We Aren’t All in the Same Recession. How to Survive Your New Normal

Even before a recession was declared, an alphabet soup of letters was predicting what shape the coronavirus recession and eventual recovery would take. Everyone wants a V. But will it be more like a U or a W? Could it really become an L?

Everyone has theories here: economists, TV talking heads, your cousin who’s taken up day trading on his iPhone while working from home.

But here’s the thing about all those recovery shapes: They’re pretty much useless to you.

What the Recovery Shapes Mean… and Why We’re Not All in the Same Recession Together

The letters and shapes predict the general direction of the overall economy.

Picture lines on a graph. A V would mean a quick and steep bounce back from the depths. A U would be a little slower, with a little more time climbing out up from the bottom. A W would be a bouncy ride, with some steps toward recovery followed by setbacks before the economy fully rebounds. An L would mean long-lasting pain.

But do you really care what the trends on some economist’s chart look like if you’ve lost your job?

The truth is, the recession is going to feel very different based on the type of work you do, where you live and the resources you had pre-coronavirus.

Ready to embrace your inner economist? Here’s what those recession and recovery shapes look like — and when they apply to you.

V: If This Barely Feels Like a Recession to You

In the “V” scenario, the recession is short, and recovery is immediate. It could happen if economic recovery continues, even if coronavirus cases continue to rise. Optimism for a V-shaped recovery has been bolstered lately by Pfizer and Moderna’s announcements that their COVID-19 vaccine candidates appear to be more than 90% effective.

Many investors think we’re riding the “V” upward. That’s one explanation for why the stock market has mostly rallied since March and the economy has continued to add jobs.

Your own personal recession may be a V if:

• Your income hasn’t changed due to coronavirus.
• You have a job that’s easy to do remotely.
• Your response when the market crashed in March was to invest in stocks even more.

What to do if you think your recession will be V-shaped: Don’t declare V for victory just yet. That V could easily turn into W, as we’ll discuss in a moment. But if you’re experiencing a V-shaped recession:

1. Commit to dollar-cost averaging. No pouring money into stocks based on what you think the market will do this week. Decide how much of your monthly budget you can afford to invest, and do it automatically regardless of where the stock market is at. This tactic, known as dollar-cost averaging, helps you avoid the risk of stock market volatility. Some months your shares cost more, and some months they cost less, but over time, it evens out.
2. Look for savings opportunities. If your income hasn’t been affected, there’s a good chance you’re saving more money because you’re staying home more. Review your budget to see if you can put that savings toward other goals, like paying off your credit card or saving for a down payment.
3. Prepare for an emergency. You may feel insulated from this recession, but things can change rapidly. You still need a minimum of three to six months’ worth of expenses set aside for an emergency.

U: If You’re Feeling Uncertain

The economy still recovers in the U-shaped scenario. But the pain is longer-lasting and recovery is slower compared with a V. Back in April, a Reuters poll of 45 economists found that half were predicting a U.

A U could happen if we all feel a collective case of the jitters. If people start avoiding restaurants, salons and nonessential shopping again because they’re worried about coronavirus, recovery could be slower.

Of course if the economy starts shedding jobs again or job gains stagnate, that could lengthen the recession. But if people are worried about losing their jobs and hang onto their money, the recovery will be slower as well.

Your recession may be a U if:

• You haven’t lost your job, but you’re worried you will.
• You’re still working, but you’ve lost business or had your hours or pay cut.
• You’re still recovering from a financial setback that happened as the result of the crisis.

What to do if you think your recession will be U-shaped: Try to be cautious without succumbing to panic. There are a lot of things you can’t control right now. Focus on building a plan.

1. Prioritize your emergency fund. Put any extra money you have in your budget into your savings, particularly if you’re spending less because you’re staying home more or not taking a vacation.
2. Keep contributing to your 401(k) if you have access to one. If you’re still employed, keep contributing to your 401(k) at least to the point of your employer’s match. You can reassess any additional retirement contributions you’re making to determine whether you’d be better off putting them in your emergency fund for now.
3. Update your resume and LinkedIn. Even if you haven’t lost your job, be prepared to jumpstart your job search if necessary. Now is also a good time to learn a new skill remotely that could help you land a job or earn more.

W: If You’re Worried About Another Crash

With coronavirus surging again in many parts of the country and a new wave of shutdowns on the horizon, a W-shaped recession and recovery is looking likelier. That is, a recovery that begins only to be interrupted by another crash.

Your recession may be a W if:

• You live in an area where coronavirus cases are on the rise.
• You’re back at work, but you work in an industry that’s been hit hard by coronavirus.
• You kept your job because your company got a Paycheck Protection Program (PPP) loan, but funds have run out.

What to do if you think your recession will be W-shaped: If your financial situation could change any day due to a job loss or major reduction of income, now is the time to get serious about your emergency savings. Don’t count on another round of stimulus money to get you to recovery.

1. Only make your minimum debt payments. If you’re paying extra toward your credit cards, student loans or mortgage, stop. This is the rare time when you should only make minimum payments. Divert any additional money you’ve been putting toward debt into your emergency fund.
2. Look for ways to make money on top of your main job. Some ways that you can earn extra income include delivering groceries or pizzas, or working remotely as a customer service rep so that you can pad your emergency fund.
3. Figure out how to live on less now. Cut unnecessary expenses even if you’re still employed by creating a bare-bones budget. A true bare-bones budget covers just the minimum you’ll need to pay for housing and utilities, medical expenses and groceries, though we suggest including minimum debt payments for now. Also include a basic cell phone and internet plan. Accessing these services is key to daily life, especially if you’re looking for jobs or applying for benefits.

L: Doomsday. Apocalypse. The Worst-Case Scenario.

The L-shaped recession is the one that gives economists nightmares. It’s the scenario where recovery stalls for years — and when it finally happens, the scars are lasting.

The good news is that few economists are predicting the dreaded L. But again, shapes that show what the overall economy is doing don’t matter to regular people. If you’re out of work for a prolonged period, it’s going to feel like an L for you.

Your recession may be an L if:

• You’ve lost your job and you work in an industry like travel, hospitality or restaurants that won’t start to recover until people feel safe leaving their homes again.
• Your job was automated when your company shifted to remote work.
• You’re already behind on bills.

How to make sure your recession ISN’T an L:

1. Apply for whatever work you can. Take advantage of whatever unemployment benefits you’re eligible for, but in the meantime, apply for any work that’s available. Don’t focus on finding your dream job. Look for a bridge job, which is any work that can help you survive.
2. Break some rules. The rules are different when you’re in crisis mode, so we’re going to tell you to break some personal finance rules if necessary. Don’t worry about your credit score right now. If you can’t afford your credit card payments, ask your bank to let you defer payments. If they refuse, you may have to stop making payments. Yes, your credit score will take a hit, but it can recover. Food, rent and prescriptions all take priority over credit cards. Now may also be the time to withdraw money from your retirement if you’ve explored all alternatives. The CARES Act waives the penalties on early withdrawals up to $100,000 for people affected by coronavirus. You’ll still owe taxes, but you can spread them over three years.
3. Ask for help. Call the 211 hotline, which is operated by United Way, to find out about food assistance and other local resources. You can also find out if you qualify for government benefits, like SNAP, by visiting benefits.gov. Visit healthcare.gov to determine whether you’re eligible for Medicare. Now is not the time to be shy about asking for help. Seizing on whatever assistance is available to you is key to jump-starting your recovery.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].

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