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6 Steps to Prepare Your Finances for a Recession, Experts Say

Get your finances in order, just in case a recession hits.

This week, a legendary market forecaster made a grim prediction. "I've been of the opinion that stocks — and I came out with this forecast early last year — would decline about 30% to 40% peak to trough," Gary Shilling, the president of A. Gary Shilling & Co., said during an interview on The Julia La Roche Show. "You'd have a further decline of about 30% from here to get that 40% overall decline, peak to trough," he said. "We probably do have a recession coming shortly if we're not already in it," he said, noting the inverted yield curve, weakness in leading economic indicators, and the Fed's continuing to take measures to combat inflation. "When you look at that combination of things, it's pretty hard to escape a recession," he said. There is no better time than the present to get your finances in order to prepare for the worst. "When it comes to dealing with the ups and downs of the economy, making sure your finances are on solid ground is a game-changer," Cassandra Happe, analyst at WalletHub, explains to Best Life. Here are a few practical steps you can take:

1
Build an Emergency Fund

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Happe suggests building an emergency fund. "Establish a savings buffer to cover unexpected expenses like job loss or medical emergencies," she recommends. "Strive for at least three to six months' worth of living expenses in your emergency fund."

2
Pay Down High-Interest Debt

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Paying down high interest debt now will save you big in the future. "Reduce financial stress by creating a plan to pay off high-interest debts, like credit card balances," says Happe. "Clearing such debts enhances financial stability during challenging times."

3
Review and Trim Your Budget

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When was the last time you made cuts to your budget? "Scrutinize your budget to identify areas where you can cut back on expenses. This may involve reducing dining out, canceling unnecessary subscriptions, or finding more cost-effective insurance options," she said. 

4
Boost Your Income

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Happe also suggests exploring ways you can boost your income. "Consider avenues to increase your income, such as part-time work, a side hustle, or negotiating a raise at your current job. Additional income provides financial flexibility," she notes. 

5
Diversify Investments

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Spread your investments across different asset classes, like stocks, bonds, and real estate, she says. "Diversification helps mitigate risk, although it doesn't guarantee profits or shield against market losses."

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6
Seek Professional Advice

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Finally, Happe suggests seeking the help of a professional. "If you have concerns about your financial situation, consulting a financial professional can provide tailored guidance and strategies to weather economic challenges."

Leah Groth
Leah Groth has decades of experience covering all things health, wellness and fitness related. Read more
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