How to prepare for a recession - Like a pro
We read about it in the news. It creeps into our thoughts as prices rise, the stock market fluctuates, and the economy feels unstable. The word recession is everywhere these days—and with good reason. A certain 🍊 at the helm in the U.S. has really shaken up global markets.
But how do you actually prepare for a potential economic downturn? And what can you do to strengthen your finances in uncertain times? We’ve got some solid tips to help you out.
But first—what exactly is a recession?
Before we dive into the action steps, let’s clear up some definitions. What is a recession, really? And how does it impact your finances?
A recession is a term for an economic downturn. It’s typically defined as negative economic growth for at least two consecutive quarters—meaning the gross domestic product (GDP) declines over a six-month period or longer.
Think of a recession like a line of dominoes. When one falls, the rest can quickly follow, creating a chain reaction that drags the whole economy down. It often starts with a trigger—like a sharp interest rate hike, an international shock, or falling demand. Then other factors make things worse: rising uncertainty, decreased investment, and reduced trade.
As the pressure builds, stock prices often drop—partly because future prospects weaken, and partly because investors pull out. Businesses brace for tougher times by cutting costs, hiring less, and postponing projects. Meanwhile, consumers become more cautious: they delay big purchases, save more, and spend less. All of this slows the economy down—and that’s how a recession takes hold.
Are we in a recession right now?
Not quite. The experts at Goldman Sachs barely had time to predict a recession before reversing their forecast just 73 minutes later! Why? Trump announced a 90-day pause on tariffs, and the market cheered. Stock indexes surged, with Nasdaq having its best day since 2001.
The takeaway? Even economists are unsure, and markets can turn faster than you can sip your coffee.
Despite doomsday headlines and dramatic predictions, we’re not in a recession yet. Sure, there are early signs—like market volatility—but we still have time to adjust our lifestyle and finances. And even if a recession doesn’t hit, these habits will put you in a stronger position on your journey toward financial freedom. So there’s every reason to take action—no matter what happens.
How to Prepare for a Recession:
1. Build a Solid Emergency Fund
First things first—make sure your emergency savings are in order. A general rule of thumb is to save at least two months’ worth of essential expenses, but in uncertain times, it’s smart to aim for even more. A strong buffer gives you peace of mind if something unexpected happens, like a job loss or sudden price hikes. Keep this money in a high-interest savings account. Check out https://www.finansportalen.no/bank/bankinnskudd/ to find which bank currently offers the best interest rate for your savings.
2. Update Your Budget to Reflect Current Prices
The budget that worked last year might not cut it now. Food, electricity, and fuel prices have gone up, so it’s important to adapt. Review your expenses and identify areas to cut back. Subscriptions are a good place to start—many people pay for services they rarely use. Use our downloadable budget template to get a clearer overview: Budsjettmal
Also, think about which costs aren’t strictly necessary—like coffee shop visits, manicures, or movie nights. You don’t need to cut out everything that brings you joy, but know where you can tighten the belt quickly if needed. A walk in the woods or a trip to the library can bring just as much happiness—for free.
3. Keep Investing – If Your Finances Allow
When markets are shaky and the news is grim, many people panic and pull their money out. But that can be an expensive mistake. History shows that the best days on the stock market often come in the middle of the worst turmoil. That’s why smart investing isn’t about timing the market—it’s about riding out the storm.
Long-term consistency is where the real gains happen.
A J.P. Morgan analysis of the S&P 500 from 2003–2023 found that:
- Staying fully invested yielded an average annual return of 9.8%
- Missing the 10 best days dropped returns to 5.6%
- Missing the 20 best days reduced it all the way down to 2.9%
In short: trying to jump in and out of the market can leave you on the sidelines when the rebound hits. As long as your finances are stable, it’s often best to keep investing steadily—even when things look rough. Patience pays off.
4. Consider Your Job Security and Income
No one likes to think about it, but recessions can hit the job market hard. That’s why it’s smart to assess how secure your income really is. Maybe now’s a good time to upskill with a course or explore side income opportunities. Having multiple income streams gives you extra stability.
Stick to the Plan
Preparing for a potential recession can feel daunting and uncomfortable. It’s natural to feel uneasy when the headlines are full of doom and gloom. But the key is to focus on what you can control. By taking a few simple, strategic steps—like building a financial buffer, trimming your expenses, and investing wisely—you can face the future with greater confidence.
Nobody knows exactly what’s around the corner. But with a clear plan, you’ll be better equipped to handle both setbacks and opportunities. It’s not about being perfect—it’s about being prepared. And that, in itself, brings peace of mind.
Best regards,
Madeleine
