5 Alarming Signs You’re Not Ready for a Recession
Written by
David Nadelle
Edited by
Amber Barkley
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Experts are divided on whether a recession is coming in the second half of 2025. As the U.S. economy and consumer confidence continues to flounder under President Donald Trump’s trade and tariff policies, the country has been on a great run with job growth as of March and showed financial resilience coming out of the COVID-19 pandemic period.
In times of economic uncertainty, it’s best to err on the side of caution. You can’t live your life always expecting the worst, but you need to make sure you and your loved ones are protected by recession-proofing your finances, especially if you’re living paycheck to paycheck.
What Can You Do To Prepare for a Recession?
A recession will bring lower economic growth and higher uncertainty, typically causing higher unemployment and lower income. Having little to no savings and relying on your income to cover your basic monthly expenses can take a devastating turn during a recession.
It’s never too late to take action and lessen the impact of a potential recession on your personal finances. Surviving a difficult economic period takes a concerted effort to reboot financial behaviors and live within your means.
Red Flags That You’re Not Ready for a Recession
However, if you recognize the following five signs in your financial life, you’re likely not prepared for a recession.
No Budget or Financial Plan
Evaluating your current financial situation, mapping out short- and long-term goals and planning how to achieve them is a good idea in the healthiest economic climate. In times of tension, it’s essential.
Likewise, if you’re not tracking your spending and making sure you have enough money to pay your monthly bills and essential expenses — which can vary from month to month — you may be caught off guard.
You don’t necessarily need to track every penny, but a budget will help you see where you can spend less and where you can save.
High Debt
Digging yourself out of debt has numerous benefits prior to and during a recession. Not only will it reduce stress, but you’ll have credit available should you need it — access to new debt during a recession can be at a premium — and probably pay less interest, since rates can rise during a recession.
Whatever debt reduction method you use — snowball, avalanche and consolidation are three popular options — tackling excessive credit card balances, personal loans or other high-interest debt before a recession starts will help you manage your finances once it hits.
No Emergency Fund
For years, experts have recommended keeping three to six months’ worth of living expenses saved. Given the current economic environment, many are now suggesting having nine months to a year of costs of living cached. And some, like Ramit Sethi, recommend a more conservative 12 to 24 months.
Regardless, you should start small and try to reach $1,000 saved to cash-flow any emergency. Not having this cushion during a recession could leave you vulnerable.
Overspending on Non-Essentials
During a recession, you’ll need to lower your lifestyle spending and cut out anything you don’t need — for example, eating out at restaurants too often or paying for unused subscriptions, apps and streaming services.
If a large portion of your income goes towards impulse and luxury items, you may struggle to cut back if times get tough, but breaking spending habits now will set you on the right path and will be so rewarding.
Be more aware of when and where and why you shop. You should have a reason for each purchase you make.
Unstable Income
Depending on if you’re on a fixed or variable income, if you own your own business or if you work in an industry that is sensitive to downturns, a recession could drastically affect your income.
Working in a recession-sensitive industry like retail, real estate or hospitality or relying on freelance work increases risk. Fighting for overtime hours might be a distinct possibility in the near future, but you should also think about starting a side hustle or monetizing your hobbies and skills.
More From GOBankingRates
Sources
- USA Today, “Will there be a recession in 2025? Forecasters are split – see reasons why.”
- U.S. Bank, “How to prepare for a recession: 7 steps to take.”
- Federal Trade Commission, “Making a Budget.”
- Equifax, “Strategies for Paying Off Debt“
