The 6 Steps to Recession-Proofing Your Finances

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Smart financial decisions for work & home
May 19, 2024 at 5:25PM UTC

There’s a time for optimism. Right now, while we grapple with the medical, emotional, and economic impact of COVID-19, it isn’t that time.

On the medical side, we must follow the advice of our doctors and medical professionals who are clear on the importance of social distancing. Optimism, it appears in this case, can make people gravely ill.  

But what about on the economic side? What advice should we follow? Some predict this recession will be as bad as the Great Depression or worse, while others think we’ll snap out of our COVID-19-driven dip quickly. Will our economy pick up when we can all go out to restaurants and shops again? 

Every single time we chose to spend or not spend, we’re making a financial decision. Right now, it’s hard to know what our economic future will look like. But make no mistake, the U.S. is in a downturn. You only need to look down the street or in parking lots of local businesses to know that people are not spending the way they did just three weeks ago. Reacting to that fact isn’t panic, it’s prudent. Being optimistic with your money right now could result in not having enough when you really need it. Don’t wait for a job loss or pay reduction to change your spending habits. 

Many people today have no experience working through a recession because they entered the workforce after the 2008 downturn. What does it feel like to be in a recession? Stressful. Times are uncertain. People fear the loss of their jobs. Some people do. Wages are cut. Overtime and bonuses shrink. Families cut back. Hard choices are made. 

Managing your money through a recession IS different than through a good economy. If your job is safe today, you can breathe a little sigh of relief for the moment, but that’s it. The reality is, we don’t know the extent of this recession yet, and some of it — like the length of the COVID-19 shutdown — is out of our control.

Even with so much uncertainty around us, there are several things you can do today to make it through this economic reality. 

Overall, there are two goals of recession prepping your family’s finances. The first goal is to understand your family’s expenses, income streams, and spending habits so changes can be made quickly if it’s needed. The second goal is to have an emergency fund sufficient to help you manage through possible reductions in income. The following six steps are a great way to support your family’s financial stability in a downturn:

1. Start tracking your spending.

Every. Single. Dollar. If you tried to list all of the items you spent money on the last month, you’d probably forget hundreds of dollars if you’re not already tracking your spending. It’s really easy to forget that occasional-but-frequent dinner on the go when running kids to after school activities and other smallish impulse purchases that come up, and it’s hard to remember reoccurring but infrequent expenditures, like equipment for the kid’s sports. Start tracking your expenses now so that the data is available in the future when you need it. 

When faced with a financial emergency such as a lost job or major unexpected expense, many families will sit down and try to assess and reduce expenses. But when you’re faced with trying to figure out where all the money has gone AND trying to devise a plan to stay afloat at the same time, you’re more likely to feel overwhelmed and stressed. By already having this data at your fingertips, you’ll be able to react faster to the changing times. It’s also likely you’ll find areas you want to cut spending right away, which can help you save more now.

2. Analyze your spending.

Once you know your expenses, you’ll need it in a format to make fast and impactful financial decisions for your family. Categorizing your spending by type of expense is useful to understand how much you’re spending in each area. But most importantly for recession prep, categorize all of your expenses as mandatory or discretionary, then by frequency (monthly, quarterly, one-time, etc.) and finally as planned or unplanned. 

This breakdown will allow you to quickly make decisions on what expenses to cut for maximum impact, in the event of a sudden loss of income. It will also identify your family’s base monthly expenses just to get by and shed light on how much money is going out the door for unexpected expenses when times are tight.

3. Determine how safe your income is.

The world of work is different than it used to be. Employment and income risk have shifted from companies to individuals. In the ‘old days,’ which weren’t that long ago, people stayed in jobs and within companies much longer than they do today. Both the employee and the employer were slower to make a change. Freelancing was not nearly as common and the term side gig wasn’t even a thing yet. Layoffs were mostly made when companies had little choice – a downturn in performance made them unavoidable in management’s eyes. Today, companies are more likely to engage in layoffs earlier and as a tool to boost profitability even when a company is not in distress. Couple this with an extreme economic shutdown and the result is 3.3 million people filing for unemployment in just one week due to the COVID-19 shutdown, with many more expected in the weeks to come.

It’s important to anticipate how your employer will react during a downturn so you can take appropriate precautions. Ask yourself:

  • How is the company you work for performing?

  • Does the company sell a product that people will buy when times are tough? Or is the business likely to face declining revenues as spending decreases?

  • How safe is your position within the company? Do you work in a cost center or revenue-generating area of the company?

  • If you were to lose your job, how long do you think it would take for you to get a similar-paying position?

  • Are you a single-income family or do both you and your spouse bring in sufficient income to cover monthly expenses?

  • What skills do you have? Are they essential to business and easily transferrable to another company? Are you up-to-date or out-of-date on technology?

  • How flexible are you? Are you willing to relocate for the right position?

All of these factors have an impact on your employability going forward. While employees may be able to dictate terms of employment during periods of expansion, employers have the upper hand when unemployment is higher and there are more candidates seeking jobs. Flexibility and having transferrable skills will be important factors when considering how quickly you can secure your next position.

4. Set an emergency fund target amount and save.

Does your emergency fund need to cover three to six months of expenses, or a year’s expenses or more? You’ll get differing opinions on how large your emergency fund should be depending on the source. Let your circumstances determine how much you need for an emergency fund. Those of us who worked through the dark days of 2008 know it can take longer than you think to get a new job after a recession-induced layoff. Use the income safety assessment you did in step three to decide how much income risk you face. The longer you think you could be out of work and the higher your monthly mandatory expenses, the higher your emergency fund should be. For instance, if you expect it to take longer than six months to get a new job, then you should plan to save for 12 months' expenses.

5. Assess your debt.

Should you start aggressively paying off debt now if we’re in a recession? Probably not. I’m a strong advocate for reducing your debt obligations as quickly as possible, and I recommend doing so in stable economic times. But this isn’t that time.

If you have a loan that carries a high monthly payment and you’re unlikely to pay it off quickly, hold off on making big pay downs and instead focus on building up your emergency fund for the time being. If your income is at risk in a recession, and big monthly loan payments still need to be paid, you’ll need a higher reserve of cash to pay your loans if something goes wrong. Building an emergency fund to cover mandatory monthly expenses for a longer period of time may be important right now. Once times are good, you can always use excess cash to pay down your debt if you didn’t dip into it for expenses during the recession.

Next, take a look at your credit card spending habits. Are you paying off your credit card monthly? Whether you are or aren’t, it’s important to understand how credit cards are affecting your financial life.

If you pay only minimum monthly payments, you are spending considerably more on your purchase than the actual sale price. This extra expense could instead be used to pay down other debt or to bulk up your emergency fund. According to Credit Karma, the average credit card APR is 15.09%. At this APR and a 4% minimum payment, it would take you 65 months to pay off a $1,000 principal balance on your credit card, and you’d pay a total of $1,365. In many cases, you’d still be paying for the items you bought long after they’re gone! If you’re carrying a balance, work hard to reduce your credit card spend to only what you can pay off every month.

Those who do pay off credit cards each month aren’t off the hook either. While they may be saving on interest, research shows that just using a credit card can increase your spending, even if you plan to pay it off at bill time. How much did you charge on impulse purchases last month? If you were limited to cash, would you still have made the purchase?

Finally, for those who have already suffered a job loss or a substantial reduction in income, some creditors are supporting clients by deferring payment obligations during the economic shutdown phase of the COVID-19 outbreak. Contact your creditors to find out what type of support programs are available to you.

6. Make a plan.

Decide in advance the steps you need to take if income is cut or eliminated. Figure out which expenses you’ll cut immediately and which you’ll save for later, and which you expect to be temporary versus permanent. Decide the steps you’ll take to try to replace lost income. 

If your family experiences a job loss or reduced wages, you’ll already have a plan, instead of feeling the panic of needing to take immediate action but not knowing what to do. 

We may all feel stressed and anxious about this pandemic-driven recession, but having a plan to reduce your family’s monthly cost structure to something sustainable over a longer period of time — controlling what you can — will help you move forward in this uncertain world. If this recession turns out to be shorter than expected, you won’t regret cutting your spending for awhile. You can always pick it back up when times are good or you might decide the spending wasn’t really that important to you anyway. But burning through your cash savings too quickly because you don’t cut your expenses is certainly something you’d regret.

We’re navigating the new normal, together. Join us for support.


Janice Scholl is a money, career, and business coach exclusively for women. Through her business and the just-launched Mamas and Money podcast, Janice helps women make smart financial decisions in all areas of life, whether it’s through establishing strong money management habits at home, developing a solid career strategy, or starting a business. You can learn more about her work and podcast at

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