No matter what the state of the economy is, it seems there’s always talk of a looming recession ahead. And recessions are indeed a normal part of the business cycle, and it’s highly unlikely they’ll ever go away.
But in reality, recessions normally occur many years apart, with the economy often growing a decade or more between contractions. According to data from the National Bureau of Economic Research, for example, there have only been six recessions since 1980, a span of 45 years.
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That being said, there hasn’t been a major recession in 16 years, not counting the shortest recession on record that occurred at the onset of the coronavirus pandemic. With high interest rates, markets at peak valuations and prices on everything from groceries to cars remaining elevated, it could be a good time to implement some recession-proof money habits in 2025.
Best of all, these sound financial practices will also help you preserve and grow your wealth even if a recession never comes.
Build Your Life Around Having Excess Cash
When it comes to staying out of trouble financially, cash flow is king. No matter how much money you earn, if you spend all of it, you’ll never be financially secure.
This is why financial advisors always caution about lifestyle creep. If your income jumps from $50,000 to $60,000 per year, for example, it’s extremely common for your spending to increase by $10,000 per year also. Resist the temptation to spend every last dollar you earn or else you’ll always live paycheck to paycheck.
What are some ways to accomplish this? Setting aside money for savings and investments before you even pay your bills is a great way to build long-term wealth while learning to live beneath your means. Paying off high-interest credit card debt — or never getting into debt in the first place — is a great way to get a handle on your finances and free up your cash flow.
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Stock Your Emergency Fund
Most financial advisors recommend that you stock an emergency fund with three to six months of expenses to cover things like unexpected vehicle or medical bills. But job loss during a recession certainly qualifies as an emergency, as well.
If for some reason it seems as if a recession is imminent — especially if you are concerned about your status at work — it might be a good idea to boost that emergency fund to hold up to a year’s worth of expenses. This way, you’re likely to survive even the very worst of recessions.
Automate Your Investments, and Never Stop
It can be tempting to reduce or even eliminate your contributions to your savings and investment accounts if a recession is on the way. But that’s the absolute worst time to stop.
Although this isn’t always the case, recessions often go hand-in-hand with market corrections or bear markets, in which stock prices drop 10% to 20% or even more. This is actually the best time to help build long-term wealth, as you’ll be scooping up more of your investments at lower prices.
If and when markets rebound, you will reap the long-term rewards. If you stop contributing, however, you’ll never “buy low.”
Develop Multiple Income Streams
Job losses are one of the signature characteristics of a recession. In most cases, you won’t have much control over whether or not you get laid off in a recession, other than the obvious steps like bringing value to a company and being such an indispensable worker that it’s harder to let you go. But one thing you can do is source your income from multiple sources.
Rather than relying on a single employer to fund 100% of your lifestyle, picking up side gigs, working for more than one company, renting out property or even starting your own business can all be ways to ensure that if things don’t work out in one area, you’ve still got income coming in from another source.
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This article originally appeared on GOBankingRates.com: 4 Recession-Proof Money Habits for 2025 and Beyond
