IE 11 is not supported. For an optimal experience visit our site on another browser.

A 10-step guide to recession-proofing your finances

Sunny days inevitably lead to rainy ones. Don't panic about a recession — plan!
Image: Piggy banks
Spooked by talk of a recession? Don’t stop contributing to a 401(k) or IRA because everyone is panicking. PM Images / Getty Images

This article is part of BETTER Business, a new personal finance segment on NBC News Now, NBC News' online streaming network, hosted by MSNBC anchor Stephanie Ruhle.

A recession could be in the very near future, and if it happens there’s unfortunately, very little that anyone can do to change it. The only thing we can really do amid worries of an economic downturn is to prepare for it, which means recession-proofing our finances as best we can — the sooner, the better.

“Think of recession-proofing your life like you would hurricane-proof your home,” says Howard Dvorkin, certified finance expert and chairman of “If a storm is days away, and I ask you where the hurricane shutters are, the worst answer you could give me is, ‘I think I have some in the garage, but maybe I need to buy some more.’ By then, it’s too late, and any exposed window could spell doom. Recessions work the same way, except their devastation can last months and linger for years.”

We consulted financial experts to assemble the following step-by-step guide on how to fortify your finances against an economic downturn.

Step 1: Don’t panic. Recessions are (regrettably) natural

Your first step in recession-proofing your finances should be to get in an emotionally clear headspace, because our brains simply can’t make smart, long-term decisions when panicked.

In addition to revving up the (free!) self-care and calming routines, it can help to recognize that recessions are inevitable and this too shall pass.

“The economy has seasons – and recessions are the winters,” says Dvorkin. “After every sunny summer, the leaves fall from the trees, and the days grow shorter and darker.”

Erin Lowry, personal finance expert and the author of “Broke Millennial Takes On Investing” highlights, that “the stock market is cyclical” and that a recession is “all part of the process.”

Such wisdom may not exactly cheer us up, but there is some minor consolation in knowing that this isn’t the end of the world so much as it is the end of a good run.

Step 2: Get that emergency fund in order

“Multiple studies show that the average American cannot afford a $500 emergency,” says Alexander Lowry, director of the Master of Science program in Financial Analysis at Gordon College. “If you cannot afford that now, what will happen to you when bad times come? You might have to go into debt, or lose your home. Build up that emergency fund.”

Most financial experts recommend that you have three to six months of living expenses squirreled away. A. Lowry finds that people in their twenties and thirties might find this goal “laughable; however, [they] should try to set aside at least one month’s worth of living expenses to give yourself a buffer. It’s okay to start small but set aside just a little bit each paycheck and put it in a high-yield savings account.”

Step 3: Pay down your debt — especially credit card debt

“Your most important job apart from building your emergency fund is to get rid of any debt,” says A. Lowry.

E. Lowry concurs, adding: “Paying down debt aggressively now, especially higher interest debt like credit cards, can really help reduce pressure in a recession situation.”

Step 4. Build out two budgets: One for today and one for ‘doomsday’

If you haven’t written out a budget, now is the time to get on that. This can be an exceedingly dull task (Dvorkin likens telling people to create a budget to telling teenagers to clean their rooms), but there are free services that can help.

“There are secure online programs that will do half the budgeting for you,” says Dvorkin. “Mint, Tiller and most banks these days let you type in some numbers and voila, you have a budget you can follow.”

In addition to the budget you write out for today (a non-recession day), you should also compose a budget for “doomsday” as E. Lowry puts it.

“A doomsday budget is a plan that’s deployed when there has been a significant reduction in income, which focuses on setting critical expenses and aiming to bring in enough money to cover those essentials,” says E. Lowry, who wrote about this concept extensively for Forge on Medium.

When making a doomsday budget, you’ll want to assume the worst is happening and write out what exactly you need to pay for in order to survive so things like rent, groceries and transportation would be on the list. Things that would not be on this list would be gym memberships, meals out and Netflix. Hopefully you won’t need to live by this doomsday budget, but it’s very helpful to have one in place. After Lowry mentioned this tip to me, I wrote my own out, and though it was a little startling to calculate just how much money it takes to sustain a life with two dogs in Los Angeles, it was comforting to realize that if push came to shove, there are a lot of expenses I could shed.

Step 5: Diversify your investments portfolio

“You should have at least 40 percent of money in cash equivalents like money markets, CDs or short-term and immediate-term bonds,” says Danielle Kunkle Roberts, personal finance writer and co-founder of Boomer Benefits. “Another percentage should still be in stocks so that you can continue earning. If you are younger and time is still on your side, consider dollar cost-averaging through the recession. You may buy some stocks on the downward turn but you’ll also be buying them on the upswing which can help you increase your overall investments. You want to stay focused on your long-term goal and not on current economic conditions.”

Paying down debt aggressively now, especially higher interest debt like credit cards, can really help reduce pressure in a recession situation.

Erin Lowry, Broke Millennial

Step 6: Keep your retirement plan on course (if nearing retirement, some adjustments may be key)

“Keep investing [in your retirement] through a recession,” says E. Lowry. “Don’t stop contributing to a 401(k) or IRA because everyone is panicking.”

If you’re nearing retirement, E. Lowry recommends meeting with a financial planner “for at least a one-time meeting to serve as a second set of eyes on your retirement strategy to make sure you’re in good shape.”

If you are retiring soon, you should consult your HR department about your plan. “They won’t give you financial advice, but they can help you figure out how your money is invested,” says Dvorkin. “Then you can move around some of that money within the 401(k), making sure it’s in safe low-yield funds.”

You might also want to consider moving money into bonds, if about to retire, per the recommendation of Logan Allec, CPA and founder of the personal finance site Money Done Right.

"Remember, a 401k is a long-term investment and a recession is just a short-term shift in the market; however, if you are expecting to retire in the next few years, you don't want to be 100 percent in equities if the stock market tanks and you need to start pulling out money to fund your retirement that's just around the corner,” says Allec. “It may be more appropriate to shift your portfolio toward fixed income securities such as bonds.”

Step 7: Make use of money saving apps

If you’re not using money-saving apps and browser extensions already, now is the time to download them.

“My wife and I save hundreds of dollars each year using Ibotta, Swagbucks, Rakuten, and Drop,” says David Cahill of FinanceSuperhero. “They help us get back easy cashback and gift cards for our normal, everyday spending.”

Step 8: Build out your income with a side hustle

“Build out multiple streams of income, which could include anything from driving for a ride share to freelancing to babysitting to selling items [online] to working part-time in retail — especially when seasonal workers are in demand,” says Lowry.

Bulking up on income could also help you with step two (building up your savings).

“Picking up a sustainable, flexible side hustle and saving every dollar you earn will help you build an emergency fund very quickly and will also give you the added benefit of extra cash flow if you were to lose your job when the recession strikes,” says Cahill.

Step 9: Invest in your value as an employee

Recessions do cost jobs, and in the Great Recession, numerous sectors were negatively impacted — even police departments. Make sure your resume is up to date (including on LinkedIn) and that you’re going above and beyond to show your value to your employers and prospective hiring managers.

“You might want to hone all of your current work skills, along with picking up a few in other departments at your job, if possible,” says David Bakke, a personal finance expert at Money Crashers. “Companies may be downsizing if a recession hits. Prove that you are valuable in other areas besides your current career.”

Step 10: If you're drowning in debt, get help

“At the end of the day, your financial and mental health is as important as your physical health,” says Leslie H. Tayne, Esq, a financial attorney and author of “Life & Debt: A Fresh Approach To Achieving Financial Wellness”. “If you were sick, you would see a doctor, so if your finances are unwell, you should see a financial professional. There’s no shame in asking for help, and having a professional on your side will help ease the stress you’re feeling.”

Dvorkin notes that you don’t need to pay a professional for help, as many nonprofits offer free assistance.

“If recessions have any silver linings, it convinces people to call a credit counseling agency,” says Dvorkin. “These nonprofits are staffed with certified credit counselors, who give you a free debt analysis. I’m always shocked and saddened when Americans pay for financial advice they could get for free.”


Want more tips like these? NBC News BETTER is obsessed with finding easier, healthier and smarter ways to live. Sign up for our newsletter and follow us on Facebook, Twitter and Instagram.