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Make no mistake about it, a recession is here. While we do not know how long or painful it will be, we do know that it has the potential to be the worst financial crisis any of us have ever lived through. The stock market has lost more than 20% in the last 10 trading days. Retirees and those nearing retirement have seen their nest egg eroded, some by 30% or more. And the banking system is under severe stress in the United States and globally. That’s the bad news. Now for some good news.

There are steps we can take now to better prepare us for potentially difficult financial times ahead. There is no silver bullet that can insulate us from any financial crisis, of course. But there are some basic things we can do to make sure we are as ready as we can be to weather the coming financial storm. My family and I are implementing many of these suggestions, which I’ll share with you now. I’ve organized these suggestions into three categories: (1) Income, (2) Expenses, and (3) Savings and Investing. But before we get to these categories, there is one overarching reality we must come to terms with–

Don’t Panic: I am simply amazed at the panic selling on Wall Street that we have seen in the last week or so. We read book after book that tells us that selling out of fear is the worst thing one can do, but we do it anyway. People are afraid. I’m not immune to fear myself. But you can be afraid without panicking. If there was ever a time for clear, rationale decision making, it’s now.

Protect Your Income During a Recession

1. Protect Your Job: In a recession, for most people keeping your job should be the number one priority. This may mean putting in a few extra hours, working a little harder, and improving your skill set. Those that stay employed during a recession generally weather the storm just fine. While the unemployment rate is still relatively low, it is very likely to go up. And the last thing you want is to be looking for a job with an unemployment rate of 8%, 10% or even higher.

2. Be Ready For Layoffs: While we should do everything we can to keep our jobs, some number layoffs are inevitable. And they may happen to me; they may happen to you. No matter how secure you think your job is, be ready for the unthinkable. This means having your resume updated, knowing what friends and colleagues you’d contact for job opportunities, and knowing where you would apply for a job. Some time ago I published an article with some tips and online resources on what to do if you lose your job. It’s worth checking out.

3. Earn Extra Money: I’ve long preached the benefits of earning a second income. I make extra money blogging, but that’s just one of many, many ways. The beauty of extra income is that it goes right to the bottom line. If you need $5,000 a month to live on, even $1,000 a month in extra income extends your emergency fund by 20%. It can make a huge difference if you ever lose your job. Here are some ways you can earn extra money.

Reduce Your Expenses During a Recession

1. Evaluate Your Mortgage: One of the positive elements of our current financial crisis is that interest rates are low. I’m old enough to remember the late 70’s and early 80’s when we had double-digit inflation and interest rates. Today, interest rates are still at historic lows. If you have an adjustable rate mortgage, it’s time to see if you can refinance to a fixed rate loan. Notwithstanding what we all hear on TV or read in the papers, those with good credit can still get mortgages. I know this won’t apply to everybody, but if you can lock in a low, fixed rate mortgage, you eliminate the risk of rising interest rates.

2. Refinance high interest credit cards: If you are paying high interest rates on credit cards, consider moving the balances over to a 0% APR balance transfer card or a low interest credit card. When considering this option, keep in mind three things:

  • The interest rate after the introductory offer: Zero percent introductory rates do not last forever, so make sure you know what the interest rate will be once the 0% expires. You don’t want to end up in a worse situation than when you started.
  • Balance transfer fees: Today, virtually all balance transfer credit card offers charge a fee for the transfer. Typical is 3% of the amount transferred, but many offers cap the fee at either $75 or $90. Make sure to avoid unlimited fees if at all possible.
  • Don’t use the card for anything else: One of the big gotchas of credit card balance transfers is that if you use the card for purchases in addition to the balance transfer, your purchases usually get charged interest. The problem is that any extra payment you may make will go to your 0% balance first, not the portion that is being hit with interest. Currently pending credit card reform legislation would change this practice. But for now, don’t use your balance transfer cards for any other purchases if at all possible.

3. Reduce Spending: This is obvious, but it is important to recognize that there are many ways to cut spending. Did you know that most internet services come with different internet speed options? I switched to a slower speed, saved $10 a month, and have not noticed the change. There are literally thousands of ways to save money. Pick those that work for you, and start saving now. As part of this, seriously consider a cash back credit card. If you pay off your balance every month, these cards are a great way to reduce your expenses by getting as much as 5% or more back on your purchases. One of my favorite cash back cards is the Discover More Card, a Consumer Reports pick.

Saving and Investing During a Recession

1. Don’t stop saving for retirement: I have not changed one thing about my investments during the market decline. I’ve not sold any of my investments. I’ve not reduced the amount of my 401(k) contributions. As Warren Buffett would say, I’m trying to be “greedy when others are fearful.” I won’t kid you; it ain’t easy keeping my money in the market during a free fall. But I am convinced that what we do with our investments now and in the immediate future will dictate more than anything else how much we have at retirement. Of course, I have 25 years before retirement. Your situation may be different. But selling out of fear is a sure way to lose buckets of money. Whether you invest in a 401k or IRA, or even an SEP IRA, keep investing.

2. Rethink your emergency fund: It is more important now than every to have an emergency fund. How much is always the question. I think 6 months is reasonable, but it depends on many factors. If you are married, do you both work? If so, you might get by with 3 to 4 months. Do you have assets you can sell if you had to? We have two cars paid off and could sell one if necessary. Whatever your situation, building up your emergency fund is critical, and I would keep it in a high yield FDIC insured online savings account.

3. Don’t rely on a home equity line of credit: This point is critical. You may have available credit on your home equity, but did you know the bank can eliminate that credit? Go find your home equity line agreement, and you will see that if the value of your home falls or your financial situation changes, the bank can reduce the amount of your available credit.

In the end, our motto should be this, hope for the best, but prepare for the worst. A-men.

If you have any other suggestions for preparing for the worst, please leave a comment.

Author Bio

Total Articles: 1081
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

Matthew says:

Despite all the scary news and stats about layoffs, there are still millions of jobs posted on employment sites…

http://www.linkedin.com (networking)
http://www.indeed.com (aggregated listings)
http://www.realmatch.com (matches you to jobs)

Good luck to those looking for work.

JM says:

hmmm. So these are recession tips? Sounds like standard operating procedure to me. I guess by that logic I have always been in a recession. I pity the fool who is just getting into 0% credit cards, reduced spending, and emergency funds this late in the game. I pity him.

Hey, question for you: What about debt during a recession? Is it better to save aggressively, or pay debt down aggressively in a recession? On the one hand, if there is inflation and you manage to keep your job and wages don’t stagnate, don’t you end up paying back less (assuming your rates are fixed) in the end? But on the other hand, if you are at risk of losing your job, it would be better to have savings. You can always default on your debt and just not have credit for 7 years. This would be preferable to not eating.

Froogirl says:

Re 401k contributions: My husband and I each contribute the full 15% to our 40ks. I’d been considering reducing the amount to have the additional liquidity coming in next year. His argument is that much of that would be paid out in taxes. I’m assuming that given where the market is right now we’re picking up many more shares while contributing the same amount of money and this will pay off in the long haul. Still, the idea of more cash coming in is appealing.


DR says:

Froogirl, while every situation is different, I believe in putting as much in 401ks as you can. The tax benefits are just too good to pass up. That being said, an emergency fund outside of a 401k is critical. So if you have no cash, I would do everything I could to remedy that as quickly as possible.

I certainly plan to reduce spending. Somehow, it just doesn’t make sense to be out blowing money these days. From today’s figures on consumer spending, it looks like a lot of us feel that way!

SavingDiva says:

What do you think about purchasing a home during a recession?

DR says:

SavingDiva, purchasing any asset when prices are depressed can be very profitable, provided you have the cash flow to pay for it. I purchased an investment home just a few months ago, and it should do very well.

StarL says:

Thanks for all these sensible tips. They are all very helpful, not only during a recession per se. I also think they make awesome guidelines in living a better financial lifestyle.


KCLau says:

I think the most important thing to focus on during a recession is to take the opportunity to make a significant gain from investment. Almost everything is on cheap sale. And there are less bidders compared to the good time!

DR says:

KCLau, so true! It’s true for both stocks and real estate, and we’ve bought both in the last 6 months.

az says:

these are great tips on how to survive a recession and i guess any normal individual would do so automatically or rather be forced to adopt these tips due to the circumstances around.

in this financial crunch i have lost my entire business, made heavy losses, come under heavy debt (about 625,000 usd) and have demanding and pressuring creditors on my back asking of repayments along with interests (which i dont know where to pay from). i have no job, rather i tried and could not get any job so far for a simple reason ‘markets are slow, business is down so we cant hire you at the moment). i have no assets as whatsoever i had i sold and paid my debts. in short i have no income, no financial support from anywhere, no assets… but have load of debts to pay on urgent basis as the creditors either want money back or want me behind bars.

how would you recommend surviving out of this situation because the only solution is to make money as fast as possible, re-pay debts and re-order my-self. i have tried negotating to gain time as well by pleading losses but all failed and now virtually a do or die situation has arised.

John says:


down ward jones says:

Everyone needs to help each other 1.start buy helping a friend fix something broken if you know how to, in exchange for food or shelter or cash .2. EAT, SLEEP, HELP OTHERS TRADE FOR CASH PAID OFF DEBIT( is this not how we all started) and besides if your laid off you now have all the time you dreamed of to make new friends by helping out.And all the movie stars with extra cash set up a contact number for those in need in exchange for help around the mansion. peace love all of ya .cheer up lifes short enjoy it while you can.

Don Sabatini says:

Wow, nice tips, thanks.

AMAKA says:

i need more lines oh how to earn more! and also i need a place to meet working class people and investment people.

Todd D says:

Thanks a for a great article
I would also like to suggest,
Check out the local classifieds on the web,
for example http://www.americanlisted.com/

Sell stuff that you do not use any more
Find almost new stuff, for almost half the price, everything from bricks, tiles, furniture, kitchens, cars, bikes, ipods and so on, you will be amazed on what you could find

SavvyTom says:

You’re so right Todd, I’ve got so many things in my storage room and been about to post many ads but haven’t got around to it yet. Was it easy to get your stuff sold through americanlisted ???

T. River says:

Yey on reduce debt, stay strong on investments esp. w/ devalued bargain prices. But, I think the reality of x-amount of ’emergency savings’ although an advocate of; is impractical for most.

Honey Kapoor says:

Don’t u think recession was opportunist for many people.???

Equity Tips says:

Thanx buddy for giving tips for saving our money

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share tips says:

Thanks for sharing,great article and helpful tips. It is nice to see that people still take the time to teach others by offering free advice and information.

Rachana says:

Well in recession or no recession every thing effects only the common people rich people are always in profit this s my conclusion. Thanks for sharing such information.

Share Tips says:

great advice and superb article

Nice Blog!! and Superb information You shared

Madhuri says:

Great tips to save our income during Recession, very well described with proper example.Thanks


What do you think about purchasing a home