5 Ways to Save Money During a Recession

Posted by CapWay in EconomyJuly 23, 2022(Last Updated July 23, 2022)4 min read
Key Takeaways
  • A recession is a time of economic uncertainty for many due to the overall decline in your country's economic activity. 
  • Having emergency savings for 6 to 12 months instead of the usually recommended 3 to 6 months is best to weather the storm of a recession. 
  • Cut back on wants and focus on your needs; however, you should still financially treat yourself occasionally. 
Are you ready to make some real money moves?

A recession is when a country has a decline in economic activity for more than a few months. 

Whether in an official recession or constantly hearing economists and financial experts in the media mention that we are heading towards one, all of the conversations around a recession can be hard to understand for the everyday person. In most cases, people just want to answer one question: What does a recession mean for me and my money? 

Recessions often lead employers to reduce hires, freeze raises, and in more severe cases, fire employees to lower monthly spending and extend the company's financial runway. Therefore, during a recession, you could lose your job or find it challenging to find a new job, and your ability to earn money impacts your financial decisions and opportunities. 

Many people are still recovering from the economic hardships experienced in the United States' recession of 2007 and the financial impacts of COVID-19. However, regardless of whether, or shall I say when, another downturn comes, there are steps you can take to ensure that you are making the best decisions for your finances during times of economic uncertainty.

Boost Your Emergency Fund 


Set a goal to start or add to your emergency fund.


Boost your emergency savings during a recession.

Credit: Giphy

In times of job or income uncertainty, your emergency fund is your most important asset. The rule of thumb is that your emergency fund should cover three to six months worth of expenses. However, since recessions typically last six to twelve months, although the timing can be longer or shorter, you should aim to have an emergency fund that covers a year of expenses. Therefore, start saving or dedicate any extra funds to your emergency fund whenever possible.


Be Careful When Taking On Debt 

A decision to take on (more) debt should be made under careful consideration during a recession or the threat of a recession. For example, taking out a personal loan or added debt on a credit card due to purchasing necessities, especially if you lose your job and have no or limited income, may be unavoidable. On the other hand, large purchases that can wait, such as a new car or buying a home, should be considered with more scrutiny. However, whether a small or large purchase, managing your debt is crucial to your financial health.


When taking on debt during times of economic uncertainty, you must think beyond just being able to make the minimum monthly payments today. Instead, consider how taking the debt will impact your future by considering how much you will be required to pay over time. 

Interest rates can be inflated due to a recession. Therefore, make sure you get the best interest rate on any debt you take out by comparing two or more options. A lower interest rate means you will pay less over time when clearing out your debt.  


Cut Back On Your Lifestyle 

Unfortunately, you may experience some degree of financial stress during an economic downturn. The financial stress may be due to losing a job or the increase in products and services but no increase in income. One way to combat the financial stress that comes along with a recession is to cut back on how much you are swiping your debit card or credit card. 

Now, you don't have to or shouldn't be a robot who only focuses on cutting expenses and saving money. You don't have to completely disrupt your life. Instead, you want to enjoy life but do so without digging deep into your bank account.


Cutting back on spending will help save funds during a recession.

Credit: Giphy

It is important to be conscious and understand that every penny that goes towards the wants of your lifestyle takes away from your ability to pay off debt or boost savings. You can still do some things, but cut back on expensive items that fall mainly on the want side of things versus the need side of things. For example, instead of taking a $1,000 trip, you can take a shorter, closer, and less expensive staycation or trip.

Cut Your Most Expensive Expenses

Making your expenses as recession-proof as possible is crucial to economic survival during a downturn. You can do so by reducing your highest costs. For example, your rent is usually your most costly expense. To cut down on cost, you have two main options. The first option is if your lease expires soon. If it does, consider moving to a less expensive apartment or home.


On the other hand, your second option is if your lease is not expiring anytime soon. In that case, consider moving in a housemate who can help you slip bills. You could use the funds saved due to a lower rent towards increasing your emergency savings.


Protect Your Retirement Savings 

During times of economic uncertainty, many people panic and think they need to pull their retirement savings out of an uncertain financial market. However, many financial experts say this is the wrong move. After all, a recession, which is a significant decline in economic activity, may happen more than once between the time you start work and the time you retire. Historically, the market has recovered after turmoil, and you will most likely recover savings lost during bad economic times.


Protect your retirement and investments during a recession.

Credit: Giphy


If you take money out of your retirement savings, you will most likely spend it and miss out on the benefits of allowing your investments to bounce back and grow over time.

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