7 Ways To Prepare Your Finances for a Recession

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Are we heading into a recession?

Money expert Clark Howard has predicted that we will have some degree of recession or economic slowdown.

“Inflation is a worldwide result of the COVID-19 pandemic and the reactions governments made to it. Inflation can take on a life of its own. That’s why our Federal Reserve and other central banks are engineering economic slowdowns that they hope stop short of a recession but could lead to one.”

You might be nervous about what this means for you. What happens if your paycheck gets smaller or you lose your job?

Clark says the most important thing to remember is to stay calm and not panic.

7 Steps To Prepare Your Finances for a Recession

There are things you can do today to put yourself in a better financial situation. Accomplishing even one of the steps below will better prepare you for any financial uncertainty.

1. Create a Budget

The first thing you need to do is to create a budget.

“A lot of people are feeling out of control right now,” Clark says. “Creating and maintaining a budget is one of the best things you can do to eliminate stress about money.”

Start by calculating your income to see how much money you’re bringing in every month.

Next, list all of your expenses, including all bills, amounts and due dates. A few examples are mortgage or rent, utilities and insurance. You should also include expenses for food, gas and any recurring subscriptions such as streaming services. It may help to look at your monthly bank statements to make sure you capture everything.

Use free tools like this Google Sheets budget template to get started.

2. Make Spending Cuts

It’s crucial to spend less money than you make. Extra cash from your paycheck can go to build an emergency fund or to pay down debt.


Take a close look at every expense and analyze where each cent is going every month. Some expenses, such as food, are essential to survive. But you may be able to cut costs by changing where you shop or buying store brands.

Look at your bank statement from the last three months and identify the areas where you can cut back. Here are a few examples:

  • Cable TV and streaming services
  • Cell phone plan
  • Gym membership
  • Premium online music subscriptions

Check out Team Clark’s guide to reducing monthly expenses for more ideas to cut spending.

3. Build Your Savings

Saving money is one of the best ways to reduce financial stress. You want to make sure you’re prepared for the financial emergencies in your life. As Clark says, “‘Oops’ do happen.”

Open a high-yield savings account and start funding it with a set amount from every paycheck. While many experts recommend saving six months’ worth of living expenses, there is no quota or timeline. This is about establishing a habit of saving money. The more cash in your savings account, the better prepared you are for unexpected expenses or even a potential job loss.

Whether you’re starting at $0 or you’re already confident about your emergency fund’s balance, Clark’s step-by-step saving and investing guide can help you stay on track.

4. Pay Down Debt

Tackling debt, especially in a time of rising interest rates, is an important part of preparing for a recession and establishing financial freedom.

Gather all of your credit card statements and make a list of the balance, interest rate, minimum required payment and due date for each card.

If you can, use the extra cash from Step 2 above to reduce debts. At the very least, keep paying the minimum required payments.

This step-by-step guide can help you make a plan to get out of debt.


5. Withdraw Emergency Cash

Clark recommends that you keep cash at home in case there’s an emergency that affects our banking systems. Here’s his rule to calculate how much you need.

“Figure you need to cover three days of ‘walking around’ money,” Clark says. Whatever you would typically charge or use a debit card for over a three day period, that’s what you need to have on hand.”

Clark keeps $400 in a safe place in his home, just in case.

Before you head to the nearest ATM, check out this list to find a fee-free location.

6. Stay in the Stock Market

The stock market can be incredibly volatile, and it can be difficult not to obsess over your retirement accounts. Whether the stock market is excitingly high or terrifyingly low, Clark has this simple advice:

“Markets, even after a painful decline, eventually recover. The younger you are, the more a decline in the market ultimately makes you money down the road, because you’re buying everything on sale for what, over your working lifetime, will probably recover many times over.”

If the economy slows down and the stock market drops, do not panic. Instead, as long as you are investing for the long-term, ignore the headlines.

Are you in or near retirement? There are several things you can do to limit the impact of a low market:

  • Reduce risk in your portfolio.
  • Keep three years’ worth of expenses in a savings account or certificate of deposit (CD).
  • Work part-time instead of retiring right away.
  • Delay collecting Social Security.

7. Update Your Resume or Change Jobs

Keeping your resume updated is never a bad idea. While Clark does not predict that we’ll see massive layoffs, it’s good to be organized just in case.

“There is almost zero chance that we will experience massive waves of unemployment as we saw in 2007-2012,” Clark says. “That is almost certainly not in the cards. The only way that would happen is if something really unexpected and terrible happened in the world. In times of uncertainty, our minds go to the worst circumstances we can think about. We’re not going to anything like the job losses that happened in the recession that started 15 years ago.”

Changing jobs is a more extreme step, and it may not be the right move for everyone. But if you’ve been laid off in the past, you may be feeling more anxious right now. It’s worth noting that there are a few “recession-proof” industries, according to CNBC:

  • Healthcare
  • Government
  • Computers and information technology (IT)
  • Education

Again, it’s not likely that employers will slash workforces by extreme amounts. Updating your resume and understanding the job market is a simple way to be prepared.

Final Thoughts

Clark says that you have to prepare for the worst and hope for the best. But remember, do not panic. If you take the steps to strengthen your wallet and this turns out better than we expect, your financial life will be healthier moving forward.

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