Risky Things You Should Never Do in a Recession

MANAGE MONEY - BUDGETING
The R-word seems to be on everyone’s lips lately, and it may be time to prepare.
Updated April 3, 2023
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They may not be enjoyable in any way, but recessions are a fact of life in a global economy, which ebbs and flows as its own entity. Recently, many signs — high inflation, a cooling housing market, and a volatile stock market — point to an impending recession,

Fortunately, there are plenty of things you should do to survive a recession, such as earning extra money and reducing your monthly expenses. There are also risky things you should avoid at all costs.

Avoid these 10 moves to help you survive a recession.

Be caught unprepared

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First and foremost, you need to be prepared for a recession, especially when all of the indicators suggest one is on the horizon. So shore up your budget, make a solid plan, and identify any sacrifices you can stand to make. You should also look at your investment portfolio to see if it needs rebalancing.

It’s important to emotionally prepare yourself for a recession, too, as panicking never helped anyone make good decisions. And know that no matter how bad things get, you’re not alone and the economy will eventually improve.

Slack off at work

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OK, so maybe you’re not exactly in love with your job. Perhaps your manager is overbearing or less than competent, or maybe you’re just bored with the work that you have to do day in and day out. It can be hard to find your niche in the job market, after all.

But if the economy is in a recession, it’s not the time to slack off at work — even if there are plenty of jobs available. You might find that your salary is the only thing keeping you afloat during leaner times, helping you put food on the table and keep the lights on. So do everything you can to avoid a layoff.

Skip a side hustle

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Just as your salary can provide you with much-needed financial stability during a recession, so too can having a side hustle. This second income stream can help you make more money now, and it may become your main gig if you get laid off — which is more likely in a recession.

Of course, it’s not always fun working when you want to be relaxing on the weekend. But during a financial slowdown, it just might be necessary if you want to financially survive.

Neglect your savings

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This pointer applies leading up to and during a recession: Don’t neglect your savings account. For one, it might provide you with the money that gets you through tough times if you or a family member loses their job. A healthy savings account can literally be a lifesaver for families.

During a recession, it’s still smart to maintain your savings account (as long as you still have a viable income stream). Things can turn on a dime when the job market is volatile, so plan for that even if you think you’re recession-proof.

Pro tip: Consumers are already looking for more ways to save on necessities as inflation increases. Try these tips to save more on groceries.

Ignore your budget

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If you don’t think you need a budget, you’re wrong. Pretty much anyone can benefit from the financial practice of planning your spending. Again, this is something that’s wise to do in preparation for an economic downturn as well as when life is going smoothly.

If you already have a budget, you may need to tweak it in order to arm yourself against a recession. For example, you may want to cut down on recreational spending and put more money toward making repairs on your home or car or try a few clever ways to pay off your debt.

Take out an adjustable-rate mortgage

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If you were around for the Great Recession that followed the housing crash of 2008, you likely know all too well the perils of taking out an adjustable-rate mortgage. These loans played a major role in the real estate collapse as folks couldn’t make the increased monthly payments.

The market learned a valuable lesson about adjustable-rate mortgages, but it bears saying anyway: Don’t take out one of these loans during a recession. Rising rates and potentially decreased income could wind up making you homeless.

Make a large purchase with a loan

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Buying a home or car are two of the biggest purchases most folks make in their lifetimes. However, a recession is a bad time to snag big-ticket items that require financing.

The reason is simple: During lean times, the odds that you or a family member will lose a job or income are greater than during boom times. These kinds of changes in turn could make it much harder to make those monthly payments. You should also be mindful about taking out student loans at this time as well.

Co-sign on a loan

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Co-signing on a loan is a risky financial proposition even when the economy is healthy, as you’re literally putting your finances on the line for someone else. But when the economy is struggling, the risk is even greater for two reasons.

First, the person you’ve co-signed for may lose their job and you’re on the hook for their loan. Or your income could decrease, making you vulnerable if you have to pay the loan. So avoid doing this unless you absolutely have to in order to help a loved one survive.

Expanding your business with financing

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If you’re one of the millions of Americans who own their own business, you likely have growth as a priority. However, expanding your business with financing during a recession can be quite risky, especially toward the beginning of the downturn.

You may be tempted to take a loan out during a recession as rates will be fairly low. However, slowing sales — which are always possible in lean times — can leave you unable to pay back that money you took out to upgrade your equipment or have more merchandise on hand.

Sell off your investments

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This may seem counterintuitive, but you want to hold onto your investments — such as your 401(k) and stock portfolio — during a recession. These are long-term investments, after all, designed to help you retire after an entire lifetime of saving.

Additionally, recessions don’t last forever, and things will eventually improve in the marketplace. So don’t panic, leave your investments alone, and know that you will weather this storm, no matter how dire everything might seem. Trust in the data that supports this time and time again.

Bottom line

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It’s natural to be anxious before a recession, as things can seem uncertain and often downright scary. There are also a lot of mistakes you can make in a recession that can wreak havoc on your finances.

There’s a chance we might not even be heading into an economic downturn, and things might not get that bad. But it’s good to be prepared for whatever is coming next.

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