Five Ways to Strengthen Your Finances for Any Market Environment

The word “recession” is usually associated with financial burdens and increased stress. It is easy to understand why, as news headlines tend to focus on everything that is going wrong in the economy and nothing that is going right. In reality, economic slowdowns are a normal part of the financial cycle and are necessary for a healthy economy to continue to grow in the long-run. Additionally, with the right planning, you can navigate a recession effectively and even come out financially stronger on the other side. 

1) Bolster Your Emergency Fund

Maintaining a highly liquid, low risk emergency fund is always a good idea, whether a recession is imminent or not. You want to be prepared for any major unexpected expenses that may pop up (medical expenses, home repairs, etc…). The importance of an emergency fund is amplified if an economic downtown arises and you or your spouse loses a job. Household income will be temporarily reduced, and having a healthy emergency fund will allow you to continue to pay the bills and keep the lights on until you get back on your feet. Generally, keeping 6-8 months of household income in a highly liquid vehicle, such as a high-yield savings account or a money market fund is a good goal, however this target will shift depending on your personal situation (family size, monthly expenses, etc…). 

2) Revisit Your Budget 

If the economic outlook is bleak and you are expecting a recession to impact your daily life, revisiting your budget is a useful exercise that can help limit your spending during times of uncertainty. Identifying “needs” vs “wants” is a key part of a budget review. Discretionary spending on things such as dining out, entertainment, and subscription services may not seem like they are taking a big bite out of your income (it’s only $10 per month!), but many people are surprised to see how their hard-earned income is really being spent when they sit down and perform a spending analysis. 

3) Delay Large Purchases

This is related to revisiting your budget and prioritizing spending, but it deserves its own section on this list. It can be hard to put off large purchases, especially if it is something that you have been looking forward to or saving up for for a long time. However, if an economic downturn hits and you are unsure about your income staying consistent in the near future, it is a good idea to reconsider these purchases and put them off just a little while longer. Having a strong emergency fund in place will benefit you more than a new car or a remodeled kitchen if you are unexpectedly laid off during a recession. If you find yourself in this situation, check out our blog post that provides guidance on how to manage your finances when you lose a job. 

4) Review Your Investments and Meet With Your Advisor 

Having a well diversified portfolio investments can help smooth out the ride during market downturns and recessions. If you haven’t reviewed your allocation recently, you may be surprised to see how concentrated your portfolio is to one sector or index (such as the Magnificent 7 or the S&P 500 overall). Exposure to different industries, company sizes, geographic regions, and investment types can help keep volatility lower in your portfolio compared to what you may see on the TV headlines. Managing this allocation is an important part of an advisor’s job, so if you are feeling uneasy about what’s to come, consider scheduling a meeting with your advisor to talk through your concerns. 

5) Understand The Financial “Do Nots” of a Market Downtown

So far, we have discussed what you should do to prepare for and effectively navigate a market downturn. However, there are a handful of important actions that you should not take as well. 

• Do not make withdrawals from your retirement accounts prematurely unless absolutely necessary. Not only do early withdrawals from accounts such as 401(k)’s come with additional penalties, they also negatively impact your overall growth potential, which will reduce the amount of retirement assets you have in the long-run. 
• Do not attempt to time the market or panic-sell your investments when the market starts to drop. Timing the market is almost impossible, and selling your investments just because the market starts to drop can be detrimental to your financial plan. In fact, it is common for dips in the market to be advantageous times to buy more stocks. You can read about this rationale in our blog post from April 2025. 
• Avoid overreacting to news headlines during economic downturns. News outlets need new headlines on a daily basis. Aggressive headlines create bigger reactions from consumers, which drives more engagement for the networks. There is a very good chance that what you see on TV about the market dropping X percent in one day is not reflective of the performance of your personal portfolio, assuming yours is constructed of deliberately chosen, well-diversified investments (callback to #4 on this list!). 

Recessions may be beyond our control, but how we prepare for them is entirely up to us. By taking a few simple steps, you can put yourself in a better position to effectively navigate market downturns as well as help maintain your peace of mind. If you’re looking for a trusted partner to help you build a financial plan that’s constructed with your goals in mind and prepared to navigate a variety of market conditions, feel free to book a complimentary introductory meeting with one of our advisors.