How to Prepare for a Recession: 6 Tips to Consider

April 2, 2025

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While we’re often reminded that recessions are an expected part of the economic cycle, talks of a potential downturn can still be nerve-racking. But even though we can’t control the timing of a recession or recovery, we can be proactive when it comes to looking after our financial well-being.

Let’s go over a few steps you could take to prepare your finances.

1. Understand where you stand financially

While recessions don’t last forever, it can be difficult to predict their duration. Sometimes things can get worse before they get better. In times of uncertainty, it’s a good idea to assess where you are financially. For instance, you may want to note:

How much of a cash cushion do you have for emergencies – like a sudden reduction or loss of income?
What does your budget look like? Pay attention to how much you’re spending and saving as well as how much debt you’re carrying.
Are there any upcoming life changes that could impact your income, spending, and saving? For instance, this could include major events like getting married, welcoming a new child, sending a kid off to college, or retiring.

Getting a sense of your overall financial health can help you anticipate and prepare for potential challenges if the economy goes into a recession.

2. Bolster your emergency fund

Having a healthy cash reserve on hand to respond to emergency situations is vital during a recession – when job security can be a significant worry for many. During an economic downturn, you’ll often see a rise in unemployment, and a sudden job loss could spell trouble if you’re unprepared.

When it comes to building an emergency fund, many are familiar with the general rule of thumb: Have enough cash to cover at least three to six months of living expenses. However, depending on your needs and financial situation, in times of economic uncertainty, you may want to save more if you can. A solid cash cushion can help you deal with potential bumps in the road without knocking you completely off course when it comes to your financial goals.

Good to know: It’s important to keep your emergency fund in an accessible, FDIC-insured account such as a traditional or high-yield savings account, so that you can withdraw the money when you need it.

3. Prioritize essential spending

Recession or not – it’s good to get into the habit of revisiting your budget regularly to see how you’re spending money each month. Having a clear picture of how much you’re bringing in and how much is going out can help you prepare your finances for a recession.

During an economic downturn, you’ll want to properly prioritize your spending and save as much as you can. Take a look at your budget and prioritize spending that’s essential – for instance, rent/mortgage, food, utilities, insurance, etc. Then decide which expenses can be reduced, paused, or eliminated (think: unused subscriptions/memberships, entertainment, dining out, etc.).

Also, try to stay on top of your debt. During a recession, it's more important than ever to continue paying them down on time. Remember, the quicker you can pay off debt, the sooner you can free up more of your budget for something else.

A recession already comes with plenty of stress, and the last thing you want is for your debt to accumulate while you’re managing other priorities.

4. Maintain a good credit score

If you end up having to take out a personal loan to cover expenses during a recession, you’d want to get the best possible terms. To do that, you would need to maintain a good credit score. This means paying your bills on time and keeping your credit utilization low, among other things.

Let your bank or financial institution know about any financial hardships you may be facing and see what flexibility they can offer when it comes to paying your bills.

Keep in mind missed or late payments get reported to credit bureaus and can hurt your credit score. So if there’s a way to work out a more flexible payment arrangement to avoid getting dinged, you’d want to do that as soon as possible.

5. Focus on the long-term when it comes to retirement savings

During a recession, some might be tempted to pause their retirement contributions, change their asset allocations, or pull money out of the market.

It can be tough to resist the urge to do something when markets are volatile. But a key to avoiding poor investment decisions is to take pause and remember to focus on your long-term strategy. You don’t want to make any major financial decisions based on emotions.

What you could consider doing is review your retirement plan and make sure that it’s appropriately diversified and not exposed to more risk than you’re comfortable with.

We understand that staying level-headed during a recession may be easier said than done, so think about speaking with a financial advisor to review your investments together. They can also talk you through any investment changes you may be considering.

6. Explore opportunities for additional income

This isn’t necessarily about going out and finding a second job (you work hard enough as is). But if you’ve ever thought about taking on a side project for extra income, you may want to explore your options. Perhaps, you’ve been wondering if you could make money off of your hobbies.

Exploring opportunities can be helpful in two ways. First, it’s a chance to develop a new skill set. Second, if successful, your side project could provide a different stream of income.

If you’re not in a position to take on more work, it’s still a good idea to keep your resume updated. Also take a look at what networking opportunities are out there. Having some solid contacts can come in handy if you ever do need to look for a new job.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.