How Experts Say You Should Prepare for the Next Economic Downturn

With the job market showing signs of cooling and tariffs weighing on the economy, it may feel like there’s a possibility of an economic downturn in the near future.

If you’re worried about it, here are five actions you can take now to protect your finances.

Build Emergency Savings

Building your savings is a smart step to take during uncertain economic times. Even if the three to six months’ worth of expenses that many financial experts recommend feels like more than you can manage, any savings is better than none.

“When money’s tight, the key is consistency, not size,” said Melissa Caro, certified financial planner (CFP) and founder of My Retirement Network. Start with an automatic transfer from your paycheck, even if the amount is as small as $25, and put it in a separate account to protect it.

Work toward a tangible goal, such as building a $500 buffer. If you run into financial trouble, said Caro, having that “buys time to make thoughtful decisions instead of desperate ones.”

Lower You Expenses

If you’re worried about the economy, Caro recommends reducing your fixed expenses as much as you can. “The lower your mandatory monthly number, the more control you keep when income drops or prices spike,” she said.

Cutting back on discretionary spending, even temporarily, can also help you put more money aside for emergencies. If you cut out two streaming services and one takeout meal a week, for example, that could let you put $100 or more toward savings each month.

Develop Multiple Income Streams

As of September 2025, U.S. companies had announced 946,426 job cuts, the highest level since 2020. When employment feels precarious, it’s smart to have multiple sources of income coming in. That way, if you lose one source, you still have the others to fall back on.

Consider taking on a few freelance clients in addition to your regular work, or creating a side hustle, such as lawn care, babysitting, handicrafts, tutoring, or dog walking. These jobs can bring in extra income that can be used to pad your savings. And while they might not be able to replace your full-time income if you lose your job, they’ll ensure that you aren’t living entirely on savings.

Reduce High-Interest Debt

Paying down high-interest debt doesn’t just save you money on interest; it creates more flexibility in your spending. The right payoff strategy will depend on your personal circumstances:

• Debt avalanche or debt snowball: if you have multiple credit cards with a balance
• Balance transfer card: if you are carrying a lot of debt on a single credit card
• Debt consolidation loan: if you have multiple kinds of debt, such as auto loans and credit cards

“In uncertain times, the goal isn’t to be debt-free overnight,” says Caro. “Make minimum payments if you must, but focus any extra cash on the highest-rate balances first. Once stability returns, you can shift from survival mode to payoff mode.”

Diversify Your Investments

“For ordinary investors, diversification isn’t about chasing equal performance,” said Caro. “It’s about risk containment.” But with so much of the recent stock market performance influenced by the outcome of just a handful of technology companies, even broad index funds may provide enough diversification.

If most of your investments are concentrated in U.S. tech companies, Caro recommends investing in ‘boring assets that zig when tech zags’, or assets that are not highly correlated with those stocks. Specifically, she’s a fan of short-term Treasuries and international stocks.