How to Plan for a Recession


The 2008 Great Recession made all of us very aware that the financial future can be risky.

Some people reacted to this by throwing caution to the wind. They figured, since you never know what’s going to happen with your money, then you should just spend it now. In other words, live for today.

On the other hand, some people became extremely risk-averse in the face of the recession. They drastically minimized spending in order to hoard their money. While that works for some people, most don’t find it to be a sustainable way of life.

We don’t need to go to either extreme. Instead, we need to plan for a recession. If it happens, we’ll be ready. If it doesn’t, we’ll still have established smart financial habits that serve us well in any economy.

Set Aside at Least 6 Months of Expense Costs in Savings

Everyone should have a savings account. If you lose your job, or face an emergency expense, then you can use that savings.

It’s a good rule of thumb to always keep three months of expense costs in that savings account. Take whatever you generally spend in a month (rent, utilities, food, and all other costs.) Multiple that by three. For example, if your usual budget is $2000, then you want a minimum of $6000 in savings.

While that’s the good rule, it’s not enough to help you in a true recession. Therefore, if you want to plan for a recession, then you should beef up your savings. Try to put a minimum of six months of expenses into an easily-accessible savings account.

Tip: Create a separate savings account just for your recession planning. Once it’s stocked full, you can put the rest of your money in regular savings, investments, etc. The recession money will sit there waiting for you to use it as needed.

Diversify Your Income Streams

If your entire income comes from one full-time job, then you’re going to be in a lot of trouble if that job comes to a sudden end. Therefore, you should always have at least one additional income stream. Even if that won’t cover your expenses, it will help you bridge the gap between jobs should a recession hit.

There is such a wide array of different part-time jobs, independent contractor gigs, solopreneur options, and passive income streams. Try to select something that’s very different from your primary job. This will keep you more interested and engaged with it. Plus, it will be less likely to end than if you had a second job in the same industry.

Furthermore, make sure that you keep as current as possible with your primary job. In other words, keep networking and continuing job-related education. The more relevant your contacts and experience, the more recession-proof you will be.

Learn to Spend Below Your Means Before the Recession Hits

Don’t wait until the recession is actually here to start reducing your spending. It’s important to establish those good habits as early as possible. They should be a way of life. You’ll save more money now. Furthermore, you’ll be in a better position if a recession does hit, because you are already used to finding ways to save money.

You should consistently look for ways to lower your spending. Downsize your housing. Go car-free. Shop second-hand, with coupons, or not at all. Before spending your money, ask yourself if you’re making the smart choice. Of course, as mentioned at the start of this article, you don’t have to go to all extremes. You don’t have to learn to live off of the grid (unless that appeals to you). However, if you keep your focus on reducing spending so that you can increase the quality of life, you’ll be better prepared for the next recession.

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