Stock Market

How to be Prepared Before, During, and After a Recession

We continue to hear talk about the next recession being eminent. Here’s how you can be prepared before, during, and after a recession.

Many of us have at least lived through the Great Recession and have felt it’s effects. I was in college at the time and didn’t have the psychological damage of watching my saving drop in half. Are you prepared for the next recession? Perhaps we can start teaching the next generation how to be prepared as well.

In my article comparing the Trinity Study Vs. FireCalc, we reviewed the 4% Rule. In that review, we found that a 3% withdrawal rate works 100% of the time, according to historical results. This means that as long as you are only pulling out 3% from your retirement accounts to live on, you will never deplete those accounts. You don’t have to worry about recessions and depression! Congratulations!

Market Corrections

Market Decline, Recession Indicator

Since the Great Recession, we saw what is called a “market correction” 6 times now. Those were not big enough to be called recessions. Corrections are when the markets lose more than 10% in value, but less than 20%. When the markets have a big downturn, greater than 20%, that is when we use the term recession. People worry about corrections because the markets can continue to drop eventually resulting in recessions.

There were market corrections in 2010, 2011, and two in 2015. The most recent market corrections you might recall a little more clearly, as they were just last year. One occurred at the beginning of 2018, and the other occurred at the end of that year. Many of us ended the year with either a loss, or no gain, in our investment accounts. The loss for each market correction in 2018, as measured by the S&P Index, was slightly over 10%.

The Center on Budget Policies and Priorities provides an article on the effects of the Great Recession and the post-recession economy.

When will the bull run end?

The economy has been on a bull run for over a decade now. We continue to hear talk about the next recession being eminent. Every time a government official blinks, the market sees jitters. Especially if it’s a Chinese government official. Then the president nods, and the market goes the opposite direction. The point: Who knows when the next recession will happen?

I believe in being prepared for whatever the future may hold. People who plan things out are known as wise. What should you be doing now to be prepared? What should you do before, during, and after a Recession?

Before a recession

1. Learn to be frugal now

Now is the time to learn to live well within your means, before a downturn begins and while you have an income. Take a look at your monthly expenses, and identify ways that you can cut back. There are steps that all of us can take to cut spending.

Discretionary spending is a good place to start makings cuts. Do you have multiple subscription services? Can you live with only one or maybe even none? Can you stop paying for cable service? Start cutting those things you may not use very often or don’t really need.


Food is another big spending category. How often do you eat out each month? Do you spend time, and money, at the bar with your friends? These expenses can add up quickly. Try hanging out some place else; perhaps at one of your own houses, where you won’t feel pressured to buy food or drinks.

Fewer restaurants probably means more grocery store time. Try meal planning, and make a list before going to the grocery store. Having a list will keep you focused and help you avoid buying more food than you need. For me, when I don’t have a list, I like buying all the “good stuff”. Stuff like cookies, ice cream, whatever is on sale that looks good. I like to grab stuff for my wife, as well. I have a sweet tooth, and she prefers more salty food, usually. Even having a list doesn’t save me every time, but it definitely helps.


Take a look at shopping. How many items have you bought in the past month that you actually needed? How many items are just sitting there? Start asking yourself, “Do I really need this?” before you go out and buy. If you do this before going out, it will also help you avoid impulse buys while you are in the store.

If you must go shopping, try looking for sales or discounts that you can use. Plan ahead for things you do need and buy them when they are the cheapest. For example, seasonal clothing. Coats and jackets are heavily discounted going into the spring season. And vice versa for swim suits and summer season clothes.

2. Save your extra money

Hopefully you have now figured out ways to save a bunch of money by learning to be frugal. You’ve cut your expenses and are now living well within your means. It’s time to start building up an emergency fund. Take all that extra money you have, and save 6 months of expenses. A lot of experts recommend having 3-6 months’ worth, but I like to play it safe. If you think a job loss is eminent, or that it would take a long time to find a new job, you could save up even more than that.

3. Decrease Liabilities

Debts are a big drain on being able to save money. The first piece of advice is to avoid picking up debt in the first place. Save up money and pay cash for the things you buy. Avoid putting it on the credit card. Pay cash when buying your cars to avoid auto loans. I’ll give you a break if you have to take out a mortgage; but, in my opinion, it’s best to have a paid for house too.

Okay, so maybe you already have some debt. Start paying it off while you can. Take all the extra money you have, and get those loans out of here. You’ll see you have more and more money to throw at your debts as you get more of them paid off.

Also, if you have fewer debts, your monthly expenses will be lower, resulting in a lower amount needed for your emergency fund. I’d recommend saving a little for an emergency, paying of all the debt, then coming back and really building up that emergency fund.

During a recession

1. Do your best to keep your job

It’s always good to go above and beyond your job duties and to produce more than is expected of you, but now more than ever. Make yourself a cornerstone that the company cannot do without. This will increase your job security and make getting laid off less likely.

There are times when you have done everything right, but the business itself is struggling. If the business is just trying to stay afloat, and you have made yourself valuable to the company, they may elect to decrease benefits or cut your salary. Now is not the time to negotiate. Take the decrease and keep the job. Otherwise, you may be forcing them to fire you.

2. Be even More frugal

You may have cut back on some expenses before the recession, but not all that you could. When stuff starts hitting the fan, it’s time to make all the cuts you can. Make sure your essentials (Food, Shelter, Utilities, and Transportation) are paid for, but really scrutinize the rest. As Americans, we’re used to living in luxury. However, if you’re struggling, it’s time to give up some of that glamour and face reality.

After a recession

Recession Review Board

1. Evaluate the last recession

The recession is now over, and you can wipe that sweat off your brow. It’s time to take a look at what happened during the recession. How prepared were you? Examine the good, the bad, and the ugly parts of the recession and how it impacted you.

Take a look at your job. Are you a linchpin to your organization? Maybe it’s time to ask for a raise, or at least an increase to get back to where you were. How about the job security aspect? Were you worried about losing your job? If so, now may be a good time to invest in building up other skills, to seek further education for a job with more security, or to increase your value with the company you are currently with.

Take a look at what expenses you cut out. How was it living without those items? Can you continue living without them? As the saying goes, “A penny saved is a penny earned.” The more you have saved, the better prepared you will be for the next recession, which leads us to the last point.

2. Start preparing for the next recession

You’ve just been through a recession. You’ve learned a few things and are ready to start preparing for the next recession. Take the lessons learned and wrap back around to what to do “before” a recession.

You’re better prepared this time because you have experience under your belt. Keep doing the things that worked and improve the things that didn’t go as planned. The next recession (and there will always be a “next recession”) will not be as painful.

Hopefully these tips will help you out with what you should do before, during, and after a Recession. It’s impossible to predict the future, or when a recession will occur, but it may not matter so much with a little preparation. It’s always a good time to ask yourself, “What can I do to put myself in a stronger financial position?” Do yourself a favor, and plan for these things before they come; that way, you can sleep better at night when they come.

FIRE Away!