How to Protect Your Money from a Potential Recession (2024)

FAQs

How to Protect Your Money from a Potential Recession? ›

Set aside an emergency fund that will cover at least 4 months. That way, you're more secure in the face of a job loss or other unexpected changes. If you have investments, make sure they're diversified and can weather a recession.

The Bottom Line

Build up your emergency fund, pay off your high-interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

Another way people can make money during recessions is by figuring out ways to increase their personal income through passive sources like dividends, interest, and income from renting out unused space, property, or goods.

Finance Experts All Say the Same Thing

They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.

Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.

U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury securities may pay interest at higher rates than savings accounts, although it depends on the security's duration.

JPMorgan Chase, the financial institution that owns Chase Bank, topped our experts' list because it's designated as the world's most systemically important bank on the 2023 G-SIB list. This designation means it has the highest loss absorbency requirements of any bank, providing more protection against financial crisis.

What gets cheaper during a recession? ›

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

A good rule of thumb is to save anywhere from three to six months' worth of living expenses. The exact amount will vary depending on your specific situation. For instance, you may feel comfortable saving only three months of living expenses if you have a two-income household.

Certificates of deposit (CDs) and tax-deferred retirement accounts, on the other hand, impose penalties for early withdrawals. It's safe from the stock market: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market.

Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.

store-brand oatmeal, for example — you give yourself the opportunity to not only save money, but also get more nutrition per dollar. Shopping for whole foods and staples instead of prepared foods and convenience items can save you money, but you'll need to be prepared to spend more time in the kitchen.

It may take some courage, but increasing your contributions to retirement accounts during a recession can be a great financial move. You benefit by buying a lot more when prices are down, setting your portfolio up for future success when the economy recovers.