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Financial Moves to Make in a Recession

A recession, which the United States officially entered in February, according to the National Bureau of Economic Research (NBER), can have a huge impact on your personal finances. The NBER defines a recession as a significant decline in economic activity spread across the economy. This is usually visible in production, employment, and other indicators, according to the NBER.

From February to May, more than 2 million small businesses closed, according to information from the NBER, and 40 percent of students enrolled in higher education have lost a job, internship, or job offer as a result of COVID-19. With COVID-19’s spread showing no signs of slowing and several business restrictions in place to slow the virus, what should you do to prepare in a time of economic uncertainty?

In a Feb. 4, 2020, Business Insider article, Financial Planner Brian Face advised preparing for a recession before it hits, by saving more when times are good. He suggested opening a high yield savings account, which has higher interest rates than traditional savings accounts.

If a household has trouble saving, Face suggested putting savings into an account other than their primary bank, so they will not see the money daily and are less tempted to spend the funds., a consumer financial education website, urged people to save for up to one year of expenses if they anticipate a recession. Ideally, they should have about $18,000 in easily accessible savings accounts. This is because during a recession people are often unemployed for longer periods. During the Great Recession, on average, people were unemployed for up to one year or more, according to

Those who are unable to save money on their current salary might want to consider a side hustle or second job. Having multiple streams of income can also help you in a recession if you unexpectedly lose your job or have your hours reduced. A June 2019 Bankrate survey of 2,550 adults found about 43 percent of households earning at least $80,000 per year have a side hustle, and 30 percent of Americans with a side hustle reported needing the extra income to cover the cost of living expenses.

Information from also suggested paying off credit card debt during a recession. Consumers should aim to maintain zero balances from month to month. Particularly during a recession, excess credit card debt and the interest it accrues can make finances much more stressful in the event of a job loss.

Those with credit card debt can explore debt reduction and relief options, such as a credit card balance transfer, a debt management program, or an unsecured personal debt consolidation loan.

If your credit cards are paid off, work towards reducing or paying off your student loan debt. Refinancing your student loans or enrolling in a federal student loan repayment plan may help you pay them off, according to

A period of recession is also time to trim the fat from the budget. A June 2020 article on the Bankrate website, a consumer financial services company, recommended looking through your budget and choosing which unnecessary purchases you can reduce or eliminate. Start by canceling subscription services or cutting back on takeout.

Those with investments or retirement accounts should also remember to keep things in perspective during a recession and to take a long-term approach to their financial plan. Although a turbulent or bear market can be intimidating, a recession can be a great time to purchase investments. People who are close to retirement age should consider having a few years of withdrawals available in cash.

While people should not dramatically change their investment or retirement plans solely because of a recession, this can be a good time to identify your risk tolerance. You can work with a financial advisor or utilize online resources to determine how much risk you are willing or can tolerate in your investments.

Pursuing further educational opportunities and career training can also help guard against job loss in a recession. According to the Bankrate article, the unemployment rate for those with a bachelor’s degree is much lower than those who have a high school education or less during a recession.

Regardless of whether it’s a bull or bear market, many experts advise preparing your finances as best you can for a financial emergency; whether that’s an unexpected medical expense, a job loss, or a recession.


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