What to Do With Your Money in a Recession (2024)

You’ve heard the scary news: America is headed for a recession! The market is falling! Inflation is out of control!

Stop.

Take a breath.

While the U.S. economy could be headed for a recession, it’s no time to panic. (Some economists think we’re currently in a rolling recession, which happens when parts of the economy take a downturn while others stay positive.) But if you’re wondering what to do with your money in a recession, we’ve got answers. Hint: It’s not stuffing it under your mattress.

Here’s the deal: Recession or not, there’s no time like the present to take control of your money. If living through a pandemic wasn’t enough to light a fire under you, then maybe a recession will help send the message home—you need a plan for your money.

What Is a Recession?

Before we get too far here, let’s go back to economics class together and walk through what a recession actually is (a little boring, but stick with us). A recession happens when there’s a slump in economic growth (measured by gross domestic product) for at least two quarters. GDP is the total of all goods and services produced by the economy.

GDP was -1.6% in the first quarter of 2022 and -0.6% in the second quarter.^{1 2}Those two negative quarters of GDP growth met the technical definition of a recession. But GDP moved back into positive territory in the third quarter at 2.6%, which means we aren’t in a recession anymore.³

Hey, we know it’s tough out there. Inflation is up. The stock market is down. But don’t focus on things you can’t control—like the economy or whether sweater-vests are going to be cool again (fingers crossed). Focus on what you can control: your finances.

At the end of the day, you’re in control of what happens in your house, and that’s some good news right there! When you’ve got your money in a good place, you don’t have to live at the mercy of what the economy is doing.

What Happens During a Recession?

Recessions cause companies to lose money and sometimes go bankrupt. That usually leads to job losses and a downhill slide in the stock market. Yep, no fun.

But recessions come in different intensities. Have you ever ordered hot wings and got to pick what heat level you wanted? Level 1 was mild, and Level 5 was something related to the devil.

Well, our last recession—caused by coronavirus shutdowns—was mild. Sure, GDP dropped big-time and unemployment skyrocketed, but the economy recovered quickly.

And then there was the infamous Level 5 Great Recession of 2007–09. Want to know our super scientific term for it? Devil fire. Yeah, it was bad and burned much longer (18 months) than typical recessions.⁴ Lots of businesses failed (or had to be bailed out by the government), and unemployment hit 10%.⁵

The Great Recession was the worst recession since the Great Depression (the OG of harsh economic times).

The big takeaway here is that recessions are a natural part of the economy that happen every five to 10 years. We hope our next one will be mild, but even if we have a moderate or a devil fire one, there are smart ways to handle your money and prepare for a recession.

Should You Pay Off Debt During a Recession?

Absolutely. The only time you should take a break from paying off your debt is when you’ve got some serious stuff going on, like you just lost your job or there’s a baby on the way. That’s what we call “storm mode”—where you’re heading into some uncharted waters and need to hang on to as much cash as you can. As long as your job is stable, a recession isn’t a storm you need to stop Baby Step 2 for.

Instead, use a recession as even more motivation for why you need to cut debt out of your life forever. Think about the peace of mind you’d feel if you didn’t have debt in the middle of a recession.

How awesome would it be to get to a place where you could invest and make some huge returns when the economy swings back? That’s the thing about debt—it robs from your future and keeps you stuck in a rut, paying for the past. So don’t waste any more time. Shake a leg and get that junk out of your life forever.

Should You Keep Saving During a Recession?

Yep. Having savings goals is never a bad idea, even during a recession. So if you’ve got a Christmas sinking fund in full force—keep it. If you’re smack-dab in the middle of saving your emergency fund—stick with it. During a recession, there’s nothing like taking a peek at your savings account and seeing some good-looking numbers staring back at you.

If you don’t have an emergency fund in place, guess what? A recession is the perfect time to get one together. This is Baby Step 1 and should be your first stop before you start paying off any debt. And if you’ve already wiped debt clean out of your life for good (amazing!), you should be saving a fully funded emergency fund of three to six months’ worth of expenses—we call this Baby Step 3.

Having an emergency fund gives you that buffer between you and all the craziness life throws your way, like losing your job or having your A/C go on the fritz in the middle of July.

Should You Continue Investing During a Recession?

Yes, yes—a thousand percent yes! You might be tempted to pull your investments during a recession because you’re worried about your retirement account going down, but don’t do that. If you keep investing during a recession, you’re bound to reap the benefits when the economy bounces back.

History shows us that the economy recovers time and time again—it happened after the Great Depression and after the Great Recession and even after 9/11. The economy will bounce back again.

But here’s the thing: Any losses you see on paper during a recession won’t impact you unless you take the money out of your accounts. And if you do get scared and stop investing when things are shaky, then you’ll never see the gains on those investments when the market gears back up. When you keep investing when stocks are down, it’s kind of like you’re buying mutual funds at a discount.

You might hear people talking about investing in “recession-proof” assets like gold, silver or other precious metals. But precious metals have a poor rate of return, and there’s nothing driving their price except for people’s fear or greed.

Or maybe you’ve heard that bonds are the safe way to go. Here again, we don’t recommend investing in bonds, because they have a very low rate of return.

The moral of the story here is keep calm, stay level-headed, and don’t jump off the investing roller coaster. Ride it out over time, and your future self will thank you. If you need extra insight (and a voice to put your mind at ease), be sure to talk with an investment pro!

A Recession Won’t Last Forever

When you hear the word recession, it might make you a little fearful that this thing is going to stick around for all eternity—or at least for a few years. And if you watch the news too much, it’ll definitely make you feel that way. Still, as unsettling as a recession might seem, the important thing to remember is, a recession isn’t permanent.

The economy is bound to take a dip sometime (you can’t sustain growth without expecting it to eventually go the other way at some point). We’ve actually experienced long periods of economic growth, while the average length of the 13 recessions since World War II is just 10 months.⁶

So, remember, don’t make any knee-jerk decisions just because the country slips into a recession. There’s no reason to pull your stocks and head for the hills. But if the possibility of a recession has gotten your attention and made you take a hard look at how you’re handling (or not handling) money, now is the time to take matters into your own hands and do something about it.

Not sure where to begin? Check outFinancial Peace University (FPU). You’ll learn how to budget and pay off debt, so you can weather any financial storm—even in the middle of a recession.

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.