How to Prepare for a Recession: A Guide to Surviving Economic Downturn

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When reading economic news these days, it is difficult not to feel anxious. More and more companies are laying off people, prices for necessities are rising, and banks are failing.

In real life, you observe more friends in your circle struggling to find new jobs or trying to keep their businesses afloat. Rows of empty storefronts are becoming more visible in large malls.

Since last year, a looming recession has been a major theme as economic activity has slowed as a result of the central banks’ interest rate hikes to battle inflation. While recessions are part of the normal cycle because an economy cannot always be on a growth path, learning how to prepare for a recession can help to weather any economic downturns.

In this article, you will learn about the optimal strategies for surviving an economic downturn, highlighting key mistakes to sidestep for a resilient, recession-proof financial plan.

Interesting Facts About Recessions

While economic downturns are undoubtedly terrifying, being aware of some key facts may help us learn how to prepare for a recession.

  • Recessions are relatively infrequent economic events. Between 1960 and 2007, the International Monetary Fund (IMF) recorded 122 recessions in 21 advanced economies.
  • While economies typically recover from recessions, they may not always return to their pre-recession growth levels.
  • The duration of recessions varies, ranging from as short as two months to as long as 18 months.
  • The U.S. recession of 2007-2009 holds the record for the longest in recent history, while the 2020 recession, triggered by the COVID-19 pandemic, was the shortest, lasting only two months.
  • Since World War II, there have been five global recessions: in 1975, 1982, 1991, 2009, and 2020.
  • The 2020 recession was particularly severe, being the most widespread and interconnected since the 2008-2009 financial crisis.

How to Prepare for a Recession: Best Tips to Protect Your Finance

Economists have predicted an approaching recession, but it is difficult to crystal-ball when it will occur and how severe it will be. This underscores the importance of the preparation for a recession to maintain financial stability and give some peace of mind during difficult times.

Hany Gungoro, the founder of Beyond Numbers, a financial consulting firm at, believes that practicing the financial discipline of saving, investing, managing spending, and debt should be the foundation for preparing for any financial downturn.

The Jakarta-based financial and career consultant told Techopedia:

“The economy may be in a recession, but you are doing well financially. On the other side, the economy may be doing well, but your finances are in a slump. However, if you have developed the habit of managing your budget, it makes no difference whether it is a good or bad time.”

Wealth management experts have shared various strategies for surviving a downturn. Let’s look at the best way to survive a recession

Improving Job & Income Security

During a recession, the biggest fear for most people is losing income, which can come from losing their jobs or, for entrepreneurs, from losing their businesses. While layoffs or business foreclosures are often beyond one’s control, there are ways to minimize the chance of losing income.

Sulad Sri Hardanto, a wealth-management expert and the founder of the Family Financial Advisor Institute in Jakarta, said:

“If you are an employee, make sure you meet the Key Performance Indicator (KPI) and avoid office conflicts because you need to protect your source of income.”

For business owners, finding innovative methods to boost sales for the company and managing capital spending, such as using social media or e-commerce, could help them weather a downturn, said Sulad.

Learning new skills could also help individuals improve their employability and move to higher-paying jobs while providing added value to companies.

Gungoro added to this narrative: “Recessions will be hard for individuals who do not have added value, for example, a warehouse manager. If you don’t want to go the extra mile, whether in your career or business, you will go bust.”

Building Up Your Emergency Fund

Every recession is different from the others. Some can last for more than a year, while others only last a few months. Consequently, it’s important to increase the cushion for emergencies because you never know how long you will have rainy days.

Savings accumulated during the COVID-19 pandemic helped households in the U.S. go through economic downturns post-pandemic.

United States Personal Savings Rate
Trading Economics | US Bureau of Economic Analysis

The rule of thumb is that an emergency fund should cover three to six months of essential expenses, depending on the individual situation.

Sulad explained:

“It depends on whether you are single or have children and whether you own or rent your home. If you’re married with children or rent your home, your emergency funds should last for a longer period of time.”

However, saving even the bare minimum to cover three months of essential expenses might be challenging. Furthermore, it is more common than not for people to save whatever is left over from their income rather than setting a target amount to save for their war chest.

Hany Gungoro of Beyond Numbers suggests reversing the order of allocating income by prioritizing saving, followed by investing and then meeting basic needs. The sequence can also start with saving, then meeting basic or essential needs, and then investing. Either way, saving should top the list.

Having more cash in hand is the best way to survive a recession, said Sulad of the FFA Institute.

“Whenever you make a bit of extra cash, it’s better to add to your savings than invest it.”

Putting Emergency Funds in a Different Basket

Save your emergency funds in assets that are easy to liquidate while still providing a better rate than traditional savings accounts.

Sulad advises investing in time deposits or gold, which can provide a hedge against recession.

Managing Your Spending Wisely

It is strongly advised to organize your spending priorities at any time, whether there is a recession or not. Yes, it is following the rule of knowing when to spend money on what you need or want.

Look at your monthly expenses and tick off what goods and services you absolutely must have and which ones you can skip.

Gungoro suggests creating a plan or a budget to help you keep track of your spending:

“You can use Excel sheets, PowerPoint, or just old-fashioned budget notes—anything that works for you to control your budget.”

Managing Your Debts

People may struggle to pay their debts during a recession, either because they lose their jobs or because of high-interest rates as a result of central bank monetary tightening. When the economy or personal financial situation is good, it is always a good idea to gradually reduce debt in preparation for a recession.

Sulad of the Family Financial Advisor (FFA) Institute recommends going over all debts and mapping out debts based on their interest rates and tenors.

“Sort your debts into those with the lowest and highest interest rates. You should also consider which debts have the longest or shortest tenor. Once you map it out, you can see which ones must be paid off first.”

If you can’t pay your debts because of the recession, you can talk to your bank about refinancing. When talking to the bank fails, it is best to contact a financial service authority and ask them to serve as a mediator with the bank.

In the worst-case scenario, if you still have assets, Beyond Number’s Gungoro recommends selling them to pay off your debts.

Managing Your Investment

Take stock of your investments to see whether you have assets that can be cashed out quickly during a recession.

“Sometimes, we open a savings account, purchase unit-linked insurance or a mutual fund, and then completely forget about them. We can create a list of assets that are ready to sell in the event of a recession,” said Sulad.

Gungoro has a tip on how to minimize losses on investment during a recession: invest in assets that we know best.

“Before we decide to invest in an asset, whether it’s stocks, forex, or something else, we should ask ourselves: do we have the knowledge? Learn about the assets in which you want to invest if you don’t already know about them. People who have a good understanding of their investment run it well at any time, good or bad.”

Risks and return on investment are also important factors to consider. How much risk of loss are we willing to put up in comparison to the return on investment?

Mistakes to Avoid During a Recession

During difficult times, we frequently allow emotion to get the best of us, leading us to make counterproductive decisions. We can prevent this by learning what mistakes to avoid during a recession.

Taking Up New Loans

Getting new loans may help to plug any deficits for a short time, but the accumulating interest costs will become burdensome as debts will eat into our assets. The last thing we want is to have more debt than income during uncertain times.

“If you must obtain new loans, make sure that you have paid off your existing bills,” said Sulad.

Not Sticking to Your Investment Plan

Stock markets tend to trend down during a recession. More often than not, seeing a drop in our stock investments causes us to panic.

However, if you own equities with strong fundamentals, stay on them rather than selling them quickly to avoid suffering additional losses.

Markets constantly rise and fall, so you may want to hold onto your investments when markets swing back up.

Not Being Cautious

Think thoroughly before starting a new business or changing jobs during a recession. For business owners, generating fresh and unique variations of existing products is more advisable than starting a whole new business.

“Whether it’s a good or bad time to change jobs or start a business, you need to have the right reasons. Don’t quit for the wrong reason; instead, start on a new adventure for the right reason,” Gungoro said.

Learn More About Recessions

What is a Recession?

A recession is generally understood as a broad and prolonged decline in economic activity in a region or country. However, most economists agree that a country or region is in recession when its real gross domestic product (GDP) falls for two consecutive quarters. The International Monetary Fund (IMF) adds that a recession is typically defined as a 2% drop in GDP.

The National Bureau of Economic Research (NBER), a private, non-partisan organization that tracks U.S. recessions, defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months. It affects personal income, employment, industrial production, retail sales, and consumption expenditures.”

Many factors, including external ones, can cause recessions. The COVID-19 pandemic in 2020, when lockdowns virtually halted global economic activity, is one such example

A fallout in a certain sector of an economy can also lead to a recession. For instance, the Great Recession in the global economy from 2007 to 2009 was driven by the collapse of the housing market in the U.S.

Monetary tightening to combat runaway inflation may potentially trigger a recession when corporations and individuals reduce their business activity due to inflated borrowing costs. This is what is currently happening.

What Happens During a Recession?

During a recession, businesses tend to reduce output or slow their activities due to soft consumer demand and to reduce costs if rising raw material prices contribute to the recession. Reduced industrial output may restrict exports, which will have a negative impact on the larger economy due to the loss of potential foreign exchange revenue.

Unemployment could be on the rise because companies may lay off workers or even close their businesses. The loss of jobs subsequently weakens consumer spending because people will cut spending on non-essential goods and services.

Markets may tumble as investors who are afraid of the potential losses in their portfolios start selling their assets.

Are We Going Into a Recession Right Now?

Over the past year, economists have floated projections about the likelihood of a recession. However, recent forecasts show that the global economy is likely to avoid recessions, although growth may slow further owing to the high-interest rate environment and subdued growth in two major economies, the United States and China.

The Conference Board, a global non-profit think tank, in its economic outlook released on 18 October:

“Global economic growth is moderating, weighed down by the continued effects of high inflation and monetary policy tightening. A global recession is unlikely, but more subdued economic growth is expected over the next year.”

It projected the global real GDP growth to narrow from 3.3% in 2022 to 2.9% in 2023 to 2.5% in 2024. Over the next decade, the global economy’s growth was expected at 2.5% annually.

Global Economic Growth Rate Chart

However, the group expected the U.S. economy to experience a short and mild recession in the first six months of 2024 as economic weakness intensified as a result of the Federal Reserve’s continued interest rate-rise policy.

IMF’s latest projections also see global economic growth slow to 3% this year and 2.9% in 2024 from 3.5% in 2022. However, the Fund did not forecast any recession likelihood.

The Bottom Line

If you know how to prepare for a recession, an economic downturn does not have to be disastrous for your finances.

Exercising money discipline by ensuring you have a steady source of income, saving for emergencies, paying off debts, and investing sensibly will help you go through any financial slump, not just a recession


How Long Can a Recession Last?

Are We in a Recession Now?

What Are the Best Investments During a Recession?

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Fitri Wulandari
Financial Journalist
Fitri Wulandari
Financial Journalist

Fitri has over 20 years of experience in financial journalism. She has contributed to various international media outlets, including Dow Jones Newswires, Bloomberg, and Reuters, before joining Techopedia. She spent the first 15 years of her career covering commodity and energy news, later transitioning to general financial writing. These days, she conducts interviews with industry players and analysts and reports on international conferences. Fitri holds a degree in International Relations, supporting her expertise in financial journalism. She occasionally serves as a guest trainer for journalistic training and as a moderator for panel discussions.