Enter for a chance to win Christmas cash!

Skip to Main Content

How to Take Control of Your Finances in a Recession

Well, it’s official—America, we’re in a recession.

The National Bureau of Economic Research says that after 128 months (or 10 1/2 years), the longest streak of economic growth peaked back in February.1 Since then (like you probably already know), the economy has been at the mercy of COVID-19 and steadily tanked in March, April and May. After all the talk, guesses and signs that it was looming, the recession finally happened thanks to the economic strain from the pandemic.

So now what?

Here’s the deal: Recession or not, there’s no time like the present to take control of your money. If living through a pandemic wasn’t enough to light a fire underneath you, then maybe the recession will help send the message home—you need a plan for your money.

What Is a Recession?

Before we get too far here, let’s go back to economics class together and walk through what a recession actually is (a little boring, but stick with us). A recession happens when there’s a slump in growth and economic activity for at least two quarters (about six months). And although we haven’t gone through six months of fallout from the virus, the economic injury has been painful enough that they’ve already called it early on this one.

money icon

You can pay off debt faster! Get started with a FREE trial of Ramsey+.

While being in the middle of a recession is never really good news, there’s still a lot of good work you can do with your own personal finances despite what the country’s economy or Wall Street is doing. At the end of the day, you’re in control of what’s happening in your house, and that’s some good news right there! When you’ve got your money in a good place, you don’t have to live at the mercy of what the economy is doing.

Should You Pay Off Debt During a Recession?

Absolutely. The only time you should take a break from paying off your debt is when you’ve got some serious stuff going on, like you just lost your job or there’s a baby on the way. That’s what we call “storm mode”—where you’re heading into some uncharted water and need to hang on to as much cash as you can. A recession isn’t a storm that you need to stop Baby Step 2 for, sorry.

Instead, use this as even more motivation for why you need to cut debt out of your life forever. Think about the peace of mind you’d feel if you didn’t have debt in the middle of a recession. How awesome would it be to get to a place where you could invest and had the ability to make some huge returns when the economy swings back? That’s the thing about debt—it robs from your future and keeps you stuck in a rut paying for the past. So don’t waste any more time. Shake a leg and get that junk out of your life forever.

Should You Keep Saving During a Recession?

Yep. Having savings goals is never a bad idea, even during a recession. So if you’ve got a Christmas sinking fund in full force—keep it. If you’re smack-dab in the middle of saving your emergency fund—stick with it. In the middle of a recession, there’s nothing like taking a peek at your savings account and seeing some good-looking numbers staring back at you.

If you don’t have an emergency fund in place, guess what? A recession is the perfect time to get one together. This is Baby Step 1 and should be your first stop before you start paying off any debt. And if you’ve already wiped debt clean out of your life for good (amazing!), you should be saving a fully funded emergency fund of 3–6 months’ worth of expenses—we call this Baby Step 3. Having an emergency fund gives you that buffer between you and all the craziness life throws your way, like a recession or even just your A/C going on the fritz in the middle of July.

Should You Continue Investing During a Recession?

Yes, yes—a thousand percent yes. You might be tempted to pull your investments during a recession, but don’t do that. There’s no denying it. A recession stinks. It’s a downturn of the economy, and we all feel it in different ways. But if you keep investing during a recession, you’re bound to reap the benefits when the economy bounces back.

History shows us that this happens time and time again—it happened after the Great Depression and after the recession of 2008 and even after 9/11. The economy will bounce back again. But here’s the thing: Any losses you might see during a recession wouldn’t even impact you unless you take the money out of your accounts. And if you did get scared and stopped investing when things were shaky, then you’d never see the gains on those investments when things bounce back.

The moral of the story here is stay calm, stay level-headed, and stay on the investing roller coaster. Ride it out over time, and your future self will thank you. If you need extra insight (and a voice to put your mind at ease) be sure to talk with an investment pro!

A Recession Won’t Last Forever

When you hear the big, bad word recession, it might make you a little fearful that this thing is going to stick around for all eternity. And if you watch the news too much, it’ll definitely make you feel that way. Still, as unsettling as being in a recession might seem, the important thing to remember is that a recession isn’t permanent.

Even though a recession is less than ideal, we all knew this was a big possibility when life as we knew it came to a screeching halt. With things like restaurants, entertainment and travel shut down for a few months, it’s easy to see how the economy could take a beating. And—pandemic or not—the economy was bound to take a dip sometime anyway (you can’t sustain crazy growth like that without expecting it to eventually go the other way at some point).

And guess what? There are already some sparks of hope out there showing that consumer trust is on the rise. People have been cooped up for months, and a lot of them are ready to do some spending—that will help the economy. A lot of people are taking advantage of insanely low mortgage interest rates and purchasing homes right now—that will help the economy. And jobs are slowly but surely starting to come back—that will help the economy.2 The recovery might be slow, but all isn’t lost.

So remember, don’t make any knee-jerk decisions just because the country slipped into a recession because of COVID. There’s no reason to pull your stocks, head for the hills, or sell your firstborn (obviously). But if officially being in a recession has gotten your attention and made you take a hard look at how you’re handling (or not handling) money, now is the time to take matters into your own hands and do something about it.

Not sure where to begin? Signing up for a free trial of Ramsey+ is the right place to start. You’ll be able to take our flagship course, Financial Peace University, stick to your budget with EveryDollar, and track your progress with the BabySteps app as you crush your goals. And that’s just the tip of the iceberg! Sign up for Ramsey+ and get access to everything you need to win with money all in one stop.

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.

Get a FREE Customized Plan for Your Money!

Get a FREE Customized Plan for Your Money! 

Answer a few questions, and we'll create a plan tailored just for you. It only takes three minutes!
Take the Assessment

Get a FREE Customized Plan for Your Money! 

Answer a few questions, and we'll create a plan tailored just for you. It only takes three minutes!
Take the Free Assessment