How To Recession-Proof Your Budget

Man with pencil looking at notebook with budget

The Balance / Alice Morgan

Key Takeaways

  • Recession-proofing your budget means strategizing and managing your spending in a way that creates a financial buffer, so that when times get tough you can pay all your bills. 
  • Make sure you have an up-to-date budget and are tracking your spending regularly.
  • Before a recession hits, make sure you review your budget, build your emergency fund, pay off debt, and consider a second source of income. 
  • During a recession you may need to cut unnecessary expenses, negotiate with service providers and creditors, and seek government or community resources for help. 
  • Focusing on the things you can control and taking action can help you lower your stress when hard times loom or hit.

How a Recession Impacts Your Budget

Recessions typically impact the economy on multiple fronts. For example, during the Great Depression that began in 1929, the unemployment rate went up to 25%, leaving 15 million people out of work. People lost $140 billion because of bank closures, and the stock market dropped 90% by 1933.

On an individual level, a recession can cause you to lose your job and not be able to meet your financial obligations. But it affects people in different ways, depending on income level, spending habits, family structure, and geographic location. Some groups such as women of color, minimum wage workers, and families with dependents tend to be more vulnerable during recessions. 

“Those already in a precarious position—working in low-paying jobs that prevent them from saving enough money to fall back on in hard times—might be forced into debt by a recession,” Levon L. Galstyan, a certified public accountant (CPA) working with Oak View Law Group, wrote to The Balance in an email interview. 

“Those who are paying off a mortgage on their homes may fall behind on payments, while those who have never owned a home may have to wait a little longer to be able to afford one.”

Fortunately, there are ways to financially prepare yourself for a financial downturn.

What To Do Before a Recession

Make sure you have a budget, or review and update your current budget. You'll also want to build or maintain an emergency fund, pay down debt, and prepare for a potential loss of income by networking or finding additional income sources to fall back on.


Let’s back up for a minute. If you don’t already have a budget, the first step in preparing for a recession is to create one. This involves tracking your income and expenses and identifying areas where you can cut back or save money.

“It does not matter which budget system or app you use, but you need to know what you can and cannot spend money on,” Jay Zigmont, certified financial planner (CFP) and founder of Childfree Wealth, wrote in an email to The Balance.

If you already have a budget, make sure it’s up to date—you’ve included your current monthly income and expenses.

Build an Emergency Fund

If you don’t already have an emergency fund, this is one of the most important ways you can prepare for hard times. 

“During economic downturns, there is a very real risk of being laid off as businesses tighten their budgets,” Galstyan said. 

If you’re an hourly worker or a freelance worker you might end up with fewer hours or fewer clients. Ideally, an emergency fund should be big enough to cover your basic needs for three to six months while you look for more work. These savings can allow you to avoid getting into debt to pay your bills.

"You can avoid long-term effects from a brief job loss if you have a sizable emergency fund,” Galstyan said. 

Reduce or Pay Down Debt

High levels of debt are usually a source of strain on a budget, since you have to keep paying debt, even if you lose your job. If you don’t, you’ll damage your credit and risk facing legal consequences. 

That’s why it’s crucial to pay off or at least reduce your debt before a recession. If you can, devote more of your budget each month to lowering your balances before times get tough.


If you’re worried about losing your job, having your hours reduced, or losing clients, develop or maintain professional connections to make sure you won’t be out of work for very long. 

Find an Additional Source of Income

Having an extra way to earn money can help lower your stress and build your resilience for hardships you might face during a downturn. This could include taking on a part-time job, freelancing on the weekend, coming up with a business that earns you passive income, or investing in stocks that pay dividends. If you lose your main source of income, your side income can help you get by. 

“Having a second source of income during hard times can mean the difference between sleeping soundly and worrying about money all night long,” Galstyan said.

What To Do During a Recession

You'll want to look for ways to trim your budget by cutting out non-essential expenses and finding lower-cost alternatives when you can. You might also want to find ways to make additional income, like selling household goods.

“Focus on needs versus wants,” Zigmont, the CFP, said. “For example, groceries are needs, while eating out is a want.”

Look for Discounts and Payment Plans

Look for coupons and discounts on groceries, clothing, and other items you need to buy. 

“Whether it's for utilities, phone service, cable, internet, or auto insurance, calling monthly service providers to negotiate bills can yield sizable savings,” Galstyan said. 

Some providers offer deals for new customers, so consider switching to save money. You may also be able to lower ongoing bills by signing up for a different plan or agreeing to paperless billing.

If that isn’t enough, you may be able to ask for a payment plan for certain kinds of expenses, such as utilities, medical bills, or credit card bills. Providers usually won’t let you off the hook for what you owe, but you may be able to spread out payments over a longer period, which can help cut your monthly expenses until you’re on your feet again.


A credit counselor from a nonprofit counseling agency may be able to help you negotiate with creditors and find ways to revamp your budget so it works for you. Look for one that is accredited by the National Foundation for Credit Counselors or the Financial Counseling Association of America (FCAA)

Use 0% APR Cards

If you’re out of savings, or you just want to make sure you can stretch them until you get a new job, you might want to get a credit card with an introductory annual percentage rate of 0%. These cards allow you to run up debt without paying interest for a promotional period (typically six months to a year, but some deals run as long as 21 months). 

Just make sure you pay off everything before the promo period ends.


You’ll need a good credit score to qualify for the best 0% APR credit card deals. 

Apply for Government or Community Aid

If you’ve lost your job and you’re eligible for unemployment benefits, apply through your state office, which should also have resources to help you find a job. Other government or community programs can provide food aid and emergency assistance for utilities, rent, and prescriptions. 

What To Tell Yourself If Things Get Bad

You can do everything right and still face financial hardship during a recession. Try  to avoid panicking. Acting out of fear can lead you to make poor decisions and make your situation worse.

“Focus on what you can control,” Zigmont said. “If you lose your job, pick up some part-time or gig work the next day.”

What’s most important is that you keep moving forward financially. Reduce expenses where you can and try to get a new job or pick up extra work. Even if it takes longer than you want, progress is the most important thing.

Frequently Asked Questions (FAQs)

How do you budget during a recession?

You can budget for a recession by reviewing your current expenses and seeing where you can cut costs. That can include reducing non-essential expenses, like canceling subscriptions and taking on extra work to pay the bills.

How should I prepare for a recession?

You can prepare for a recession by building an emergency fund, paying off debts, and creating multiple revenue streams in case you lose your job. 

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. New Jersey Office of Emergency Management. “Economic Collapse,” Section 5.17-2.

  2. Living History Farm. “Bank Failures.”

  3. Federal Reserve Bank of St. Louis. “How Bad Was the Great Depression? Gauging the Economic Impact.”

  4. Institute for New Economic Thinking. “US Employment Inequality in the Great Recession and the COVID-19 Pandemic.”

  5. Brookings. “The Pandemic Hurt Low-Wage Workers the Most—And So Far, the Recovery Has Helped Them the Least.”

  6. Oak View Law Group. “Levon L. Galstyan, CPA (Certified Public Accountant).”

  7. Childfree Wealth. “About Childfree Wealth.”

  8. Compare Credit. “Wells Fargo Reflect Card Review.”

  9. MIT News. “Stress Can Lead to Risky Decisions.”

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