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How to Prepare for a Recession


Just hearing that word can cause some people to clench their teeth, clutch their chest, and run to the bank. With crazy high inflation and rising interest rates, you’ve probably heard rumblings that an economic recession is looming. 

And now the big, bad wolf is here.

So, how do you prepare to live through a recession?

Well, it’s a good idea to have your finances in order—always. But we’re here to tell you how you can be prepared and not go off the deep end. So, relax. You don’t need to build a bunker, stuff a pile of cash under your mattress, or stock up on toilet paper.

Bottom line? Don’t freak out! Here’s how you can make sure you’re prepared for a recession.

What Is a Recession?

Be honest: You were thinking it. If it’s been a hot minute since you’ve been in an economics class, we’ll get you up to speed.

The National Bureau of Economic Research says a recession happens when there’s a “significant decline in economic activity spread across the economy and lasts more than a few months.”1

Or in non-professor terms: The economy is in a funk.


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Economic growth is measured by GDP (gross domestic product), which is the total value of all the goods and services made and produced by the American economy. Normally, GDP grows little by little. Recession is just a big word to describe when GDP is negative for two quarters—or, in other words, GDP stops growing for six months.

GDP was -1.6% in the first quarter of 2022 and -0.9% for the second quarter of 2022.2 So we’ve had two negative quarters of GDP growth, which is the technical definition of a recession.

Are We Going Into a Recession?

Recessions are kind of like hurricanes. It’s hard to predict when they’ll hit and how much damage they’ll cause. But instead of downed trees and smashed houses, the damage from a recession usually looks like this: lost jobs, a tanking stock market and bankrupt businesses.

Now, you might not personally feel the effects of a mild recession (though you’ll definitely hear about them in the news 24/7). But a moderate or severe recession will definitely get your attention.

So, our two consecutive quarters of slightly negative GDP growth means we’re currently in a recession. But the numbers are very close to being positives, so it looks like this recession will be a mild one—maybe even a light rain instead of a hurricane.

America’s last recession came and went super quick in 2020 when the whole world shut down in response to the coronavirus pandemic. The National Bureau of Economic Research didn’t even wait for two quarters of negative GDP growth to declare a recession. (Yep, that bureau is responsible for telling us when we’re in a recession.)

But just like hurricanes, the key to surviving a recession is being prepared and not freaking out.

Recessions are a natural part of the economy, so it’s a given that we’ll have them from time to time. We’ve actually had 13 recessions since World War II, and the average length of each was about 10 months.3

No matter what the economy does, this economic trouble is temporary. If you’re reading this, you’ve lived through at least two recessions. And you made it! 

With that being said, it’s always good to be prepared for a recession.

How to Prepare for a Recession

With inflation up and our retirement accounts down, a recession feels more real now than ever. Having concerns right now is valid. But it’s important to not give in to all the fear out there. You should instead focus that energy on making sure your finances are where they should be.

At the end of the day, you need to have your own house in order and ready to stick it out during a recession. That’s going to matter a lot more than what’s happening on Wall Street or at the White House.

So, recession or not, our proven plan is still the same: Live on a budget, pay off debt, save for emergencies, invest for retirement, and live and give like no one else.

If You Have Debt . . .

If you have a steady job that’s secure right now, then keep working your debt snowball and paying extra on your debt just like you’ve been doing. Being debt-free will give you an overwhelming sense of freedom and peace. And when you aren’t spending most of your paycheck on debt payments, things like higher grocery prices—or a dip in the stock market—won’t hurt as much.

If you’re out of work or have a potential job loss on the horizon, go ahead and pause your debt snowball. Listen—we get it. After all your hard work, it probably hurts a little to read that, but for right now, you’ve got to prepare for a storm. Make sure you cover your Four Walls first—that’s food, utilities, shelter and transportation—and stockpile some cash. Stop paying any extra payments toward your debt, but do continue to make the minimum payments if your Four Walls are covered (so your debt doesn’t go into default). The most important thing is to take care of yourself and your family.  

And remember, no matter how scared you might feel if you lose your job, don’t take on more debt. You’re already in a rough patch, and debt is only going to make it worse and leave you in a pinch down the road. Debt is dumb—even when you’ve lost a job, even when you’re scared, and even in a recession.

If You’re Saving . . .

Keep saving! Having an emergency fund is never a bad idea. Think of it this way: If a recession did happen, you could rest easy knowing you have your emergency fund in place. Your emergency fund is the buffer you need to have between you and life all of the time, not just when there’s talk of a recession.

And right now is the time to make sure your dollars stretch even further. If you’ve been kind of, sort of budgeting all along, buckle down and give every single dollar a job to do by making a zero-based budget. Download our free budgeting tool, EveryDollar, to get started.  

If You’re Investing for Retirement . . .

When the stock market goes down, you might be tempted to sell your mutual funds at a loss and put the money into something safe to weather the storm. But hold on, take a breath, and don’t do anything out of fear. We say it time and time again: Investing is a roller coaster ride, and the only people who get hurt on a roller coaster are the ones who jump off.

Instead, wait. Ride it out. Stocks rise and fall all the time. And even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. So don’t pull your money out right now. Keep your investments where they are, and wait for the upswing to happen.

Mutual funds are basically on a huge clearance sale right now. That means if you keep investing, you’ll be investing in stocks through your mutual funds at crazy low prices. And when the market picks back up (and it will), you’ll still be on that roller coaster, smiling as you see the big returns roll in from your “clearance sale” investments.

Above all, remember that investing for retirement is a marathon, not a sprint! And don’t pull your money out just because some dude on the news told you to do it.

If you’re feeling stumped when it comes to investing, connect with a trusted SmartVestor Pro who can help you make good investment decisions and talk you through your options.

Get Your Own Personal Economy in Order 

Remember, a recession means the economy as a whole has been in a slump for six months or more. But the money decisions you make every day impact you more than what the talking heads on cable news are saying.

What have the last six months been like at your house? Think about it. Have your finances been in a recession of their own due to inflation or something else? If you’ve had a bad break, now is the time to really dig in and get serious. Use this recession as motivation to be intentional about how you handle your money now.

Maybe you don’t even know where to start. Sure, it’s easy to spot a red flag and know things need to change, but it’s hard to figure out exactly how to make it happen. So set aside three minutes to sit down and take our free assessment. Just answer a few questions about your money habits and it’ll get you started with a plan you can put into action today. You can do this!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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Get a FREE Customized Plan for Your Money! 

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