How To Prepare for a Recession

Is a recession ahead? Who knows. But it can't hurt to be ready for one.

Written by Christiana Sciaudone / June 14, 2022

Quick Bites

  • Whether or not a recession is on the horizon remains to be seen, but there’s a good chance of one.
  • It can’t hurt to be prepared by bulking up savings, paying down debt and reviewing your budget.
  • The good news is they generally last less than a year, so try not to panic too much.

No one has any real idea if we’re headed for a recession because we’ve never quite been in the situation we’re in today.

A recession happens when the economy contracts, meaning businesses stop investing because it’s too expensive or there’s not enough demand; workers lose their jobs; people stop spending because they fear the future and things (groceries, phones, cars) are getting too expensive to buy.

The bad news is that inflation is outpacing wages and interest rates are on the up and up. Commodities are getting pricier (see your bill at the gas station) because of the Russian invasion of Ukraine that has disrupted supply.

The good news, however, is that unemployment is low, demand for workers is at near-record highs and industrial production has risen for four straight months.

So, where does that leave us? While the short-term seems fairly stable, honestly, no one knows anything. So why not be prepared for the worst and hope for the best?

Inside this article

  1. What does a recession look like?
  2. What you can do to prepare
  3. Reassess your spending & budget
  4. Bulk up your savings
  5. Pay off debt
  6. Stay the course on investments

What does a recession actually look like?

It’s not exactly end-of-days fire and brimstone, but you can see the signs all around. As prices rise across the board, you or your friends may start losing jobs and begin buying white-label (the grocery story brand) cereal. Your home may lose value and stock markets could tumble (this one’s already the case in 2022).[1] It’s not pretty.

However, historically, U.S. recessions last a little less than a year. (The most recent financial crisis is an exception, lasting from December 2007 to June 2009.)[2]

What you can do to prepare for a recession

Okay, how can we weather this nasty storm? There are countless opinions, but experts tend to agree on some basics:

  • Reassess your budget/spending plans

  • Bulk up your savings

  • Consolidate and pay down your debt

  • Stay the course on investments

We’ll tackle each of those in just a second. First, let’s get back to the employment environment we mentioned earlier, as it has an obvious oversized impact on your financial situation.

As we mentioned, one hallmark of recessions is an uptick in unemployment as companies typically lay people off in an effort to control costs and respond to the decrease in demand. While we have seen some layoffs, specifically in tech, “that’s not going to happen right now because of the tight labor market and people leaving for other industries,” says Scott Bishop, executive director at Avidian Wealth Solutions, a wealth management company.

Currently there are more jobs available than applicants, and wages are increasing in an effort to keep talent and stave off The Great Resignation, the trend that has seen a record number of people quit jobs to pursue greener pastures (The numbers prove that The Great Resignation is, in fact, not a myth, in case you had any doubts about that).

But those greener pastures may not be so verdant if a recession takes hold, and not having a steady source of income makes preparing for and weathering a downturn more difficult. So, this may be the time to appreciate what you have rather than jump to the next best thing.


The Great Resignation is real, but many people have discovered that the other side, is in fact, not so green. The Muse, a job search platform, found in a survey in early 2022 that 72% of people who had changed jobs expressed regret or surprise with their new positions.

Reassess your budget and spending plans

Much like corporate America is forced to look at how it spends, so too should you. Take a look at your personal budget and prioritize those things that are most important (time to cut some streaming subscriptions?). If you’re not actively using it, do you really need it?

  • It’s a good time to make a budget:

  • How much cash do you have on hand?

  • How much can you access quickly?

  • How much debt do you have?

  • What are your basic living expenses?

  • Do you have any major life-changing events on the horizon, like a new baby or retirement?

If you’ve never put a budget together before, Sound Dollar has you covered.

How to Create a Budget, and Stick to It

How to Create a Budget, and Stick to It

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It’s all about figuring out your needs (dinner) vs. your wants (a fancy meal out at the newest, hippest spot in town).

Avidian’s Bishop also warns that this is not the time to trade your Toyota Corolla for a BMW X5.

“Now might not be a good time to buy a bigger house, to buy a new car, to buy a vacation,” he says. “Big ticket items are things to wait on to avoid financial stress.”

Bulk up your savings

If you’ve done a good job with budgeting, adding to your savings should be easier. In fact, if there’s a hint of a recession coming, you might want to consider the act of adding to your savings one of the aforementioned “needs.”

It’s also a good time to add to any emergency fund you might have set aside, which is actually something that should always be a priority.

Consolidate and pay down your debt

This is a big one.

If money is going to be tight in the coming months, it’s best to take every opportunity to pay down your debts while it’s financially feasible. The goal is to minimize what you owe so that debts don’t pile up during any recession. Make a list of the outstanding balances and the interest rates on each loan and prioritize which are the most important to address. Make sure to prioritize your debt with the highest interest rate, generally, credit cards.

Nashalie Lugo photo

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You might want to consider consolidating your debt, creating one single new balance with, ideally, better repayment terms.

Stay the course on investments

A recession is no time to abandon your investing strategy, which should be focused on the long-term.

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As we mentioned at the start, downturns typically last only about a year. Your investment horizon should be much-longer than that, and thus it’s important to stick to it even when you see daily headlines about new lows in stocks. You only ever lose money if you sell during a dip.

Be patient, and this too shall pass.

Article Sources
  1. “Signs Point to Rising Recession Risk,” Charles Schwab,
  2. "Business Cycle Dating," NBER,

About the Author


Christiana Sciaudone

Experienced reporter, writer and editor. Expert on equity investing.

Full bio

Part of Our Guide to Recessions

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