Want to boost your credit score? Join the waitlist for a new Cushion offering coming soon!

How to Prepare for a Recession

A recession, albeit financially and emotionally draining, is a normal part of the economic cycle. In fact, there have been 12 economic recessions since World War II, with the most recent being in 2020. The COVID-19 pandemic ushered in a short period of economic decline that had far-reaching financial and economic consequences for consumers, businesses, and most countries around the world. If the past few years have taught us anything, it’s that we need to be prepared for anything. Here is how to prepare for a recession so your personal finances don’t suffer. 

What Is a Recession? 

An economic recession is a period of negative GDP growth that affects a specific region or entire country for an extended period of time. Economic growth is measured by GDP, or gross domestic product. GDP is the total value of goods and services produced in a region or country at a given time. If GDP drops for a quarter of a year (three months) or more, that means economic growth is in decline, and the region or country may be in or near a recession. 

During a recession, a number of things can occur: 

  • Real GDP declines
  • Job loss increases
  • Real income (income adjusted for inflation) decreases
  • Industrial production and wholesale-retail sales drop
  • Interest rates rise
  • Businesses and banks fail
  • Asset prices plummet
  • The stock market fluctuates

Are We In a Recession? 

As of May 26, 2022, the U.S. is not currently in a recession. However, economic research and reports by the SEC indicate that the country could be headed for one. 

The U.S. economy bounced back from mass unemployment and shutdowns brought on by the COVID-19 pandemic. However, inflation, rising interest rates, turbulence in the stock market, and increased government spending could foreshadow a recession in the coming months. 

Close up of couple paying bills and managing their finances.

How to Prepare for a Recession

The key for how to prepare for a recession: Don’t panic. When everyone panics and rushes to the bank to withdraw their cash for a rainy day, it only intensifies a recession. 

The best thing that you can do to prepare for a recession is to focus on your own financial health.

  • Assess your financial situation
  • Develop a budget
  • Contribute to your emergency fund
  • Pay down high-interest debt

Assess your financial situation

Don’t wait for a recession to start to ask yourself the difficult questions. 

  • How much cash do you have on hand? 
  • How much cash do you have stored in your savings but could easily get to if needed? 
  • Do you have a stable job? 
  • What are your monthly essential expenses? (E.g. rent/mortgage, food, health insurance, transportation, child care, etc.)
  • Are there any subscriptions or bills that you are currently paying that you could live without for the time being? 
  • How much debt do you currently have? (E.g. student loans, credit cards, personal loans, etc.)
  • Do you anticipate any major personal or financial changes in the coming months? (E.g. wedding, paying for college, having a child, etc.)


Based on your answers, it may be time to make some financial decisions. If you’re already operating with the bare minimum monthly expenses and contributing as much as you possibly can to savings, it’s probably in your best interest to stick with your current plan. However, if you’ve assessed your financial priorities ahead of a recession and found ways that you can save a little extra cash, try making some adjustments.

Develop a budget 

Based on your basic monthly expenses, job security, and upcoming plans, you should create a budget that fits your needs and lifestyle. Think of it as a map for your money. The best budget for you is the one that you can stick to. 

There are several different kinds of budgets that can help you get on track depending on your wants and needs. 

50/30/20
Divide your take-home pay — 50% for needs, 30% for wants, and 20% for financial goals. The 50/30/20 budget is ideal for people just getting started on their budgeting journey, as it allows a little wiggle room for entertainment and leisure activities while also providing you with a structure to cover expenses, save, and pay down debt.

Envelope system
This system requires you to cash or withdraw your income and place the cash into separate envelopes allocated to bills, entertainment costs, and other expenses. The envelope system is meant to limit your spending of the contents of each envelope, making it more strict than the 50/30/20 budget.

Pay yourself first
When you pay yourself first, you prioritize a percentage of your income to go into a retirement budget or high-yield savings account. This method is helpful if you are looking to save money, invest in your future, and boost your long-term wealth and financial stability.

Zero-sum budgeting
In order to create a zero-sum budget, you have to assign every dollar that you make a place to go. You should not expect any money left in your wallet or bank account at the end of each month for excess spending when you use a zero-sum, or zero-based, budget.

Person sits on the floor with legs crossed, counting money

Contribute to your emergency fund

Start now, and start small. The longer that you put off contributing to an emergency fund, the smaller your nest egg will be. If the time, unfortunately, comes when you need to have an emergency fund at your disposal, you’ll be happy that you built it up. 

Experts recommend that you keep at least six months’ worth of fixed expenses in an emergency fund, though this amount varies based on factors like job security and family size. In the event of job loss or a personal emergency, you will have sufficient funds to keep you afloat. 

One way to slowly and easily build emergency savings accounts is to directly funnel money from your paycheck into a separate savings account. This way you will not be tempted to spend the money if it drops into your checking account first. Think of it as out of sight, out of mind. 

Ideally, you won’t have to completely eliminate all leisure spending. It’s still important to leave room for excitement and small purchases that bring you happiness in life. However, you might have to be more strategic with these splurges. For example, if you want to take your family out to a nice dinner for a special occasion or book a weekend getaway, build it into your budget and make a point to save for it so you don’t throw a wrench in your carefully curated financial plan.

Person at desk counting money with open notebook

Pay down high-interest debt

During a recession, it’s likely that you are trying to keep a roof over your head and the lights on. In other words, your debts, like student loan debt and credit card debt, might not be front of mind. However, it’s important that you don’t let these things fall by the wayside. 

Debt is just that — money that you owe to someone else. And when you don’t repay those debts in a timely manner, interest will accrue, only digging you into a deeper hole. Amidst a recession, it is more important than ever to pay off your debt, especially high-interest debt, so that it doesn’t amplify your financial stress, or worse, get you a negative mark on your credit report. 

While your credit score is not the end all be all, it does play an important role in the personal and financial opportunities available to you. Your credit score gets you: 

  • Better interest rates and terms
  • Higher likelihood of loan approval
  • Access to better credit cards with lower fees
  • Lower insurance premiums
  • Higher likelihood of getting approved for rentals and jobs 


During and after a recession, this is crucial. 

At the very least, you should make the minimum debt payments on all of your accounts. More is better. If you are in a serious bind, reach out to your creditors to learn about their financial hardship programs. They may be able to offer you forbearance or a payment plan that aligns with your pay schedule.

Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $11 million in bank and credit card fee refunds—and we’re just getting started.

*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.

Leave a Reply

Your email address will not be published.

Want to boost your credit score? Join the waitlist for a new Cushion offering coming soon!

Signup for our newsletter to receive product updates, financial tips, & more.