement and for emergencies. Don't buy the most expensive house or car you possibly can – something that's technically affordable on a bubbly senior SWE salary is likely very not affordable on unemployment. With luck and discipline you can end up with enough of a nest egg that you don't have to stress too much about this stuff.
I graduated into the great financial crisis, and lucked into a couple of dead end jobs. A mistake I made was internalizing that the economy is bad, clinging to those jobs out of fear even after the worst of the crisis had passed, and losing out on some years of high earning after things started to get better.
1. DON'T save. DON'T sell equity (ie. Don't raise capital). DO take on as much debt as feasible. DO use said debt to employ the inevitable cheap labor and capital goods to run profitable ventures.
2. Yes, I was laid off from a start-up then joined as one of the first at an already profitable pre-seed start-up that would raise $20M with <5% dilution during the worst of the recession. Eventually exited very successfully. Labor was cheap and pre-PMF competitors dropped like flies.
3. Mistake #1: I saved instead of doing the smart thing and taking on massive debt. My savings and small debts inflated away over the next decade. My colleagues who opted for large debts had their large debts inflated away and faired much better than I did in the end.
Mistake #2: After the highly successful exit I joined a start-up with the hot "growth before revenue" strategy. The only thing that grew faster than our user base was the dilution of our equity. Investors won while we gave up years of work for a slice of the pie that got disgustingly small for the risk we took as founders.
To sum it all up: Profit before growth. Leverage the things the recession makes cheap due to other people/businesses no longer being able to afford them (e.g. talent). Fund profitable new business with debt. If you sell equity, only do it after proving that you can do it with debt and exhausting the option for debt. Despite VC funds drying up, you'll be the belle of the ball if you've proven you have created a reliable money printer.
Caveat: If you can't make a reliable money printer, find someone who has and join them.
The thing that causes the recession is that debt has become more expensive. It is counter intuitive to say that now it is the time to take up debt.
It is counterintuitive, which is why it was a learning for me.
The reason to take on debt in a recession is simple; others aren't doing it because it's expensive.
This mass obstension causes investments to appear to lose value, evidenced by dropping market prices.
In reality the investments are just as valuable as before. Only their "marginal" value has dropped. In fact, you may now have access to even MORE valuable investments and opportunities that were out of reach pre-recession.
For example, high performing developers laid off from their $200k/yr positions, now competing with each other for your open $80k/yr position.
Or the opportunity to cannibalize the customers of competitors failing to raise capital or trim their fat quickly enough.
Or foreclosed homes that will double in value as soon as banks find a new way to make lending cheap again.
The list goes on and on.
I went the route of geoarbitrage. A few months ago I moved across the world, where cost of living are -70% from where I earn my salary. Financially, I couldn't be in a more stable spot, recently also changed jobs with a 80% salary raise. Every month that I work, effectively is a budget on which I could survive 6+ months on right now, if I really had to cut down my spending, I could survive a whole year on two months worth of salary.
How do you deal with taxes in your birth country and abroad?
- Bought real estate.
- Got a remote-first job outside of crazily inflated tech money while still asking for tech money because the market for developer was crazy hot a few months ago.
The previous one wasn't too bad personally. I can't say I ever had problems finding a job, no matter the market. Network aggressively, sell yourself well.
Invest in people skills if you suck at it and you won't have problems landing a job, even during the recession.
Any suggestions for how to improve people skills if you know you're deficient in that area?
As many have pointed out, I think recession it’s here already. I just switched jobs and got a 20% salary increase. Fortunately enough, we developers seem to be not that much affected. Touching wood, though.
It’s already here.
However recessions have been getting shorter and shorter every time they occur.
Recessions only seem short if the KPI is stock market indices. It's easier for the Fed and Treasury to prop up financial markets than it is to pass bills that help Main St recover.
No. They have actually been getting shorter and shorter.
Nothing to do with “propping up” anything.
Which is a negative thing because forest fires are essential for the quality of the soil so to speak.
We have almost 250 years of data showing otherwise though.
I’d like some advice please.
I am currently freelancing with one major client. I only work 3 days a week which is great and I make a good amount of money. Client is a small company, seems financially secure, but eh could also go belly up I suppose. They offered me a fixed contract but it would be for less money than I now make freelancing, +4 days a week. Should I take less cash and less freedom for the security that a fixed contract would bring (and eventual governmental support of the company goes belly up)?
I'd say no.. go fill the other days in the week with more clients. Keep the flexibility to say no. My 2 cents. 20+ years of consulting experience working mostly with single clients or small business.
This is 100% the correct answer.
Their offer is BAD for you:
One single client puts you in a situation of risk when they pivot or get acquired or otherwise cut your work.
4 days a week makes it harder to have time for another client.
Less money for more work, ludicrous
So instead
Go and find another client, or better yet two new ones and when you have multiple clients prioritize the work for the best paying clients while others can wait till you have gaps.
Analysis: True. Depending on a single client is one of the worst mistakes you can make as a freelancer
Agree with sibling. If that company falls on hard times, your fixed contract is extremely likely to become a broken contract anyway.
Reduce overhead as much as possible. Reduce debt (least safe first) as much as possible. Invest in necessities that you and your family can consume/use.
People have all kinds of theories about what will be best currency, and stockpile stuff they can't consume/use. Cover your basis first.
Invest in any skill that will enable you to produce something.
I forgot to mention, tend to your relationships. Stop wasting time on the ones that don't benefit you, and start strengthening the ones that do. Be prepared to help the people you care about, and possibly share a home.
If you have always wanted to start up or build your own product, consider the layoffs a blessing in disguise. That is, of course, assuming that you have the means to weather the financial challenges of not having a job. Make arragements for either savings that will last a year, or move back with parents depending on where you are in life at present.
I was single and unmarried in 2008. Was working in a startup that made an innovative new kind of ads (SMS ads!!). Was laid off and spent the next year building the next TechCrunch. It flopped, of course, and I moved back to a day job later. But I would have never made that move had I not been fired.
My personal circumstances are different today and would not make such a move now. But if you are young and financially-covered, you should see that as an opportunity.
I was in tech for 2001 and 2008 recessions.
In both cases, the short answer is I got lucky. In 2001, I happened to be in an area that did not have a lot of exposure to the dotcom bubble. In 2008, I had just started at a new company after fleeing a sinking ship. Being in a big corporate environment gave me a place to hide.
Companies will use a recession to trim fat, tell you how lucky you are to be employed, and make you work harder for the job you have. Notice how little they cut from the ranks of middle management zoom wranglers. Remember how you're treated and move on as soon as the job market improves.
As with any time, cash helps. Having a partner that works helps. Community is important.
Nothing. I can’t predict shit and neither can you.
There’s no reason we should enter a recession in the next 3-6 months…
…except that people believe it will happen and by changing their behavior it will become self fulfilling.
I recommend you change nothing. Dollar cost average your purchases and continue with life as usual.
If history is any indicator, starting a company during or shortly after a recession has yielded some massively successful results. Not only does it crowd out parties that would enter easily during good times, you also have access to incredible talent on the market due to a high supply. Yes, access to capital is definitely more strained, however PG has said that technology progresses more or less independent of the stock market and economic cycles.
All this to say, I’ll probably look to start something. Anyone else down?
Count me in. I've got ideas and am Fullstack.
Nice! Feel free to contact! mailto:ramish@ualberta.ca
For me the answers is always be working on your value to whoever will pay your bills. And secondly, be good at communicating that value. A lot of people have skills but making sure you stand out from the crowd is a skill in itself.
Someone will always pay for a highly effective person, but if you can't demonstrate why you are, you will be in trouble.
As the dot-com bubble collapsed, I enrolled in university and had a steady decade of a meager but survivable income: first living off student loans, then as a TA in grad school. Came out of it with a degree that helped me get an adult job.
I’ve been thinking about going back to school anyway, but its really hard to escape the golden handcuffs (and also a pain to deal with the education system as a non traditional student). Figure I can wait till I start feeling the downturn.
I felt old going back in my mid 20s, but frankly, I crushed it. I treated it as a full-time job; the kids I was competing with did not. Didn't lose the "big fish in a small pond" feeling until I was taking grad courses.
I bought a 20 year old Miata and I'm throwing a huge wedding party
Everybody is saying recession all the time, so I doubt it will be that severe. Isn't a recession more like it comes out of nowhere and people get hit hard quickly, thus the economic inefficiencies caused are a drag on the total economy?
I don't see what's unhealthy about our economy besides the fact that super cheap money may be gone for awhile. Alright so companies like PLTR go down, whatever.
Other than buying I bonds, nothing. An those are more because of inflation than actual recession.
What kind of recession? US is always doing good during war time due to weapon industry.
Believe it's a great time to consolidate car ownership. Especially with transition from ICE. More car sharing amongst extended households. And of course a drastic reduction in total miles traveled ;)
Get a part-time second W-2 job, now. Show up on time every day for 90 days in a row. Get a non-customer facing job if you can. Warehouse is good, security guard is good. Places that run 24 hours are good places to look.
Get over having to enter your info twice and and fill out a form with the same thing too. This is intentional, it's to weed out the quitters.
Have a folder with everything you need in to fill out an application form in it.
Call the HR at your old jobs to verify the phone number is still correct and what your dates of employment were. Get over your embarrassment, they truly don't GAF and if you left on good terms (two weeks notice) they may ask you back.
Amazon warehouse isn't as bad as they make it out to be, avoid driving amazon and anything else amazon.
TL:DR; Non customer-facing part time job, be perfect for first 90 days.
If you're asking how to prepare for a recession, the recession has already begun. Changing your behavior now is just going to lock in your losses. Stay the course and don't be distracted by changes around you.
Exactly. We were already in a recession months ago, since November.
No. That is completely false. We are most certainly not in a recession. Nor did one start in November. You can check the Fed data here and verify you claim is false[1]
The economy is considered to have entered into a recession if it experiences a decline in GDP for two consecutive quarters. And that has not happened. There has been no sustained contraction and there has been no significant rise in the unemployment rate either. In fact unemployment is at historic lows.
The US gross domestic product shrank at an annualized rate of 1.4% in the first quarter of 2022. This was also the quarter where Omicron became prevalent. Further this was also the first time in contracted since the begin of pandemic 2+ years ago.
[1] https://fred.stlouisfed.org/series/JHDUSRGDPBR
Recession? Let's see who is right within 1 year.
I will bet you something that should hold its value. Looking around my house, I have a few bags of rice and pasta that I could put on the line. If you're right, that will probably be worth something!