It’s an unfortunate reality: at some point, the economy will slide again.
During the last U.S. downturn, millions of people lost houses, jobs or businesses. With that in mind, here are six practical steps you can take to shield yourself from a recession and reduce the harm it might cause.
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What Is a Recession?
In technical terms, a recession is when the economy shrinks for at least six consecutive months. That usually produces significant job cuts and steep stock market declines. The most recent major downturn is remembered as the Great Recession because it was the most severe since the Great Depression. That era wrapped up in 2009 — more than a decade ago.
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Are We Headed for a Recession?
We avoided a full-blown recession during the COVID-19 era, and although a downturn isn’t necessarily imminent, many economists are growing more gloomy about the economy heading into 2025. Stocks have been choppy, trade tensions are creating doubt, consumer sentiment is softening, and inflation is nudging upward again. Even political leaders won’t dismiss the possibility — they’ve mentioned a transition period could be coming. Whether or not a recession is looming, it’s smart to get your financial house in order now.
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6 Tips for Recession Preparation
Here are smart ways to brace for a recession.
1. Don’t Panic
This might be the most crucial guidance when preparing for tough economic times. The headlines can be alarming, but avoid making rash moves. The last recession battered markets and retirement savings, yet that doesn’t automatically mean drastic portfolio changes are needed. Review your holdings to ensure you’re diversified. Are you overly concentrated in equities? If retirement is near, consider shifting some assets into safer vehicles like U.S. Treasury bills. But don’t overdo it. Before altering your 401(k), think about how many working years remain. If you’re decades from retiring, ride out the volatility. Keeping a portion in stocks helps you capture long-term market gains.
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2. Build an Emergency Fund
Could you cover expenses from savings for six months? A year? Start stashing cash to create a financial safety net in case you’re furloughed or let go. Once you decide on an emergency-fund target, calculate what portion of each paycheck you need to save to hit that goal in three, six or 12 months. And if you haven’t already, open a high-yield savings account to park that money.
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3. Add a Side Income
Losing a job can devastate your finances unless you can replace income quickly. That’s why it’s wise to diversify your earnings when possible. The easiest route is launching a side hustle. Not sure where to begin? Check out Savinly’s roundup of top side gigs to boost your income. And if you’re also planning for a new family member, see our guide on how to prepare for a baby financially to combine both goals.
4. Become Indispensable at Work
If your employer needs to trim staff during an economic downturn, how can you increase your odds of staying? Non-essential roles are usually first on the chopping block, so concentrate on becoming invaluable. Take on new tasks, volunteer for projects, and learn skills that boost your importance to the team.
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5. Keep Looking and Networking
Happy in your current position? Great — but don’t get complacent. Be prepared to search for new roles if necessary. Start by refreshing your resume and LinkedIn profile, and keep networking so leads are already in place if you need to pivot.
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6. Tackle High-Interest Debt
Debt becomes more burdensome during downturns, and credit card rates are hovering at high levels these days. It’s sensible to chip away at high-interest balances first — that will free up cash later when you need it most.
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