Recession jitters and your finances

recession anxiety
If there is a recession on the horizon, now is a good time to take steps to insulate yourself from an economic downturn.
(Steven Senne / Associated Press)

Even just talk of a possible recession can trigger anxiety for anyone who associates it with the major economic downturn of a dozen years ago. But history doesn’t always repeat itself.

“The financial crisis in 2008 was basically the second-worst recession ever after the Great Depression in the last hundred years; it doesn’t always have to be like that,” said Luke Delorme, director of financial planning at American Investment Services. “There are relatively mild recessions that aren’t so impactful.”

Recessions — and their severity — are out of your control, but as Delorme and others point out, your own financial situation doesn’t have to be. You can take steps to insulate yourself from an economic downturn. And if circumstances align in your favor, you may even thrive.


Get prepared

It’s impossible to know for sure whether a recession is on the horizon, Delorme said. The good news is that one may now be further off than it had appeared just months ago. If so, it means more time to prepare.

Tanja Hester and her husband, Mark Bunge, were among the lucky ones during the financial crisis. In 2008, the California residents were political consultants, and their jobs remained intact, meaning they were spared many of the setbacks others experienced. Still, they readied for the worst, making sure they’d be well equipped to tackle their goals.

“It felt like a time to batten down the hatches and get things in order, so we were definitely ramping up our savings at that point,” said Hester, author of “Work Optional: Retire Early the Non-Penny-Pinching Way.”

As a result of their planning, they were able to achieve goals such as paying down debt, building up an emergency fund and even buying a condo, despite the economic turmoil around them.

Whether your own job is secure or unpredictable, there are ways to better position yourself for tough economic times.

Tackle credit and debt

One key is to build or maintain good credit. Creditors may tighten lending during a recession, but a good credit score (690 or higher) can open doors to lower rates. Several factors play into your scores, but two of the biggest include a history of on-time payments and a low credit utilization; the less of your credit limit you use, the better.


If you have no credit or bad credit (629 and below), consider a secured credit card that reports to all three major credit bureaus. Such cards require an upfront security deposit that’s refunded upon closing or upgrading the account.

Debt, budgeting and savings are all big factors that Delorme cited, as well. Tackle them now when times are relatively good.

Hester, for example, said that by early 2008, she had erased about $30,000 in debt with money from her full-time income and side hustles as a spin and yoga instructor. Another way to zap debt is by transferring it from a high-interest credit card to one with a lower APR. Look for a balance transfer credit card with no annual fee and a long 0% introductory annual percentage rate.

Make a budget

When it comes to expenses, consider this budgeting approach: Allocate 50% of your after-tax income for essentials such as rent and groceries, 30% for wants, and 20% for debt and savings. If you need help with such tracking, your monthly credit card statement can be a tool.

Also, try thinking of your money in terms of buckets and assign each one a purpose, said Sophia Bera, certified financial planner and founder of Gen Y Planning. Creating separate buckets for an emergency fund, retirement savings and a travel fund can help you earmark amounts for each goal.

Automate savings

As for bulking up your savings, “found money” can come from a variety of sources — side gigs, credit card rewards, even yard sales. But an easy way to get started is by setting up automatic deposits or transfers to a high-yield savings account. The automated process helped Hester and Bunge save an eight-month emergency fund and the down payment for their first home, making it possible to buy a condo in Los Angeles in 2009. Prices were down, and “We were able to buy when others weren’t,” Hester said.

And don’t forget 401(k) or IRA contributions. Saving 10% to 15% of pretax income is ideal, but start where you can and contribute enough to grab any employer match.


“Let’s say if you put in 4%, they’ll put in 4%,” Bera said. “You should at least be doing that, because if not, you’re leaving free money on the table.”

Lambarena writes for personal finance site NerdWallet.