This winter has been painful for many Kiwi households. We’ll all make it through, but the stress can be severe. Financial stress puts pressure on your relationships, and it can undermine your physical and mental health.

Hopefully, this is the low point of this economic downturn, and things slowly start to improve as we head into 2025. We’ll head towards higher house prices and stronger business performances, and you’ll be in a better financial position.

So, how can you set yourself up so the next downturn is less painful?

Another downturn is inevitable

In theory, recessions aren’t inevitable, but in practice they happen every 10 years or so. We had the stock market crash of 1988, the Asian financial crisis in the late 1990s, the GFC in 2008, and a pandemic recession in 2020. We went back into a technical recession last year after a post-Covid boom in asset prices in 2021 and 2022.

The boom-and-bust cycle is a product of the way modern economies operate. Economists sometimes argue that recessions are necessary: contraction rebalances the economy so it can start growing again. The recession allows money to leave unsuccessful investments and businesses into more profitable ones. Overhyped companies collapse and heated house prices decline.

Knowing that another downturn is likely to happen between now and 2035, ideally you want to be recession ready. The first step is the financial basics, like having an emergency fund and paying off high-interest consumer debt. Then you can go about tackling some of the curlier problems.

Avoid two big traps: too much house, too much car

It’s the big, fixed costs that are the killer in a downturn. When everything is going well, the temptation is to buy a nicer car and a bigger house. You have plenty of money and the repayments are very manageable.

Unfortunately, downturns mean higher interest rates. When that happens, you might find yourself facing uncomfortably high car and/or mortgage repayments at a time when your employment is in jeopardy. Super stressful.

When we get out of this year and your position improves, resist the urge to buy too more house and more car than you need, unless you have a sizeable savings fund and an exit strategy.

As for financing anything else, like a boat, a massive wedding or a holiday? Not advisable if you’re trying to shore up your financial position. Save up.

Consider your career

Think about how to make your career more resilient to reduce the chance of losing your income. If you’re employed in a profitable industry, can you do a course or add a qualification that makes you more integral to your employer? If you work in a business or an industry with low margins, can you move into a more profitable industry or business? Can you shift into a career that’s always in demand? If you are self-employed, can you redirect your efforts into the most profitable types of clients or work that you do?

Having a more resilient career will help you ride out recessions easily.

Be ready to buy

The ultimate position in a recession is cashed up and ready to buy. Downturns are when you get bargains, whether it’s houses, shares, or even just a new dishwasher. If you can reduce debt and build up your savings and liquid investments, you can take advantage of a recession to buy assets at fire sale prices.

These assets can set you up for financial freedom in retirement, so if you can buy in a downturn, you should be well-placed for the recession of the 2040s, and the next one, and the next one …