This piece is part of my 2016–2026 archive migration. Some original formatting, content, and external links may be missing, changed, or not be optimized.
Intro
Recessions are bound to happen during our lifetimes; As daunting as recessions may seem, know you can be confident and weather the storm through financial preparation.
This article sheds light on how to make your money recession-proof. If you have experienced a recession previously, you might have an idea of how to prepare for future ones. However, if you have no clue how to handle your finances, let alone handle your money in a financial crisis, this article will serve as your guide.
Let’s get started, shall we?
Consistently Use A Budget
Not everyone likes to create a budget or use one, but they work!
In a recession, a budget will keep you financially grounded. A budget will also provide complete transparency into your finances and help you establish a healthy and positive relationship with money.
If I were to ask you any of the following questions, would you be able to provide me with a quick answer?
How much money have you spent this month?
How much money have you saved this month?
How much money have you invested this year?
How much money have you spent on fast food for the last three months?
How much money have you spent on non-essentials this month?
How much money do you have in your emergency fund (which we will discuss in the next section)?
If you have integrated a habit of budgeting into your daily life, then you should know the answers to these questions.
You can utilize many applications to help you create a budget if you do not have one. Some people like to use a doc or spreadsheet. Do what makes sense for you, but whatever you do, create and consistently use a budget. You will never regret it.
Most people do not have an emergency fund. One of the most important financial steps you can take is to create a fund designated for emergencies only.
What is an emergency fund?
An emergency fund is an account that you use for essential emergencies (e.g., unforeseen hospital visits, unexpected car repairs, pandemic supplies, job loss, etc.). This fund is not to be used for things such as a new tv, a down payment for a new car, shopping sprees, or the latest iPhone (I think you get the picture).
Many people do not have an emergency fund because most people do not like to save, and when they do end up saving, they often spend the money on non-essential items like the ones I listed above.
Getting Your Emergency Fund Started
When you do not have the extra cash flow to build an emergency fund, you need to obtain an additional source of income to help you build up the fund quickly.
You can’t afford not to have an emergency fund.
How much money should I have in an emergency fund?
Usually, you want to have 3–6 months of your monthly expenses saved up in your emergency fund. This number will look different for everyone, but 3–6 months provides a modest cushion in a financial crisis such as a recession.
What is the best kind of emergency fund to have?
The best type of emergency fund to have is a 12-month emergency fund; this gives you more than enough cushion to withstand a year-long recession (recessions can often be short-term and don’t last as long as a depression would).
In the event of a job loss, which is a prevalent effect of a recession, having a one-year emergency fund will provide you more than enough time to obtain a new job. You will also be able to successfully pay for all of your expenses during this time if you manage your resources correctly.
That’s the trick: managing your resources correctly.
The first step is to save.
The second step is to manage the money you have saved properly, so your cash benefits you and your circumstances, not some other business, person, or entity.
What kind of account should I use for my emergency fund?
A high-interest-yielding savings account, investment account, or money market with a reasonable interest rate is a great place to have your emergency fund. If you have exceptional self-discipline, it is perfectly okay to have your emergency fund in an accessible and liquid account. However, if you are less disciplined and know that you will spend the money if you have access to it, put your money in a less accessible account.
Debt
Here it is, the infamous word: debt. Most people have debt, which means many people are in the same boat.
Some people can afford debt more than others, but during a recession, more and more people can no longer afford to make payments on all of the debt they owe; this is partly because people regularly spend more money than they bring in. So as the months and years go by, people continue to accumulate debt without giving it a second thought until something like a recession happens, and they lose their jobs or primary sources of income. Consequently, they can no longer afford the minimum payments for all of their debts.
Paying Your Debts
It is essential to ensure you are still paying down your debts and making at least the minimum payments during a recession. You can also be proactive and have a discussion with your creditors to see if you can defer your payments if you cannot afford them, but if they do not approve your proposal, be prepared to make your payments. If you miss payments, it will negatively affect your credit for years on end.
Step 1
Determine the amount you owe in debt payments per month and how the rest of your bills stack up; this is something you will do when you create and review your budget.
Step 2
Ensure your debt payments automatically withdraw out of your account, so you are not concerned about missed payments and late fees.
Step 3
Whichever debt has the smallest balance, pay extra on that bill to pay it off quicker.
Step 4
Once the smallest debt is paid off, continue to follow the same process for all of your other debts in order from least to greatest.
Just because a recession is taking place does not mean you should stop improving your financial situation by paying your debts. Stay the course, and stay focused. Keep your debts low or non-existent, and never miss payments.
We are now in the age of the gig economy, yet there are many people who still only have one source of income; these people have full confidence that this one source of income is all they can have or will ever need. Recessions are happy to let many people know that having one source of income is not a safe play.
If you have not heard it from anyone else: Never, I repeat, never, have just one source of income.
If you observe the wealthy, you will notice they have multiple streams of income. For much of the affluent community, you might also note they never seem to stop adding new sources of revenue to their massive portfolios of different streams. They have mastered the art of having more than enough and never being out of beneficial financial options. The wealthy do not limit their economic statuses; they continue to grow their financial situation exponentially. What can you learn from this? I hope you learn to have more than one stream of income.
How many streams of income should I have?
To start, it is a good idea to have a minimum of 2 different income sources, but preferably 3–5+ various income sources.
Where can I obtain an additional source of income?
What are your skillsets? Can you sing, dance, play music, teach, make stuff, sell stuff, or make entertaining videos? These are all different monetization avenues you could explore. Remember, you can also become a skilled investor or get into real estate. Get creative, but I always suggest looking at what you like to do or are passionate about doing. Learn how to monetize your passions, hobbies, or activities you have strong skillsets.
Having one stream of income is the same thing as putting your 100% blind trust in your employer. Many employers take care of their employees, but employers have bottom lines too, and unforeseen circumstances can affect businesses that are(big, medium, and small. If you have noticed, recessions impact businesses too, and many go out of business or conduct mass layoffs leaving their employees in a unique disposition of having to find new work.
Always have multiple plans past Plan A.
What are some other income sources:
Tutoring
Teaching musical instruments
Driving Uber or Lyft
Selling stuff on e-commerce sites
Blogging
E-books
Get started today in diversifying your income portfolio. And remember, always create more options for your finances. The time of having one job and one income is over.
Recession-Proof Jobs
For those who have experienced a recession, you better understand what jobs are usually the first to go in a recession. Typically, the jobs that go first are deemed non-essential. However, some jobs surprisingly disappear because companies are not financially prepared for a downturn.
Often, service, hourly, and certain blue-collar jobs might experience the most significant blow during a recession. However, there are many cases where white-collar workers lose their jobs as well. The way jobs are affected during a recession depends on various factors such as company financials, industry, and how recession-proof or essential the job is.
Before you take a job, question if the job is right for now or suitable for the long-term; asking this question will help you avoid unnecessary hardship or surprise layoffs in the case of a recession.
Note: Independent of recessions, many jobs are disappearing due to new technologies, which is something to keep in mind.
Example of Recession-Proof Jobs
Medical/Healthcare
Law enforcement
Education
Technology (some, not all)
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Whether there is a recession or not, invest your time and resources into recession-proof streams of income that withstand any financial crisis.
Spend Less Than You Make
This is one of the golden rules of living a financially successful and stable life:
Spend less than you make.
It’s that simple.
If you find yourself consistently spending more than you make, it is time to determine where you can make cuts in your budget so you can live within your means.
Spending less than you make will offer you the following benefits:
Provide you with money to save for your future
Decrease your financial stress
Help you save for the future
Limit or decrease the debt you have or owe
Propel you towards financial peace
Once you have created your budget, you will understand where and how your money needs to be handled to live within your means.
Spending more than you earn will keep you stuck in a vicious debt cycle and keep your net worth negative.
What can you eliminate from your spending habits starting today that can help you start spending less than you make?
In a recession, you must be cognizant about where every dollar is going; this is not the time to be wasteful or frivolous.
Save Your Money
There is no way around this step. You need to save, which will require financial discipline, but it is not unreasonable to do like so many believe it to be. After you get in the habit of saving, it becomes second nature; the first step to getting here is to start saving regularly.
How much should I save out of my income?
There is no magic percentage that everyone should use because each person’s financial situation is different, but many sources suggest saving somewhere between 10–25% of your income. Start small and gradually build your way up to saving a higher percentage. The earlier we start saving, the better off financially we will be.
How much money do I need for retirement?
This will depend on you and your needs. You need to ask yourself a few questions that will help you determine how much money you need for retirement. See below.
At what age would you like to retire?
Knowing this will help you determine how many years you have left to save; furthermore, it will also help you figure out how aggressive your savings and investing strategies need to be.
How long do you anticipate you will be in retirement?
The answer to this question will help you determine how much money you need to save.
How much money will you need per year in retirement?
Use an inflation calculator to help you adjust for inflation.
After you have answered all of these questions, search for a retirement calculator and input your figures; this will help give you a ballpark range of how much you need for retirement and how much you need to save to reach your goal retirement figure.
The least stressed people in a recession have money in the bank; it’s the people who have saved their money and do not have to be concerned about financial strain or job loss. In a recession, these people might not even feel they are in one. They might lose money from the stock market plummeting, but they have reliable savings that provide confidence and financial cushion for extended periods.
Save your money even when it is uncomfortable. You will thank yourself for this over and over again.
Continue Investing
It can seem pointless or irrational to continue investing during a recession, but they have an endpoint like all recessions.
Recessions do not last forever, and this is excellent news because it offers you a superb opportunity to buy more investments at much lower prices than you would generally pay.
In a recession, it is crucial to remember to stay the course to reach your financial destination. Continue to invest your money prudently, but also be sure that the percentage of your resources that you are investing makes sense for your budget.
Do you have extra resources to invest in? Even if you only have $10-$100 to invest, this is more than good enough.
It is better to start somewhere than nowhere.
Once the recession is over, you will notice that your investments significantly increase in value (bull market time) compared to what you paid for them previously. This is a good reminder that investing in a bear market (stock prices drop significantly) is a sound decision that will reap positive benefits for your present and future financial situation.
Don’t be scared to invest during a recession; in fact, this is one of the best times to be bold with your investing.
Mental Health & Final Thoughts
When you have more than enough money, one thing is for sure: money is most likely not a stressor for you.
When you can pay your bills on time and buy groceries without any hassle, that is one less stressor.
When you can give to others without it negatively affecting you and your financial disposition, then you are in a good financial spot.
Financial stress is a unique type of stress, and it can take an enormous toll on the human body and mind. To ensure you are not contributing negatively to your mental health, get your finances in order.
Recessions aren’t fun, and they take a toll on the world around us, but we don’t have to be in a bad financial position when recessions occur. We can have our finances together and be more than prepared to help ourselves and loved ones and other people who need help themselves.
Protect your mental health by taking care of your finances. Taking care of your finances is another form of self-care. Because when you care about yourself and have high self-worth, you will always ensure you have the means to do what you need to do independent of what someone else can do for you.
Be independent and be different than the norm, which is financially illiterate. I encourage you to keep the financial conversation going by furthering your financial education.
Some of my favorite financial gurus:
Warren Buffett
Mark Cuban
Dave Ramsey
Suze Orman
David Bach
Robert T. Kiyosaki
Who are your favorite financial authors and teachers? Do you have any? If not, then find some. Most people do not educate themselves on finance, and you can see how this is playing out in America. Most people are in debt, financially illiterate, and living paycheck to paycheck; this is no way to live. It is time to elevate your life and take a step in a different, more productive direction. Are you ready?
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This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.