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How to Prepare for a Recession as an Employee

Serious female employee at her desk with her laptop open taking notes on how to prepare for a recession

The thought of preparing for a recession is unnerving. Will you keep your job? Will you be able to cover your monthly bills? It comes with much uncertainty, and unfortunately, there’s not much we can do on an individual level to change the course of the nation’s economy.

There are, however, several things you can do in your personal life and career that will give you peace of mind and help you weather the possible financial storm of a recession. 

What exactly is a recession?

A recession is a period of an economic downturn that lasts for an extended amount of time. Historically, a recession has been defined as a fall in GDP (gross domestic product) for two consecutive quarters. During a recession, commercial activity is reduced on a widespread level.

Many things can trigger a recession, including a financial market crash, an economic bubble, a supply shortage, and even a natural disaster.

How will a recession affect me?

A dip in the value of your retirement fund

As the stock market reacts to news of an economic downturn, stock prices and overall market values will drop. In turn, so will the balance in your retirement fund. 

While it can be alarming to suddenly “lose” a significant chunk of your hard-earned savings, remember that fluctuations in the market are a routine part of investing. Your retirement fund is a long-term investment; gains in other years will offset a dip during a recession. 

Unless you’re planning on retiring soon, a drop in your 401(k) balance isn’t a reason for panic. 

Higher interest rates 

The Federal Reserve manipulates interest rates to move the economy in a favorable direction. 

During a recession, this generally means it’s more expensive to borrow money–like for a mortgage or the purchase of a car–and your money won’t go as far. If you’re applying for a mortgage, the bank likely won’t be as willing to lend you as much as they would during more rosy economic times. Credit card interest rates increase, too, so it’ll cost you more to carry a balance.

On the flip side, banks usually raise interest rates for savings products like savings accounts and CDs, so if you can set aside money for a rainy day, now is a great time to do it. 


When business slows, companies eliminate jobs. 

Just like individuals, organizations are forced to take a closer look at their spending and tighten their belts, which may mean they cut budgets for R&D, advertising, and other non-essential business activities. Some workers may take pay cuts, while others may fall victim to layoffs. 

Some industries are more susceptible to economic swings than others. Construction, for example, slows to a crawl during a recession as builders are hesitant to invest in projects they may not be able to turn a profit on. Tourism suffers as consumers cut back on leisure travel.

Other industries, like healthcare, utilities, and financial services, are more recession-proof. 

Be sure to take these steps while you await the next job opportunity if you just got laid off.

Fewer opportunities

For the past couple of years, job seekers have had it good, with a wide range of opportunities from employers desperate to fill open positions. Post-Covid, it’s been a candidates’ market, but that may soon change. 

Typically, a recession brings job cuts and hiring freezes, but the current economic climate is a confusing one for companies that must strike a balance between managing financial risk and still filling crucial positions. In a recent survey from SHRM, 50% of business executives said they were planning on reducing overall headcounts, but 64% said they were planning on increasing compensation to attract candidates. 

This strategy of hiring fewer workers but paying them more may be one that we see more companies employ during this unprecedented economic situation. As a result, there may be fewer open positions available to job seekers than there have been in recent months. 

Browse our comprehensive list of open jobs to view the latest openings in your area.

Steady prices

While home values tend to drop during a recession, consumer goods like food and clothing prices are “sticky.” This means they stay the same or increase instead of decreasing during economic downturns. 

This can cause a budget crunch for consumers, who must find ways to cut back without a corresponding drop in their grocery bill. 

7 ways to prepare for a recession

1. Get a handle on your finances

With a potential recession on the horizon, it’s critical to know how much is coming in, how much is going out, and where that money is going every month. 

If you don’t already have a budget, it’s time to create one. Make a list of all the recurring bills you have every month, like rent, utilities, groceries, and gas. These are your fixed expenses.

Then look at your bank statement to identify incidental expenses, like the latte you grabbed while running errands or the gift for a friend’s housewarming party. You might be surprised how much these “small” purchases add up.

Combine your fixed and incidental expenses to determine how much goes out the door each month. If this number is higher than what you’re bringing in from your job, it’s time to consider carefully and make cuts.

An app like You Need A Budget can make this process easy and even fun. 

2. Build your emergency fund

Are savings contributions one of your regular expenses? If not, they should be. Financial experts suggest you have between three and six months’ expenses in an easily accessible bank account in case of emergencies. 

Building one should be your number one financial priority if you don’t have an emergency fund.

Learn more about the fundamentals of personal finance by taking this free Coursera Course: Saving Money for the Future!

3. Pay down debt

Rising interest rates mean debt becomes more expensive–even debt you incurred before the recession began. Pay down the balances on your credit cards and other high-interest forms of debt as much as possible, and avoid taking on any new debt. 

4. Don’t touch retirement savings

When some people see their 401(k) balance declining, they panic and pull the money out. This is a big mistake and means you’re losing money.

To recoup your investment, you need to leave the money untouched. If anything, now is the time to contribute more to your retirement fund since lower stock prices mean you can buy more shares at the same price (if you’ve ever heard the term “buy low, sell high,” this is the perfect example).

Investors like Warren Buffet are notorious for ramping up their investing activity during economic downturns to take advantage of comparatively low prices and reap the long-term exponential benefits.

5. Hold off on making major financial decisions

During periods of economic uncertainty, slow and steady is the way to go. Avoid impulse purchases and rash financial decisions like quitting your job without something else lined up. 

6. Make yourself essential

It’s a sad but true fact that some employees are easier to lay off than others. If you want to reduce the chances of losing your job, one thing you can do is ramp up your skills. 

Zero in on functions that only you can perform, like specialized accounting if you’re in the finance department or technical expertise if you’re a developer. These niche skills will make you more valuable to your employer and, as a result, more indispensable during times when tough choices must be made. 

7. Consider a career change

There’s no way to know with certainty how secure your job is, but if you’re in an industry that’s highly sensitive to economic downturns, it might make sense to prepare for a career change. 

Moving to a field that’s more resistant to recessions can make you feel more at ease and could save you the burden of job searching later on if you were to get laid off. What’s more, some traditionally recession-proof fields like information technology could help you earn more money over your career life, which could significantly impact your net worth.

Follow these tips for switching career paths to ensure a smooth transition.