How to Prepare for a Recession (9 Proven Strategies)

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You don’t have to be an Ivy League analyst to realize that the economy – and stock market – is going through some serious ups and downs at the moment. 

In fact, you can see that:

  • Businesses are closing
  • National debt is soaring
  • Stocks have gone up and down 
  • Unemployment claims remain high

And you can also feel a sense of uncertainty in the air.

So, if you’re worried about the next recession then you’ve come to the right place.

Let’s walk through the 9 proven strategies on how to prepare for a recession below.

What is a Recession?

A recession is a temporary period of decline in the stock markets and economy.

It’s important to understand that the markets go through cycles. 

They go up and they go down, like this:

100 year chart dow jones industrial average

Source: Macrotrends

The historical data suggests the following:

  • What comes up, must go down
  • What goes down, must come up

To be a little more technical, you can see that the stock market has periods of growth and periods of decline.

The technical definition of a recession is the following:

2+ consecutive quarters of negative growth in the nation’s gross domestic product (GDP).

GDP is the total value of what’s produced (goods and services) within a country’s borders. 

Check out the chart below, which can give you a better idea of GDP by country:

global economy chart

As you can see, the U.S. is the top producing country, followed by China and Japan. 

Back to the subject at hand: What is a recession?

Additional indicators that could suggest you’re in a recession include:

  • Rising unemployment 
  • Decreasing stock prices
  • Decreasing real estate value
  • Decreasing consumer confidence

Consequently, a recession could seriously impact your personal finances.

That’s why it’s important to prepare for a recession today.

And if you’ve lived through the Great Recession of 2008 or the very recent COVID-19 related recession of March 2020, you’ll remember that feeling of anxiety.

Remember that every time the economy went down, it also went back up.

So, you have every reason to feel confident that you won’t lose your money in a recession.

In fact, you can make some serious gains in the stock market – if you play your cards right.

How Long Does a Recession Last?

According to the National Bureau of Economic Research, a recession typically lasts around 11 months. 

However, recessions are not made equally.

Recessions can be:

  • Long and mild
  • Short and mild
  • Long and severe
  • Short and severe

I’m sure you may still remember the sting from the Great Recession of 2008. 

Remember that historically speaking, whenever the markets went down, they also went back up.

And the dollar cost averaging strategy can help you make the best out of a recession, as long as you are consistently investing and not allowing your emotions and fear to get the best of you.

What Happens During a Recession?

Basically, the economy takes a nosedive when you’re in a recession. 

Here’s probably what you’ll see during a recession:

  • Increased lay-offs
  • Decrease in wages
  • High unemployment
  • Increased government debt
  • Stocks and bonds fall in value
  • Decrease in consumer spending

Take a look at how closely jobs are connected with the overall health of the economy:

2008 to 2021 job gains vs job losses chart

Source: CBPP

For 113 consecutive months, total payroll employment has increased until the COVID-19 pandemic hit and erased those gains.

Similarly, take a look at the negative wage growth rate, at the dawn of the COVID-19 pandemic, which took place back in March 2020.

march 2020 wage growth rate chart

Source: PayScale

As you can see, the majority of industry wages were negatively impacted.

That statement is true especially for those jobs found in the service industries, which were most heavily impacted as COVID-19 safety regulations were put in place.

fiona smith the millennial money woman

The Bottom Line:

When the economy recovers, the negative trends of the recession will also start to recover. You just have to focus on the long term.

How to Prepare for a Recession

There are a few ways to prepare for a recession, which I’ve outlined below.

9 ways to prepare for a recession

Although no one has a crystal ball to tell you when the next recession will come, you can tell from history that each recession is followed by tremendous economic growth.

So, remember to look into the long-term and know that 99% of the time, you will see much better economic growth after a recession.

Let’s get started.

1. Increase Emergency Savings

Before you even think about investing, first consider how much cash you have saved up.

"Cash is king (or queen)."

That’s why you want to have a solid emergency savings fund ready to go in the case of a recession.

So, if you spend about $3,000 per month on basic living expenses, including:

  • Rent
  • Taxes
  • Groceries
  • Student loans

…Then your emergency savings fund should have between $9,000 to $18,000 saved in cash for emergencies.

Since the chances of being unemployed during a recession are far higher (and may take much longer than the average 7.7 weeks), you want to make sure you have enough money to hold you over a “dry spell” or no-income period.

Now, 3 to 6 months’ worth of living expenses is a lot of cash.

I have a trick to optimize your stashed cash to earn a little extra.

In the current economy (2021), you probably can expect to see interest rates in high-yield savings accounts ranging between 0.50% to 0.60%.

It’s not much compared to where interest rates used to be 20 years ago (we’re talking 2% to 3% or higher), but those rates are the highest in the current market conditions. 

The top high-yield savings account I would recommend for your emergency savings fund is Axos Bank.

Axos Bank is a high-yield savings account that offers competitive market interest rates (as of March, 2021 interest rates hover around 0.61% APY). 

Here’s what you’ll need to open an account with Axos:

  • $250 to start a savings account

And here’s why Axos Bank is pretty awesome:

  • FDIC insurance
  • No monthly fees
  • 24/7 access to cash
  • Competitive high-interest rates
  • No minimum balance requirement

Investing your emergency cash in a high-yield savings account makes sense.

2. Pay Off High-Interest Debt

Debt is terrible in any type of economy – but it can especially be a heavy burden during a recession, where fears of unemployment (and consequently no income) may be in the air. 

americans in debt statistic

Source: RamseySolutions

If you carry high-interest debt, now is the time to get out of debt ASAP. 

Below are some examples of high-interest debt:

  • Payday loans
  • Credit card debt
  • Other personal loans

Basically, you want to start paying off debt with interest rates of 10% or more as fast as possible. 

When you pay off your debt, you have fewer payments due, which can help ease your mind, especially during a failing economy. 

Once your debt is paid off, you can use your money to:

  • Invest in the stock market
  • Pay off other, lower interest debt
  • Put toward your emergency savings

3. Stick to your Budget

If you want to prepare for a recession, you have to learn to live within your means. 

Here’s the simple formula to sticking to your budget:

In other words, your expenses must be less than your income. 

One easy way to monitor your expenses is by creating a budget.

A budget is a millionaire planning tool to help you optimize your money so you can build the future you want. 

Sticking to your budget – and not spending more than you earn – is going to be SUPER helpful, especially when a recession is looming on the horizon. 

By living frugally, you can actually free up a lot of your money to:

  • Pay off debt
  • Invest for retirement
  • Use toward emergency savings

If you think you’ll need a little bit of guidance when it comes to budgeting, I would suggest checking out YNAB.

Here’s some info about YNAB:

  • Easy to sync outside accounts
  • Can directly import bank transactions
  • Customized budgeting recommendations
  • YNAB website offers excellent financial advice

The sweet fact about YNAB is that you get a free 34-day trial so you can check out what YNAB is all about and whether the app fits with your style.

Even better, within the first year, YNABers typically save about $6,000 on average.

If you need help getting your budget under control, this app is certainly worth checking out.

4. Cut Down Expenses

As your income increases, it’s probably a good idea to check out where you can cut costs and save more money

In addition to sticking to your budget, as discussed above, it’s also important to avoid allowing lifestyle creep to nibble away at your net worth. 

Instead, try training your mind to save more money as you earn more money (and keep your expenses the same). 

Since the chances of your income being slashed or eliminated are pretty high during a recession, you want to make sure you can live without certain expenses. 

That’s why it’s important to learn how to cut costs before a recession hits.

Below are some easy ways to cut costs fast:

  • Cut the cord
  • Find a roommate
  • Go thrift shopping
  • Terminate subscriptions
  • Bargain with your utility companies

If you want to learn how to trim your utility company payments, then you may want to check out Truebill.

Truebill can cut the following costs for you:

  • TV bills
  • Wifi bills
  • Service bills
  • Internet bills

You can save big on your bills by using Truebill.

The only time you pay is when Truebill successfully negotiates (and lowers) your bills for you.

5. Diversify your Investments

Have you ever heard of the saying: “Never put all of your eggs in the same basket?”

Well, the same goes for your income streams. 

Imagine depending on just 1 income stream during a recession… and then facing the reality of being let go from your company.

Without income, it’s going to be pretty hard paying for your regular living expenses – not to mention the difficulty of finding a job during tough economic times. 

So, don’t rely on just your 9 to 5 job. 

There’s a reason why the average millionaire has 7 income streams. 

the millennial money woman blog post "average millionaire income stream statistic"

Below are some ideas for you to diversify your income streams:

If you’re asking me, I would invest my money in the stock market as well as in developing a course through Teachable.

Especially if you’re focused on the long run, you can earn some serious money by investing in the markets and building out your own course.

6. Become a Side Hustler

If there’s one thing I learned, it’s this: Start building your side hustle as soon as possible. 

I’m sure you can already tell what my favorite side hustle is… it’s blogging!

Check out the top 3 side hustles and their monthly income potential:

Side Hustle Monthly Income Potential


$0 - $100,000+

Freelance Writing

$0 - $100,000+

Selling your Online Course

$0 - $50k+

Now keep in mind, you probably won’t see numbers even close to the numbers above within the 1st, 2nd or likely even 3rd year of pursuing your side hustle.

But, if you:

  • Are consistent
  • Are committed
  • Stick with your plan

…Then chances are, you’ll likely succeed.

Recommended reading: Best Side Hustle Ideas

7. Continue Investing 

Especially during a recession, you’ll want to continue with your regular investment plan.

This is how you’ll make the big bucks, if you keep investing during the downtimes. 

This type of investment strategy is called the dollar cost averaging strategy.

Here’s how you can win with the DCA strategy:

  • Focus on the long term
  • Don’t sell during a recession
  • Make consistent investments

In fact, you can win with consistently investing – especially during a recession. 

Think about buying stocks like buying clothes:

  • Do you want to buy on sale?
  • Do you want to buy at full price?

Chances are, you’ll probably want to buy clothing on sale.

The same concept goes for stocks. 

Stocks are cheap to buy in a recession.

100 Year Historical Chart Dow Jones Industrial Average

Source: Macrotrends

The shaded, grey areas indicate a recession.

Now take a look at what follows a recession – a stock market increase.

In fact, the stock market performance after a recession generates, on average, a 339% return over a 6.6. year period.

You can’t win if you try to time the market (e.g. getting out of the market before it crashes and buying at all-time market lows).

The chart below will show you the following scenario:

Sample Scenario

Starting Investment


Investment Index

S&P 500

Investment Time Frame

January 1, 2005 to December 31, 2017

Take a look at why timing the market is not a good idea, below.

S&P 500 returns chart

Data Source: Adams Funds

As you can see, if you had stayed invested, at the end of these 13 years, you would have made an average annual return of 9.26% versus if you just missed the 2 best days of each year in the market, your returns would have been just 1.19%.


So how do you avoid timing the market?

By sticking to your dollar cost averaging strategy (DCA).

If you’re ready to start investing then check the best investment apps.

8. Live on 1 Income Stream

This rule of thumb only works if you live with your partner and both of you are earning income. 

One of the best ways to prepare for a recession is if you and your partner live below your means by:

  • Saving 1 income stream
  • Living off of the other income stream

Living off of only 1 income stream can help you with the following:

  • Pay off debt
  • Save for retirement
  • Keep investing during a recession
  • Increase your emergency savings fund
fiona smith the millennial money woman

The Bottom Line:

If you practice living off of only 1 income stream when times are good, it’s going to be very easy for you and your partner to live off of 1 income stream, should (worst case) 1 of you lose your jobs during a recession.

9. Invest in Yourself 

One of the key outcomes of a recession is high unemployment. 

And even though you may be completely crushed that you were let go of your job, you can actually use that opportunity to invest in yourself.

That’s of course assuming you have:

In fact, you can position yourself to be an extremely desirable employee if you continue developing your:

  • Skillset
  • Network
  • Education
  • Qualifications

Remember that when you add value to the job market through an improved skill set or qualifications, money will typically follow.

Now, one of those ways to improve yourself is to enroll in a course with MindValley.

I’m such a fan of MindValley because you can learn things you were never taught in school.

MindValley teaches you how to thrive in this new and changing world. 

Check out some of the awesome courses offered:

  • How to achieve your goals
  • How to increase productivity
  • How to find entrepreneurial success
  • How to grow your circle of influence

The point is this: Don’t allow a recession to get in the way of continuing your career and your personal development. 

Never stop learning.


Below are some things you can do to optimize your wealth before a recession. 

These steps include:

  • Pay off high-interest debt
  • Continue investing in your education
  • Invest in reliable, stable and dividend producing stocks
  • Build an emergency fund with 3 to 6 months’ of living expenses

And remember, as you move into a recession, a good money-making strategy is buying index funds (for example) when they are “on-sale” or when their prices are significantly lower.

If you’re already in a recession, then there are several steps you can take to maximize your financial picture.

Below are some steps you can take when you are in a recession:

  • Pay off debt
  • Invest what you can 
  • Decrease your expenses
  • Maintain a long term vision
  • Continue investing in yourself
  • Increase your emergency savings

The key is to maintain a long-term vision – a recession is temporary (based on historical data) and chances are, the economy will recover even stronger than before the recession.

You can survive a recession if you prepare properly beforehand. 

Some steps you can take include:

  • Invest in yourself
  • Stick to your budget
  • Live below your means
  • Build an emergency fund
  • Build extra income streams
  • Diversify your investments

Here’s what’s important: Don’t sell your investments out of fear when the markets are down. 

Remember that what goes down, must come up (and vice versa, too). 

Closing Thoughts

Although none of us have a crystal ball to predict the future, it’s so important to have a game plan ready before a recession actually happens. 

There is no need to worry about a recession if you have taken the steps above. 

Instead, focus on things to thrive while the stock markets are tumbling lower:

  • Invest in yourself
  • Build new income streams
  • Invest when markets are low

One thing to keep in mind is this: Recessions are temporary.

Based on historical data, the stock markets have always bounced back after a recession (or even after the great depression in 1929). 

So when that recession hits, and you have your recession-proof plan in place, all you have to do is:

  • Chill
  • Buy low 
  • Stick to your plan
  • Ride out the market lows

Preparing for a recession today will help you stick through the storm tomorrow. 

Trust me, your bank accounts will thank me later. 

How do you plan to prepare for a recession? Let me know in the comments below!

Fiona Smith
Fiona Smith
Fiona Smith is the founder of The Millennial Money Woman. She holds her Master of Science Degree in Personal Financial Planning, has advised decamillionaires for 6 years in the corporate wealth management sector and has co-founded a local non-profit community teaching financial literacy. She is the author of the personal finance book How to Get Rich from Nothing and her work is featured on Forbes and FinCon.

4 thoughts on “How to Prepare for a Recession (9 Proven Strategies)”

  1. Put your money in Treasury bonds starting in May. The I Bond rate is going up to 3.54%. Safe investment for your money.

    1. Beau,

      Thank you so much for your comment. It’s funny that you mention that suggestion because I just read an article today that said something similar to what you did. It’s going to be interesting to see how things unfold in the future.



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