The start of President Donald Trump’s second term has been unconventional, to say the least. From shuttering long-standing agencies such as USAID and the Consumer Financial Protection Bureau to allowing billionaire Elon Musk to lead the charge against perceived government inefficiency and institute mass layoffs, the country is in largely uncharted territory.
“It’s been an interesting ride over the last eight weeks or so,” says Melissa Reaktenwalt, CEO and lead advisor of EViE Financial Group, which is based in the Washington D.C. metro area and serves clients across the country. “This feels like a new frontier.”
The stock market plummeted on April 2 after implementing so-called Liberation Day tariffs, leaving many people fretting over lower 401(k) and IRA balances.
The April jobs report from the U.S. Bureau of Labor Statistics was promising with 177,000 nonfarm payroll positions added, but it hasn’t been enough to cancel out overall uncertainty over the current economic situation.
“Recessions are really, really difficult to predict,” says Neal Weber, chief financial officer for Blue Federal Credit Union, which has branches in Wyoming and Colorado.
However, it’s always a good idea to be prepared, and here are some steps to take if you’re worried about a faltering economy:
Don’t Panic
It’s easy to feel panicked about the possibility of a recession, but that can cause you to make expensive mistakes.
“Fear and uncertainty are trillion-dollar bad words,” according to Albert Williams, chair of the finance and economics department in the H. Wayne Huizenga College of Business and Entrepreneurship at Nova Southeastern University.
Nowhere has that been more obvious than in recent, dramatic stock market fluctuations, which can happen when investors buy and sell haphazardly.
“It’s easy to get looped into some of the fear and the doom and gloom of a recession and miss the opportunity (it) provides,” Reakenwalt says.
A recession offers investors the chief opportunity to purchase investments at significantly lower prices. People may also find that an economic downturn could catalyze a new, more meaningful job or a realignment of spending priorities that proves beneficial in the long run.
Revisit Your Budget
Now is the time to review your budget and note which expenses can be eliminated or reduced. For instance, you may want to cancel subscriptions, shop for cheaper auto insurance or commit to eating out less often.
“We expect that we will see the cost of living go up,” Williams says. He hopes that countries will negotiate to reduce recently announced tariffs, but in the meantime, “The tariffs will be paid by Americans,” according to Williams.
He notes that companies importing goods into the U.S. will pay the tariffs and then pass that cost on to consumers through higher prices.
While it’s smart to pare down your budget, keep in mind that prices will likely go up. If you have a major purchase looming, it may be better to buy that item sooner rather than later, when the full effect of tariffs may be felt.
[Read: What Will Cost Most Under Trump’s Tariffs?]
Boost Your Emergency Fund
While much of what happens in a recession is outside the control of individual people, Reakenwalt says households should focus on shoring up what they can.
That means prioritizing an emergency fund if you don’t already have one. The general rule of thumb is that you should have enough money in your fund to cover expenses for three to six months. However, you may want to save more if your income is irregular, your job is unstable or retirement is approaching.
[READ: 10 Good Reasons to Spend Money from Your Emergency Fund]
Pay Down Debt
Clearing your budget of debt payments can improve your cash flow and position your household to better weather a recession. That is especially true of high-interest or variable-rate debt.
“You should be looking right now at paying down those debts,” according to Weber.
He says some people mistakenly believe a recession is a good time to leverage debt. Still, that approach can backfire, particularly if incomes go down or the cost of living rises substantially.
Stay the Course With Investments
When the stock market tumbles, it can be tempting to withdraw money to avoid further losses. However, this approach only locks in those losses.
“Once you take it out, it’s not going to grow again,” Williams says. And historically, the market has always bounced back from a recession.
Some retirees may have little choice but to pull money from the market if they use cash from retirement funds to pay for everyday expenses. However, they should first look for other sources of money — such as savings or part-time employment — if at all possible.
Meanwhile, workers should continue contributing to their 401(k) plans and IRAs as long as their budget allows.
“Everything is on sale right now,” Reaktenwalt says, referring to stock prices. “I say it’s a blue-light special.”
Refresh Employment Skills
A recession often means job losses, and workers should be prepared for that possibility.
“Brush up on skills and ensure you’re very marketable,” Weber says.
In addition, take advantage of opportunities to network with others in your field. These connections can be valuable when searching for new employment should you be laid off.
Moreover, those with unstable jobs may want to take even more financial precautions. Even if they can comfortably afford everything in their budget now, they may want to start cutting expenses to bolster savings.
“They have to live very lean,” according to Williams. And it’s definitely not the time for expensive vacations, he adds.
Talk to a Professional
Consulting with a financial professional is always wise, and it can be especially useful when managing money before and during a recession.
“It’s never wise to make these types of decisions based on emotion,” Weber says.
A financial advisor can help temper those emotions by providing an objective opinion on how best to proceed in uncertain times. Weber also notes that people may want to check with their credit union or bank to review their accounts to ensure their money is in the best place possible.
Once the dust settles, an advisor can evaluate your financial situation and suggest changes you might need to make.
For instance, your portfolio may have become out of balance since all funds don’t gain — or lose — value at the same rate. A financial planner can make necessary adjustments to ensure your portfolio matches your risk tolerance and life goals, preparing you to make the most of the post-recession world.
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A Recession Seems Likely: Here’s How to Prepare Your Finances originally appeared on usnews.com
Update 05/05/25: This story was published at an earlier date and has been updated with new information.
