Right now, many Americans are concerned about the chances of hitting a recession — where the economy takes a dive and doesn’t bounce back, at least not right away. Recessions are, statistically, a normal part of the economic cycle. There have been 48, dating back hundreds of years, and they happen roughly once every six and a half years.
So, as the Hitchhiker’s Guide to the Galaxy proclaims: Don’t Panic.
Right now, prediction markets put it at a 40% chance. So it’s close to a coin flip.
But, of course, economic downturns make everyone uneasy. There are ways to prepare, however. Here are 10.
Track your spending
This sounds like an obvious one, but it’s easy to get overwhelmed by — let’s be real here — everything going on in the world. As such, keeping track of where your money is going is pretty key to prepping for a recession.
It’s not the same as making a budget (though you should probably be doing that, too). Tracking your spending gives you a clear picture of your monthly and yearly costs. It’s a crucial first step in any financial plan, especially if you want to be prepared for a recession or potential income disruptions.
Always have a backup plan
We’re not talking about a bugout bag (though I’m a big fan of those as well).
If a recession drags on and your emergency fund runs out, having a plan is better than scrambling. Selling stocks isn’t ideal, but it’s an option. Setting up a line of credit — like a HELOC (home equity line of credit) or personal loan — while employed can provide a safety net without incurring interest until needed.
Reduce your expenses
Yeah this is another “Sure, of course” suggestion, but it’s easy to lose track of. Subscription services — it could be anything from Microsoft Office to Netflix to Amazon — have a habit of fading into the background over time, since you’re just used to having those.
I literally forgot I was subscribed to the horror movie service Shudder until I wrote this story. Learn from my mistakes!
Make sure your agreements protect your interests
This might seem a little dense, but here we go:
As economic conditions tighten, litigation and collections cases rise as businesses face market pressures. Protect your business by having an attorney draft strong agreements that safeguard your interests and make it easier to recover what you’re owed if legal action becomes necessary. Being prepared now can save costly headaches later.
Save
If you want to stay resilient during tough times, and you’re running your own business, make sure it’s properly capitalized. If possible, build an emergency fund to keep operations running smoothly when challenges arise. Having financial reserves in place can provide stability and flexibility, allowing your business to navigate uncertainty without immediate disruptions or cash flow issues.
Don’t rely on just 1 source of income
One of the best ways to safeguard your income during a recession is by diversifying your earnings.
Sure, a dual-income household offers more stability, but even solo earners can build multiple income streams. A side hustle or income-generating assets like rental properties can provide extra security, reducing reliance on a single paycheck.
Diversify your portfolio
Markets tend to decline during recessions, but a well-diversified portfolio can help cushion the impact.
Diversification isn’t just about owning many stocks — it’s about spreading investments across different sectors, as some will fare better than others. Including various asset classes like real estate, commodities, metals, and international markets can provide additional stability.
Be ready to pivot
During a recession, your portfolio can drift from its target allocations, so it’s important to know how to realign it.
Setting percentage limits for each asset class helps maintain balance. When values shift, you may need to sell certain assets and buy others—often creating opportunities to invest in undervalued stocks.
Invest while you can
As long as you’re employed, keep investing — even if a recession looms.
Trying to time the market usually leads to more stress than reward. Consistently saving and investing with each paycheck not only strengthens your financial future but also builds a broader asset base to rely on if your emergency fund runs low.
Be prepared to freak out a bit
Look this is just a thing that’s gonna happen.
Losing a job or watching your portfolio drop can be overwhelming. Having a plan for handling a layoff or a steep market decline — whether 20%, 30%, or 50% — helps you stay grounded in the moment.
Sticking to it may feel uncomfortable, but preparation makes it easier to manage the emotions that come with uncertainty.
