How to prepare your finances for a recession — & come out stronger

It’s a bad time for the economy, but there are time-tested ways to survive recessions and thrive in their aftermath.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a certified personal finance counselor and former senior reporter at Policygenius, where he covered insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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High inflation and slowing spending may be putting the U.S. economy on the path to a recession, an extended period of economic decline. If you were born in 1985, this would be the fifth recession of your life (based on the very technical definitions of the National Bureau of Economic Research, the most widely recognized referee when it comes to these things), so for most people, this isn’t their first time dealing with a downturn. Recessions are a recurring feature of our economy. 

“It doesn’t just sneak up on you,” says Crystal Rau, certified financial planner and founder of Beyond Balanced Financial Planning. “It’s something we know we’re going to face, we just don’t know exactly when.”

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The good news is that there are time-tested ways to get ready, and set your finances up to be even stronger once the recession inevitably ends.

Spending & saving

The most important thing to have when times are tight is a healthy emergency savings fund. A good place to keep your savings is in a high-yield savings account, Rau says, especially as interest rates rise. Your emergency savings should cover three to six months of expenses. Some people might feel safer stashing away enough to keep them going for a year.

You may not need to reduce spending right away, but you should identify which of your variable expenses are a priority, so that if you suffer an income loss, you know where to cut back ahead of time. Planning ahead can take the emotions out of tough decisions, says Elliott Appel, certified financial planner and founder of Kindness Financial Planning

“When we're in an emotional state we’re bound to make a poorer decision,” he says. 

It could be a good time to have access to more credit. See if your credit card company will raise your balance and look into a home equity line of credit. Having the ability to access credit can come in handy when times get tight, and credit standards could get tougher during a recession, making it tougher to borrow.

“If you need to borrow money during a recession, that’s the more likely time you’re not going to get it,” Appel says.

It can also help to shore up your credit score. Make sure you’re paying all your bills on time and in full, especially high-interest accounts like your credit card. If you need to de-prioritize something, medical bills are a good option, since they won’t appear on credit reports anymore (though you’ll still have to pay them eventually).

Investing & retirement

The S&P 500 is down about 20% since the start of the year. [1] But Appel suggests now is a good time to buy. Consider it a sale on stocks, he says.

“Most people are excited about going to the store and getting something 20% off,” Appel says. 

Over the long run, the stock market has always bounced back even stronger after a recession. So now is a good time to stay the course and perhaps throw some extra cash into your portfolio if you can afford it, to reap the rewards from the recovery. 


If your budget is getting tight, cutting back isn’t your only option. You can also look to supplement your income by looking for side hustles or part-time work (check out our interview with Side Hustle Nation founder Nick Loper). If that’s not an option, you can double down on your career. 

“Make yourself invaluable so that your job is more secure during a downturn,” Rau says.

Recessions might be inevitable in our financial system, but recoveries have always followed. “The same lessons always apply,” Appel says. “Have a good cash buffer and have a good investment plan in place.”

Image: Luis Alvarez / Getty Images