Despite reassuring words from U.S. Treasury Secretary Janet Yellen recently that the nation will avoid a recession this year, there’s no guarantee that we won’t find ourselves in one by the end of 2023.

That means now is a good time to start preparing your finances in case a recession hits.

Don’t Overreact

No one likes to be reminded of hard times. But ignoring your finances during hardship will only make things worse.

Don’t disengage from your finances during a down market. On the flip side, don’t overreact and attempt to cut your losses by panic selling.

Stick to your long-term plan. Be mindful during a recession, because it will help to make you more disciplined.

If you have a plan, you can adjust accordingly, so long as you are still focused on the end goal.

If you don’t have a financial plan, begin one now. Just remember to have a long-term goal in mind, not just getting through hard times, because they will come to an end.

Spend Less or Earn More

Assuming you don’t have buried treasure in your backyard or the couch cushions, it’s not likely you’re going to just come up with more money.

That means spending less is the most obvious way to have more cash on hand. Before you cut back, know how much you’re spending each month and on what. Once you know where you can trim the fat, you’ll be able to do so. Be sure not to cut back on essentials or saving for the future.

This would also be a good time to either ask for a raise from work or look into a side hustle that can bring in some extra income.

Strengthen Your Emergency Fund

There’s no greater financial lifeline during hard times than an emergency fund. Ideally, you have enough set aside to cover three to six months of essential expenses (rent/mortgage, bills, groceries, gas). Saving more than that certainly isn’t a bad thing.

Don't worry if your emergency fund isn't there just yet; 3 months' worth of essential expenses is a good chunk of change to have set aside.

Whether you’re at that goal or starting from scratch, start saving now. Try and set a goal of at least getting one month’s worth of essential expenses covered. Once you reach that, do it again.

It’s not a bad idea to keep a portion of your emergency fund in liquid savings too, so you can easily access funds when or if you need to. It doesn’t have to just be cash. You can also consider a low-risk investment where money can be drawn from quickly and easily without harsh penalties.

Reduce Your Debts

It will be a lot easier to make it through tough times if there is one less place your funds are going.

Try and put more towards paying down debts. It’s ok if you can’t pay them off completely, but getting closer to that end date will make you feel better.

If you are able to be debt-free before hardship strikes, it will make life significantly easier knowing you have more funds available to you and one less bill to worry about.

Consider your career opportunities

Recessions often lead to high levels of unemployment. So, it's important to consider how tough economic times could affect your career and have a backup plan should you face a layoff.

Start by refreshing connections within your professional network. Be sure to consider not only your coworkers but also any connections you have outside of your current employer. Having established relationships at a variety of organizations can give you a huge leg up in the job market.

Make sure your resume is up to date. Also, consider skills or new education that you can pursue to make yourself more attractive to a potential employer. Expanding your skill sets can not only help you in the job market, it can make you more valuable to your current employer.

Also, consider adding a side gig. Along with providing you with some extra cash now – which can help you reduce debt or boost your emergency savings – it could serve as a stop-gap if you do find yourself unemployed.

Stay on Track With Your Retirement

During a recession, the stock market is going to take a hit. While you might be tempted to sell your mutual funds at a loss and move the money into something safer, we would suggest you don’t.

Investing is a long-term plan with ups and downs along the way. You’re likely to lose more money abandoning the plan during the downturns than you are seeing them through.

Even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. Think long term Keep your investments where they are and wait for the upswing to happen.

In reality, you should be investing when the market is down. That’s because you’ll be investing in stocks through your mutual funds at low prices. And when the market picks back up, you’ll be happy to see the increase in your investments.

Investing for retirement is a marathon, not a sprint. Stick with it.