5 things to do with your money right now to prepare for a recession, according to a financial planner

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• I get asked all the time about the possibility of a recession, and I'm telling everyone to prepare.
• To start, pay off high-interest debt, bulk up your rainy-day reserves, and don't sell your investments.
• Take courses to advance in your career, too, so you're not as vulnerable to layoffs.

Many people are worried about a looming recession, and it's easy to see why. Rising inflation, spiking consumer prices, supply-chain issues, instability in the global market, and labor shortages all have many financial experts saying that another recession is around the corner. 

As a financial planner, I often get asked when the next recession is coming. While I can't exactly predict when the economy may take a turn for the worse, I can offer some good news: We're currently not in a recession, yet. 

That means now is the best possible time to prepare your money.

Here are my tips to get ahead of the tides and recession-proof your cash.  

1. Think about where to cut back 

A lot of things have gotten more expensive recently — gas, food, cars, furniture — which means now's a great time to revisit your budget and identify some areas to cut back. 

I'm a huge fan of using your budget as a living, breathing record that can be revised and changed as your needs change. The easiest items to scrap are services or purchases you can live without — think dinners out, streaming services — but that doesn't mean you need to go and cut out all the things that bring you joy. 

Deciding if something is a need or a want isn't always black and white. Some things that may seem non-essential to some people, like a gym membership, others can't live without. It's all about weighing your current priorities with your long-term goals. 

2. Start building your rainy-day reserves, if you haven't already 

Recession or not, you should have an emergency fund. These savings help you avoid borrowing money to cover unforeseen costs like repairs, medical treatments, or job loss.

If you're just starting out, I recommend having around six months' worth of expenses, including the amounts you spend on necessary items like rent, utilities, and groceries. That number may sound high at first, but small contributions over time can build those savings. 

You'll want to store your emergency money in a liquid account (like a high-yield savings account) to easily access it when you need it.

3. Pay off high-interest debt ASAP

The last thing you want to deal with during a recession is high-interest debt weighing you down. Credit-card debt should be the first to go.  

The interest rate determined by the Fed influences short-term lending like credit cards. In other words, your credit card interest rate could go up even higher, causing you to pay hundreds (or thousands) in interest. 

Once you pay off your debt, you'll have room in your budget to put towards other things, like growing your emergency fund or making up for rising consumer prices. 

4. Think about your career

Recessions historically go hand-in-hand with higher unemployment — which means preparing your career for the next downturn is essential. 

Now's a great time to reach out to your network and continue to maintain connections with others in your field. Typically, higher education comes with lower rates of unemployment — so if you've been thinking about going back to school, now may be the time. Adding new skills or bolstering your current ones could give you an edge in a future, tighter job market. 

Be sure to weigh the pros and cons of potentially forgoing a salary or taking on student loan debt to earn your degree. I would also recommend being practical about what industry you're considering. No job is completely protected from recessions, but certain industries are safer from cuts. 

5. Keep calm and carry on

Recessions can be an emotional and stressful time, especially when it comes to your investments. Watching your portfolio fall into the red can be worrisome, but it's important to avoid making a knee-jerk reaction. 

Changing your investment strategy could hurt you in the long run — the market often grows in the long term and behaves in ways you may not expect. Case in point: After falling more than 30% in March 2020, the stock market had a full rebound (and then some!). 

If you really want to take action before any future recession, I would recommend simply revisiting and rebalancing some of your investments. Having a diversified portfolio can help you minimize your losses during a volatile market. Remember: If you have an already-diversified portfolio, doubling down on your plan and focusing on the long term is one of the best things you can do for your money.  

There's no doubt that the idea of a recession can be anxiety-producing. But making a plan beforehand and taking the steps to prepare yourself can help you feel more in control of your situation and reduce some of your stress. To me, there's never a bad time to revisit your financial situation — so if you're looking for a sign, now's the time to start!

This article was originally published in May 2022.