How to recession proof your finances

There is a talk of recession everywhere. Some predict its very near in the US, while some others think we are already in a recession.

Whatever the technical definition is, personal finance is still personal – in good times and in recessionary times.

Yes your stocks and bonds investments may be down by 20-30% or more, you may be feeling the pinch of high inflation or may be even feeling insecure about the job market due to the layoffs and negative environment.

However recession proofing your finances is your responsibility. The outside world will be crazy from time to time, and there will be investment experts selling great products or busting the economy with their stupid risk taking stance.

Without much ado, let us see what all we can do to recession proof our finances.

Your main source of wealth building is your income

Whether you are in a job or running a business, and if it is the main source of your income, then it is most important factor to look at. Now, how do you recession proof the job/business?

Most people choose their career or business looking at good times. A software startup may be paying a good amount and has good potential, so let’s join them. How many times does a candidate find out what is the moat of the industry that the company is operating in?

Is it a hot internet startup whose valuation is based on just no. of subscribers and so running on VC money? Or does it really have positive cash flow and profits? Will the company struggle or thrive in a recession? Will customers still buy its products in a recession?

The same logic and due diligence applies to running a business. Every business owner should prepare for a recession and think about if their product demand is going to just dry up in a recession or not.

Thus the first step is to find industries or businesses which will not only survive but may even do well in a recession. And these are almost always companies that build solid products or services that people or other businesses will pay for. Apple and Amazon can be two examples of such product and service companies. Apart from these, there are several businesses and industries that are building the foundation in good and bad times alike – semiconductors, financial, utilities, consumer durables, healthcare etc.

What next if your industry is not so stable?

All of us may not be fortunate or unfortunate enough to work only in stable industries. There are many industries which require good skillsets and hire lot of people in good times and hence pay a lot too. Examples would be Google, Facebook, Twitter and the likes.

But they are all prone to disruption, for example, what happened to Facebook due to Tiktok, Google threatened by the rise of ChatGPT and Twitter almost changing overnight due to new ownership.

In this case, you have to recession proof your finances while the sun shines. Given that these jobs or businesses make a lot of money (or attract a lot of VC money) and pay out so, the employees should be able to use it to their advantage.

Here is where the concept of Emergency Fund or Contingency Fund comes in. Now Emergency Fund is important for everyone since we cannot predict the emergencies. But people in more volatile industries should be looking at accumulating a larger Emergency Fund, like worth 1 to 2 years of expenses.

The sufficiently bigger Emergency Fund lets a person sleep in peace, knowing that come what may, he/she has 1-2 years worth of liquid funds to tide over the recession period.

One of my friends who got laid off in 2001 actually went back to school and finished his Master’s degree, while the economy stabilized for him to get back to the industry.

Be purposeful with your investments

I am a habitual shining object chaser. In the name of diversification, I have invested in several asset classes or companies which may not be so aligned with my changing investment needs. Looking back, I have seen that many of the times, I could have avoided the unnecessary risks.

When you are trying to recession proof your finances, your lifestyle and family goals should be paramount. Somewhere I read – “Investing is not a game; do not follow experts, do what works for you and your family. “

If all your investments have a purpose and tied to appropriate time line and goals, there is nothing to worry in a recession. You know that your long term investments may be temporarily down for few years, so you do not need to book losses and make them real.

Similarly, via an emergency fund and other financial goals being planned, you have adequate diversification and know that your money will be available when the goal approaches.

Again remember this – Investing is not a game, it is a lifestyle allocation decision.

Avoid Debt as much as possible

One of the main causes of financial worries in most people is the amount of debt they carry on their credit cards, cars and other luxuries. Except the home mortgage, the lure of cheap money and future paying capacity is actually very damaging to personal finances.

When a recession hits or even approaching, money supply becomes tighter. With other constraints also putting their own pressure (like unstable job, emergency spendings, inflation, high interest rates), there is a high chance of the debt spiraling out of hands.

The lure of 0% credit cards makes people spend much more than they would have normally. Since there is time till the free interest period expires, people tend to postpone paying it off. But then the expiry date of the offer may fall right when the economy has turned for the worse or the person has temporarily lost his/her income. Post the expiry of the offer, some of these cards charge much more interest than normal and backdated from the day of the purchase.

Keeping a debt free mindset and paying off consumer debt (irrespective of interest rate on the loan) within a month cycle keeps your personal finances recession proof.

Spend on things that you value

If you read any personal finance book, you will read this – “Live within your means, budget for everything” etc. But it is psychologically very stressing for most people.

A better way to look at it is to prioritize and rationalize your spending. Put away money every month for things that you value the most. If you like travel, create a travel fund and sock away some as a monthly expenses towards that. Similarly, if you like to dine out once a week, budget for that proactively.

Savings and Investments should also be counted in your values and a gift to your future self.

Once your value spending is taken care of, you will find it much easier to control other expenses and truly live within your means.


Personal finances are personal and the outside noise of recession or not, should not bother much.

It is the planning for an evergreen finances based on first principles and personal needs, that puts your finances on a solid foundation and immune to the economic environment.

If you are a young couple or professional and need help with organizing your finances, please schedule a call for financial coaching.

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