6 Ways to Recession-Proof Your Finances in 2025
A recession may be on the horizon.
Uncertainty surrounding President Donald Trump’s tariffs is creating chaos in the stock market. Inflation is on the rise again. And consumer confidence is tanking, reflected in spending trends.
Investors and everyday Americans are holding their breath. After all, a recession could mean more job cuts and tough times for people already struggling to make ends meet.
No one knows what the future holds, but there are steps you can take today to shield your finances from the brunt of an economic downturn.
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How to Recession-Proof Your Finances
Having an emergency fund, good credit, several sources of income and a diversified investment portfolio are all good places to start.
Here are seven things you can do to further safeguard your finances if a recession is on the horizon.
1. Pay Down High Interest Credit Card Debt
It’s getting more expensive to carry credit card debt.
Credit card interest rates are averaging over 24% these days, and while it’s expected the Fed will cut interest rates later this year, it just makes sense to get rid of as much credit card debt as you can ASAP.
Paying off your credit cards now will also free up money in the future — money that will get you through hard times.
2. Get Ready for the Job Market
When the economy slows down, the job market gets more competitive.
No longer will recruiters be reaching out to you on LinkedIn. You’ll need to hustle and brush up on your professional skills to stand out in a competitive job market.
It’s smart to start increasing your value now, before a recession hits. Look for training and education opportunities your current employer will pay for.
Showing initiative can help you retain your current position and add some job security during uncertain times.
Now is also a good time to dust off your resume, tidy up your LinkedIn profile and start exploring networking opportunities. If a wave of layoffs impacts your company, you’ll have a leg up on your peers.
3. Beef Up Your Emergency Fund
If the economy goes south, a little cushion in your savings account can keep you afloat. (And make more money for you in a high-yield savings account, thanks to hight interest rates.)
The golden rule is to save up about six months’ worth of expenses in an emergency savings fund.
Let’s say your expenses (rent, bills, food, etc.) average around $3,000 a month.
By this golden rule, you should have about $18,000 saved in a cash account, like a savings account.
If it feels intimidating to save six months worth of expenses, start by creating smaller goals. Focus on saving $500 and build from there.
And remember: While three to six months of expenses is the standard, your personal goals and needs can vary depending on your situation.
4. Earn Extra Money
Earning extra income is the smartest way to protect yourself from a recession.
Spinning up a side hustle, taking on a part-time job or getting overtime hours in at work can take pressure off your bank account and prevent you from incurring debt.
If you lose your job during the recession, you’ll at least have another way to make money, even if it’s temporary.
Even selling things online — maybe those vintage Pokemon cards or your grandma’s old dishes — can give your emergency fund the little boost it needs to pull you through a recession.
5. Don’t Panic Sell Inside Your 401(k)
Stocks have taken a hit in 2025. It feels scary, but don’t panic.
During a recession, too many investors get spooked and sell off their assets early. Remember: Losses inside your portfolio only become real once you sell. And recessions don’t last forever.
If you’re still years — or even decades — away from retirement, a bear market isn’t a bad thing. In fact, it can be a great buying opportunity because you can purchase assets at lower prices.
Buying low so you can sell high makes sense. So does holding on to stocks for the long run.
Over time, buying stocks or exchange traded funds (ETF) at a slow and steady pace tends to fetch better returns than trying to time the market.
It’s known as dollar cost averaging. You decide how much you’re willing to invest and you invest the same amount in fixed intervals (i.e., $200 a month), no matter how the market is performing.
The absolute worst thing you can do during a recession, according to experts, is make impulsive decisions with your portfolio, like selling off a big chunk of your 401(k).
“If you feel yourself wanting to change your portfolio around because of an impending recession, you should really consider whether you are taking the appropriate amount of risk,” said Erik Goodge, a certified financial planner and president of uVest Advisory Group.
“Ideally, you should come up with an asset allocation that you are comfortable with during both bull and bear markets,” Goodge said.
Simply put, a bull market is when stock prices go up at least 20% after declining. A bear market happens when stocks drop at least 20% from a recent high.
6. Speak With a Financial Advisor
If you’re nearing retirement, speaking with a financial advisor is a smart move to make before a recession.
A certified financial planner (CFP) can give you unbiased advice about all your unique financial goals, including how to rebalance your portfolio to minimize your exposure and risk.
A financial advisor can also help you create a successful drawdown strategy, so you aren’t forced to sell when assets inside your 401(k) or IRA are low.
After all, you’ll need enough money in liquid, low-risk investments to allow time for the stocks in your portfolio to recover.
Navigating retirement is tricky but a CFP can supply the personalized advice you need to make the best decisions for your situation.
It may seem counterintuitive to pay someone money to give you financial advice — but hiring a financial planner can save you lots of money in the long run.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
