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2025 has been off to a rocky start. Consumer confidence has plummeted thanks to persistent inflation, market volatility, and other challenges created by the new administration's aggressive tariff policies. Now, we can add recession concerns to the list.
The U.S. economy contracted for the first time in three years as a surge in imports dragged down gross domestic product (GDP) while prices increased more than forecast. According to the Bureau of Economic Analysis, economic growth contracted at an estimated annualized rate of 0.3% during the first quarter of 2025 — more than the 0.2% decline expected by many economists.
Although the country is not in a recession yet, there's a good chance it could be in the next few months. Taking some steps now can help you recession-proof your finances and protect yourself from financial hardship during an economic downturn.
What is a recession?
A recession is a term that inspires fear in politicians, economists, and business owners, but what does it really mean?
Although precise definitions vary, the National Bureau of Economic Research (NBER) — a private, nonprofit organization that analyzes economic conditions — defines a recession as a period of significant economic decline that lasts for several months. The NBER looks for several factors to determine if a recession has occurred, such as higher unemployment rates, home prices and sales, stock market declines, and wages.
Recessions are a natural and unavoidable part of the economic cycle. In fact, there have been over a dozen recessions since World War II. The most recent recession was in the spring of 2020 when the COVID-19 pandemic affected the country.
In general, recessions occur every few years, and they typically last for about 10 months.
How to recession-proof your savings
During a recession, having a financial safety net is key. That means having plenty of cash set aside for emergencies, such as losing your job.
That means you should avoid tying up too much money in long-term investments or accounts that penalize you for withdrawals. Instead, prioritize building at least six months' worth of essential expenses — or closer to 12 months' worth if your job or income is unstable — in a high-yield savings account.
Consider automating contributions to your savings so you're consistently building your reserves, even if it’s just a small amount each month.
Additionally, regularly review your spending habits to see if you can reallocate unnecessary discretionary expenses toward savings. For example, you could freeze the gym membership you rarely use or downgrade streaming subscriptions to versions with ads. For bigger savings, consider relocating to an area with a lower cost of living or giving up your car in favor of public transportation.
Remember, the sacrifices you make today are just temporary, and they could go a long way toward protecting you during an economic downturn.
Read more: 5 ways to recession-proof your savings
How to recession-proof your investments
If you haven't gone through a recession before, it can be a scary experience. When you check the balance of your 401(k), individual retirement account (IRA), or investment account during a recession, you may be shocked to see large losses and account declines.
However, you shouldn't panic. Although it can be scary to see such steep drops, recessions are normal, and investments tend to ebb and flow. Avoid the impulse to cut your losses and sell off your holdings; that approach only locks in the losses. Instead, continue contributing regularly to your retirement or investment accounts and focus on long-term performance.
If you do want to reallocate some of your investments to more recession-proof assets, consider dividend-paying stocks, blue-chip stocks, bond funds, and gold, which typically hold their value or appreciate during recessions.
Read more: How to protect your money during economic turmoil, stock market volatility
How to recession-proof your credit cards
As recession fears grow and Americans' financial futures remain unclear, it's time to get ahead of your credit card debt. Recessions typically make lenders tighten their approval standards for loans and credit cards, and promotional 0% APR and balance transfer offers tend to dry up.
If you’re already struggling to make your credit card payments or facing growing balances and late fees, you may find help from an unlikely place: your credit card company. Many issuers offer hardship programs in the form of revised payment plans or other resources that can help you get back on track. These solutions range from one-time, short-term solutions to long-term payment plans.
Getting ahead of your credit card debt (or any other high-interest debt) helps ensure you can weather a recession without the added stress of calls from debt collectors or damage to your credit score.
How to recession-proof your house
If you’re already a homeowner, there are two main concerns when facing a looming recession: losing your job so you can’t afford mortgage payments, and your house value depreciating.
There are a few ways to recession-proof your house. Build an emergency fund now so you can tap it if your income decreases. Go ahead and take care of any home maintenance projects. You might not be able to afford them later, and if you make value-increasing updates, it could help you sell the house for more money if you need to move.
Avoid a cash-out refinance, home equity loan, or home equity line of credit (HELOC) for now. These are all ways to exchange your home equity for cash, meaning you'll owe more on your house — which is dangerous should you lose your job or your home value decreases. Knowing how to prepare and what to avoid should help you be more comfortable if a recession hits.
How to recession-proof your insurance
Whether it feels like a recession is right around the corner or the economy has already suffered a period of no growth, one of the first moves you want to make is to limit unnecessary spending.
While it’s smart to ensure emergency accounts are well-funded and high-interest debt is being paid down, resist the immediate temptation to reduce your insurance coverage in order to reduce your premiums. Reducing your coverage can increase your own personal financial risk.
To recession-proof your auto insurance policy, for instance, sit down with your insurance agent to review your coverage to ensure you have adequate protection, that you’re not overpaying for coverage you don’t need, and that you’re taking advantage of every discount at your disposal.
How to recession-proof your income
Because wages tend to stagnate during a recession and layoffs become more common, developing other streams of income is an excellent way to recession-proof your finances. To earn extra money, you could pick up a side hustle, such as delivering groceries, walking dogs, or developing social media content for local companies.
Also, consider learning a new skill like graphic design, video editing, or coding to expand your options and increase your earning potential. Whether you want to start a new side business or be seen as a more valuable employee at your current job, investing in your skills now can help you stay afloat during a recession.
