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How to Recession-Proof Your Finances

Sitting down to review your finances is always a smart idea. Making sure you’re not overspending, that your savings are on track, and your investment strategy is sound can help keep you financially healthy. While it’s easy to do this when things are going well, it’s especially important to have a plan for when things get unpredictable—like during a potential recession.

Understanding Recession: What Is It?

A recession is defined as two consecutive quarters of negative real GDP growth, where “real” means adjusted for inflation.

  • At the time of this recording, the Atlanta Fed was projecting -2.2% GDP growth for Q1 2025.

  • If this continues into Q2 2025, we’ll officially be in a recession.

Important clarification:

  • A recession doesn’t always mean a stock market crash.

  • Of the 13 U.S. recessions since 1942:

    • 5 occurred outside of bear markets.

    • 7 spanned both bull and bear markets.

So yes, your portfolio can still grow during a recession, though often with some added volatility.

5 Strategies to Recession-Proof Your Finances

1. Adjust Your Two Levers: Income and Expenses

  • Increase income:

    • Explore side hustles, freelancing, or diversified income streams.

    • Helps avoid being too reliant on one employer or industry.

  • Reduce expenses:

    • Cancel unused subscriptions.

    • Negotiate bills like insurance or phone plans.

    • Cut back on non-essential spending (looking at you, multiple magic sets).

    Bonus Tip:

    • Cutting expenses increases savings and stretches your emergency fund.

      • E.g., cut spending by 25% → 6-month emergency fund becomes a 7.5-month fund.

      • Cut by 50% → fund could last a full year.

2. Build or Boost Your Emergency Fund

  • Your emergency fund is your first line of defense against job loss or income cuts.

  • Suggested amounts:

    • 3 months: Dual-income households or high-demand workers.

    • 6+ months: Sole earners, volatile-income workers, or retirees.

Store it in a high-yield savings account—liquid, accessible cash only.

3. Stress Test Your Financial Plan

Ask yourself:

  • Is your job or industry recession-resilient?

  • Do you have an adequate emergency fund?

  • Are your spending habits realistic for today’s economy?

Steps to Stress Test:

  • Be brutally honest about your vulnerabilities.

  • Create or review a budget.

  • Set targets for savings and emergency fund levels.

  • Continue saving and investing toward long-term goals.

4. Don’t Panic—Stick to Your Investment Plan

  • Recession ≠ Market Crash

  • Don’t obsess over daily market movements.

    • If you must check, zoom out and look at long-term growth.

Why it matters:

  • Median 1-year return after a market selloff: over 30%

  • Panic selling = locking in losses

  • Market timing rarely works

Golden Rule:

Always. Be. Buying. (ABB)

Stay invested. Stay consistent.

5. Know Thyself: Manage Emotional Responses

If this is your first recession, take note of how you’re feeling. Use it to understand:

  • How you react to volatility

  • How emotions impact your financial decisions

Recessions are normal—they happen about every 6 years. The goal is to make decisions based on your long-term plan, not short-term fear.

Final Thought

A good financial plan will carry you:

  • Before chaos

  • During volatility

  • And after the dust settles

Do this right, and you may come out the other side stronger and wealthier than before.

“Money Guy, out.” – Brian Preston

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