11 Financial Do’s and Don’ts to Follow During a Recession

Do: Evaluate Your Budget

Your budget is one of your most powerful tools to stay in control of your money, especially during a recession. It's a good time to review and update your budget to make sure it fits your lifestyle in light of the current economy.

Here are some steps to take to ensure your budget is up to date.

• Update your income if it has changed. Include recent salary increases, money from side hustles or other regular income.
• Review your expenses. Use your bank and credit card statements to review all your spending for the past month or two.
• Look for places to cut back. Reduce nonessential expenses or spending that no longer fits your priorities.
• Adjust for upcoming risk. Consider shifting more money to emergency savings or paying down debt.

Continue to check your budget regularly and adjust as your life or the economy changes.

Learn more: How Often Should You Reevaluate Your Budget?

Do: Reduce Spending

Cut back on discretionary spending to free up money for your essentials and savings. Discretionary spending includes purchases that make your life better but you don't necessarily need, including things like:

• Travel and vacations
• Dining out and food delivery
• Streaming and subscription services
• Nonessential clothes shopping
• Entertainment and events
• Gifts and hobbies
• Books

To help, consider adopting a budgeting style that limits your discretionary spending, such as the 50/30/20 method. With this budgeting method:

• 50% of your income goes to essential expenses
• 30% to discretionary spending
• 20% to savings and debt repayment

Do: Negotiate Expenses

Some expenses, such as rent and auto loan payments, for example, are essential and can't be removed from your budget. However, certain monthly expenses may be flexible.

For example, contact your cellphone and internet providers to ask about current promotions or less expensive plans. Shop around for new auto insurance or ask for discounts if you're a student, senior, veteran or active service member.

Tip: If you're intimidated or don't have time to negotiate on your own, a service like Experian BillFixer^™ can negotiate on your behalf.

Do: Build Your Emergency Fund

During a recession, an emergency fund is a lifesaver if your income is at risk. Aim to save three to six months of essential expenses for a solid safety net.

Consider saving more if you're self-employed, a gig worker or contractor, or part of a single-income household. Without an emergency fund, you may have to dip into your retirement or borrow money to make ends meet.

If you don't have an emergency fund or you'd feel more comfortable with a bigger cushion, here are some tips for saving:

• Set a clear savings goal
• Automate your contributions
• Save windfalls like tax refunds or bonuses
• Cut back temporarily to boost savings

Learn more: How Much Money Should You Have in Your Emergency Fund?

Do: Keep Investing for Retirement

Don't pause retirement contributions out of fear. Continue investing to keep your long-term goals on track. Otherwise, if you sit out the market, your retirement growth rate slows and you could extend your retirement timeline.

By keeping your investments going, you can take advantage of the tax benefits of contributing to a traditional individual retirement account (IRA) or employer-sponsored 401(k). Plus, you'll continue receiving your employer 401(k) match if your employer offers one.

Do: Keep Some Savings Liquid

Make sure at least a portion of your cash is easily accessible by keeping your money in a high-yield savings account or money market account. That way, you can easily access it if you need to use it right away. As of January 2024, only 26% of households could cover expenses for more than six months, according to a survey from the Consumer Financial Protection Bureau (CFPB). On the other hand, 22% of respondents could cover expenses for less than two weeks.

Hard assets like real estate and jewelry have to be liquidated, which takes time. Values can also fluctuate, so you could lose money if you sell these assets during a recession.

Do: Increase Your Income

Bringing in more money can help offset rising costs or job uncertainty, especially if you're living paycheck to paycheck. Consider some ways to increase your income:

• Take online courses or get certifications to improve your skill set
• Ask for a raise or look for higher-paying opportunities
• Start a side gig or pick up freelance work

You can use the extra income to build your emergency fund or pay down debt.

Learn more: Ways to Increase Your Income

Don't: Panic-Sell Assets

Market downturns can tempt you to sell investments to avoid losses. Sticking it out for the long term can pay off and allow you to avoid paying capital gains taxes.

Historically, markets have recovered, so it's best to stay on track with your investment plan if you have several years or more until retirement. Review your portfolio to make sure you're well diversified, and rebalance if needed.

Example: Morgan Stanley found that staying invested through every recession from 1980 through February 2025 earned investors 2% more than those who pulled out during downturns and waited to reinvest. The 2% difference adds up: With $5,000 invested annually, the investor who stayed in the market ends up with $6.1 million versus $3.6 million for the one who pulled out and later reinvested.

Don't: Take on High-Interest Debt

Avoid taking on high-interest debts, especially credit card balances. Credit card debt grew to $1.16 trillion as of the third quarter of 2024, according to Experian data. At an average annual percentage rate (APR) above 22%, carrying credit card debt is expensive.

If your income drops, high-interest balances can quickly become unmanageable. Instead, it's better to pay down high-interest debt if you can and avoid adding new charges. Switch to cash or debit to keep your spending in check.

Learn more: What Is High-Interest Debt?

Don't: Make Unnecessary Purchases

Avoid splurging on big-ticket purchases that put your cash flow at risk. Large purchases often come with ongoing costs, which can increase your monthly spending at a time when you're trying to cut back.

Focus on prioritizing your needs over wants and stick with what you have unless you truly need a replacement. Some purchases you can potentially delay or skip:

• Buying a new car
• Upgrading your appliances or electronics
• Purchasing a new home
• Making nonessential home renovations
• Buying new mattresses or furniture

Learn more: Tips for Spending Money Wisely

Don't: Skip Saving

Even in a recession, saving money should remain a priority. Continue to build your emergency fund so that you're prepared for unexpected expenses. Even small, consistent contributions make a big difference over time.

Having savings you can access helps you avoid relying on credit cards or loans. Plus, knowing you have savings can help reduce stress and allow you to make confident financial decisions.

The Bottom Line

A recession can be scary, but smart planning puts you in control. Focus on the things you can control: Cut unnecessary spending, boost your savings and avoid making decisions out of panic. Scaling back may take some getting used to, but the right money moves will pay off in the long run.

It's also a good time to keep an eye on your credit score. Maintaining a good score can pay off later, helping you help you qualify for better rates once it's a good time to borrow again.