How to easily recession-proof your finances

How did your money do when the 2007 -2008 recession hit? It wasn’t good for a lot of people. Many had to declare bankruptcy or make very tough financial decisions just to stay afloat.

It’s not a matter of if a financial recession will strike, it’s when it will happen. While nobody can accurately predict when the next recession will finally arrive, there are certain steps you can take to “recession-proof” your finances so you will not have to worry about making ends meet when the current bull market finally ends.

Set Aside At Least Three Months of Living Expenses

Did you struggle to make ends meet during the Great Recession a decade ago? Thousands of people suddenly lost their jobs as companies downsized or went out of business in the largest American economic downturn since the Great Depression. One day, these workers were earning a steady a paycheck and the next day they weren’t.

Could you afford suddenly losing your job or at the very minimum taking a steep pay cut? If you would have to max out your credit cards and go into debt because you didn’t have enough money in the bank to make ends meet, the first step you need to take is to save at least three months of living expenses. During the Great Recession, it took three months to find a replacement job on average.

If you don’t know where to begin funding your emergency fund, here’s a step by step guide:

  • Open a high-interest online bank account (never pay bills from this account)
  • Schedule automatic monthly transfers of at least $100
  • Set mini-milestones of $500, $1000, etc.

At first, it might be hard finding an extra $100 a month to set aside. These quick money hacks can instantly help you save at least $100 a month. You may also have to trim your non-essential spending like going on a cheaper vacation or not going out to eat as much.

Make Extra Loan Payments

If you are having a hard time trying to build an emergency fund, another trick to lowering your monthly expenses is to pay off your existing loans. Once you pay off a credit card balance, car loan, or home loan entirely, that’s one less monthly payment you are required to make. Instead of sending a check for $400 each month to the bill collectors, it can be deposit it into your emergency fund instead.

Having fewer monthly expenses also means you have to save less money overall to meet the three months of living expenses goal. Let’s say for example that your living expenses are $2,000 with a car payment and $1,500 without the car payment. No longer having a car payment means you can save 1,500 fewer dollars and still have enough to survive three months without a paycheck. Of course, if you can set aside the extra $500 as if you still need $2,000 a month in your emergency fund, the extra $1,500 that would have been your car payment for those three months is now your emergency savings for the 4th month of living expenses.

The easiest way to calculate your monthly expenses and savings balance is to use Personal Capital. It’s free and will automatically link to your financial accounts and send you weekly status updates.

Boost Your Income

While there are still plenty of side hustle opportunities, you might consider one of the 101 awesome ways to make extra money. Even in a recession, there will still be ways to make extra money, but there might be fewer opportunities as individuals and companies initially tighten their spending. If you can network with long-term clients now, then you can have a steady income stream during the recession as you shouldn’t lose every existing client.

Shop More Efficiently

Recession or not, you should always be a smart shopper. For starters, that means not saying “Yes” to every impulse purchase or borrowing money for every large purchase. It also means waiting to buy items on sale, only buying what you will truly use, and using a rewards credit card or a cash back app like Ebates that can give you 1%-40% cash back on every purchase.

Being an efficient shopper will stop you from overpaying or buying items you don’t really need. That’s money you will have a hard time getting back, even if you sell your items on Craigslist or eBay. The money saved can be saved for a rainy day or used to pay down your loans.

Have a Diversified Investment Portfolio

When the bull market finally does arrive, the stock market will stop having the current record highs and will have a correction (negative growth). Your first tendency might be to sell and wait for the market to improve before you begin investing. While you should follow the axiom of “buy low and sell high,” not investing at all and trying to time the market can be a terrible mistake.

Yes, investing in a recession can be frightening as it’s harder to predict which investments will lose money and which ones will profit. However, recessions are an ideal time to buy because most investments will eventually increase in value and you will profit. For instance, the stock market indices have doubled since the Dow hit bottom in March 2009. Today, a $10,000 investment can be worth $20,000 (or more)!

To avoid panicking and not investing during a recession, you can invest with Betterment. This automated investing platform will create a diversified portfolio that will have the appropriate risk tolerance for your age and investment goals. A diversified portfolio will minimize your potential losses so you don’t end up “losing it all” and will put you in a good position to earn consistent, positive returns when the market finally rebounds.

If your employer offers a 401k match, you should also continue to meet the entire match. You should do this in any market, but, that money is even more valuable in a bear market when stocks trade at a lower price. As a tip for 401k diversification, never invest more than 10%-15% of your portfolio in company stock. For a brief history lesson, just ask any former Enron employee.


Recessions can be downright scary if you are not financially prepared. While we don’t know when the next one will hit, we know it will come eventually. Use the tips above to help prepare now before you get taken by surprise. You will be surprised how much more peaceful your sleep can be this time around compared to the last recession.

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