Recent world crises and the resultant weakening of the global economy has left many fearing the worst. There is talk of a global recession, or worse yet, a complete collapse of the economy.
While it is impossible to say whether such a severe economic downturn is upon us, understanding how to survive a potential economic collapse (whether now or in the future) could save you and your family when the times get tough.
What Is an Economic Collapse?
An economic collapse is defined as a severe breakdown of the economy at a national, regional, or territorial level. It is a broad term used to describe bad economic conditions that are not part of the ordinary business cycle of expansion and contraction.
An economic collapse usually signals the start of a significant economic contraction, recession, or depression, which can last months or even many years.
What Causes an Economic Collapse?
There are various events and circumstances that can trigger an economic collapse, which makes it difficult to attribute it to a single cause. An economic collapse can happen suddenly as a result of an unexpected crisis such as the onset of a war, natural disaster, political unrest, and various other events.
It can also be the culmination of a series of events or ongoing circumstances which signal a weakening and fragility of the economy.
What Are the Results of an Economic Collapse?
The results of an economic collapse are equally difficult to predict, as the ripple effects of a severe economic downturn are widespread and impossible to accurately track. Some general and obvious results of an economic collapse are:
- A rise in job loss and unemployment.
- Loss of value of investment markets which results in the average investor losing significant value in their portfolio.
- Slowing of production, and therefore less new innovation, fewer startups, and so forth.
- A potential hyperinflationary environment in extreme cases where the cost of basic items increases dramatically.
- An increase in poverty which can also lead to crime, civil unrest, and various other social issues.
- Widespread business failures leading to shutting down of companies and laying off of staff.
How To Prepare for an Economic Collapse
Preparation is key in order to successfully survive an economic collapse. It is important to not become too complacent when the good times are rolling, as you never know when the situation may change for the worse.
Follow these practical guidelines to ensure you are well prepared :
1. Keep an Emergency Fund
Having liquid cash safely deposited in a savings account with your bank can be a lifesaver in times of economic crisis. First of it all, it will retain its value while market linked assets such as equities deteriorate.
Secondly, it will provide you with the best liquidity so that you can quickly access your money during a time of extreme need. It is recommended to keep at least 3 – 6 months’ worth of expenses in an emergency fund.
2. Become Debt Free
The additional pressure of carrying debt if there is an economic collapse can put you in an extremely difficult situation. You should start working towards becoming debt free today.
This will reduce your monthly expenditure and will keep you from landing up in a precarious position should you lose your job in the future. Begin by paying off your highest interest debt such as credit cards and other short-term loans, and then move onto lower interest debts such as house mortgages.
3. Create Additional Income Sources
The risk of losing your primary job is elevated during an economic recession or collapse. You can mitigate the negative consequences of this by creating additional sources of income now before the bad times are afoot.
We live in an age of boundless opportunities to make money on the side remotely. You can start your own web business or do freelance consulting work.
Even if you have a great job, it is well worth diversifying your income sources and establishing other ways to sustain yourself. Even a few hundred dollars a month can make a big difference in a time of need.
4. Reduce Unnecessary Spending
Most people tend to spend recklessly when times are good and then suddenly try to adjust when there is a downturn or they lose their job. This is a big mistake for two reasons:
- Firstly, if you make overspending a habit in your regular life, it becomes extremely difficult to adjust your spending habits when you need to do so. If you practice living with less even during the good times, it will be much easier during a financial squeeze.
- Secondly, wasting unnecessary money on a regular basis means you have less to put into savings each month. We spoke about the importance of having an emergency fund, and living off less now can help you keep that fund growing for when the rainy day comes.
5. Maintain a Diversified Investment Portfolio
Entire markets and industries can deteriorate during an economic collapse, while others might be more protected. Maintaining a diversified investment portfolio will ensure that you are not overexposed to one specific asset class, sector of the economy, or graphical region.
While your overall asset value might still decline significantly, you will be more protected from the risk of complete financial ruin if you keep your eggs in different baskets.
6. Stockpile Food and other Supplies
During severe economic collapses, like the one experienced by Venezuela in current times, or the Great Depression of the 1930s, even things like basic food and other supplies can be in shortage.
Even if supplies are available, a hyperinflationary environment can make basic necessities completely unaffordable. It is always a good idea to keep a stockpile of food and other essential supplies (e.g., medicines, toiletries, paper supplies, tools, etc.) that can last you more than a year in tough times. This may also protect you from other crises such as natural disasters, war, etc.
One step further is to learn to grow your own food. If you have a small garden in which you could plant a few crops, start learning how to prepare the soil and grow some basic fruit and vegetables. Not only will it make you less reliant on a potentially failing economic system, but will be an extremely rewarding process too.
7. Learn Basic Skills
Basic DIY skills are invaluable during an economic crisis. Instead of paying someone to repair your car or fix your house, you can do it yourself for free. You could even earn some additional income by providing these services to others. Examples of basic skills that can save you money and bring great fulfilment during difficult times include things like:
- Baking bread and making other foot items from scratch (e.g., pickles, jams, fermented vegetables, yoghurt, etc.)
- Growing your own vegetables and herbs
- First aid and caring for a sick child
- Mechanic work such as fixing cars, motorbikes, bicycles, etc.
- Building and repairing household items such as furniture and shelves
- Basic electrical and plumbing work
8. Establish Strong Connections
One of your most valuable resources are the people who are close to you. When times are difficult, it is important to work together with close friends and family to overcome the challenges.
You will have a much better chance of making it through compared to trying to tough it out alone. Start building strong relationships with those who are close to you, like neighbours, friends, and family. Having the mutual understanding that you can depend on each other in difficult times is a great comfort.
You can also practice the habit of mutual exchange (i.e., bartering), where you offer your skills in exchange for something that the other can give. This can help you circumvent the traditional economy and help you move more towards the “sharing economy”. This also reminds us of the importance of learning as many basic skills as possible, so that you may help others in need and receive their support in kind.
How To Survive During an Economic Collapse
Hopefully you will be well prepared to deal with an economic collapse when it comes having followed the above steps. However, it is impossible to perfectly predict how a collapse in the economy will play out, and you will need to deal with the situation that is presented to you at the time. Here are a few additional steps you may need to take when you are actually faced with an economic collapse:
1. Discuss the Situation with Your Household
The very first thing you should do is sit down with the members of your household and discuss the situation with them. Go over your finances together and work together to come up with a plan of how you will navigate these difficult times together.
It is important that you are all on the same page, but also to know that everyone has their own approach and attitude to dealing with money. How you resolve these differences and work together will have a big impact on your ability to deal with the challenging times, and strengthen your relationships in the process.
2. Further Reduce Expenses as Needed
In preparation for a recession, you would have practiced living off less. When you are faced with an actual economic collapse, you may have to further adjust your spending habits to be able to cover your monthly expenses. In most cases, it is quite possible to maintain a good quality of life while cutting out unnecessary expenditures. Start by cutting out spending on all the things which are not necessary for you to live on, and finding ways to reduce the costs of the things you do need. Some ways that you may be able to reduce your spending include:
- Cut out discretionary spending (i.e., stop buying things you can do without) like luxury items, new clothes that you don’t need, new gadgets, etc.)
- Reduce transportation costs by carpooling, using public transport, walking or cycling, etc.
- Reduce housing costs by moving to a cheaper area, subletting out part of your house, or even moving in with family until your financial situation improves.
- Reduce food costs by cooking at home instead of going out to eat. Also refrain from buying too many luxury food items that you don’t really need and instead buy simple, healthy food.
3. Get Mutual Support from Friends and Family
We spoke about the importance of building strong relationships when preparing for an economic collapse. Well, here is the time to lean on the solid bonds you have created by not being afraid to ask for support. You should also help and share your skills and resources with others who are in need.
4. Protect Your Home and Family
Extreme economic collapses and recessions can lead to social degradation such as more violent crime, petty theft, scams, and so on. This has been clearly demonstrated in Venezuela and is one of the reasons why so many citizens have fled the country. You may need to take action to safeguard your home and protect your family from criminals and other dangers during a severe recession.
5. Keep Earning
If at all possible, make sure to keep the money flowing in. If you have a job, go the extra mile to prove that you are a valuable employee. You should be seen as the last person to be laid off in your employer’s eyes.
In the meantime, keep networking and working on generating alternative income streams so that you are not left stranded without any income if your employer does need to shut down.
6. Don’t Stop Enjoying Life
Finally, and most importantly, don’t allow yourself to be ruled by fear and sadness. There is no reason to stop enjoying and appreciating life just because you are faced with economic difficulties.
Be grateful for the things you do still have and keep having fun in the ways you can with those you hold dear. You should try to see the situation as a challenge on your creativity and flexibility, and encourage friends and family to come up with inventive ways to have fun without spending money all the time.
Of all the disasters which can face a society, an economic collapse is one of the most challenging to deal with. Due to its nebulous nature and widespread impacts, it is very difficult to escape its effects. Being adequately prepared to deal with a sever economic downturn before it arises, and knowing how to respond when you are faced with it, is vital in order to make it through intact.
You will probably have to accept that you will be impacted one way or another, but the severity can be greatly reduced with the right approach. Most important of all is to continue living with joy and hope in the midst of the difficult times, and not get sucked into needless fear and anxiety.