How to prepare for a recession (and why now is the time to start)
Nobody can tell you whether a recession is coming, and anyone claiming otherwise is guessing. What you can work out is how much one would cost you, and the answer to that has far more to do with your own arrangements than with the state of the economy.
Knowing how to prepare for a recession comes down to four things. You want three to six months of essential spending held in savings, no expensive debt hanging over you, an income you could replace if you had to, and investments arranged so that a bad year never forces you to sell them.
Building the savings and clearing the debt take a year or two to sort out, which is why they're worth starting now, in a period of calm, rather than in one of economic uncertainty. The six steps below cover what to do with your savings, your debt, your income and your investments, and what not to do when a recession arrives.
How do you prepare for a recession?
Preparing for a recession comes down to building up enough savings to cover a few months without work, clearing the debts that get expensive when your income stops, and leaving your investments alone while they fall. The six steps below cover each of those, starting with the ones that take longest.
| Step | What to do | How long it takes |
|---|---|---|
| 1. Work out what you spend | Add up your essential monthly outgoings, so rent or mortgage, bills, food and travel | An afternoon |
| 2. Build your savings | Hold 3 to 6 months of that spending in an easy access account | 1 to 2 years |
| 3. Clear expensive debt | Pay off credit cards, overdrafts and anything charging more than your savings earn | 1 to 3 years |
| 4. Protect your income | Update your CV, check your redundancy entitlement, build a second income | Ongoing |
| 5. Leave your investments alone | Do nothing, and keep paying into your pension | Ongoing |
| 6. If retired, hold 2 years of cash | So you never sell investments while markets are down | 6 to 12 months |
Steps one and four are free and you could start today. Steps two and three take years, which is why you want them done before a recession arrives rather than during one.
1. Work out what you spend each month
Before you can save three months of essential spending, you need to know what a month costs you.
Essential spending is what you'd still owe if your wages stopped tomorrow. This includes your rent or mortgage, council tax, energy, food, insurance, travel to work and childcare. It isn't your salary, and it doesn't include holidays, subscriptions or meals out, because those stop in a difficult month.
Go through three months of bank statements, mark every payment you couldn't cancel, and add them up. If that comes to £1,500, then three months of essential spending is £4,500, and six months is £9,000. That's your target.
If you want to go further than a monthly figure, cashflow modelling maps your income and spending across the years ahead, so you can see how a lost job or a fall in markets would play out over time rather than guessing. It's something one of our advisers can do with you.
2. Build up three to six months of savings
Savings are what protect you in a recession, because a recession is, for most households, a job that disappears. Finding a new role takes longer when your whole industry is cutting staff at the same time, and your savings are what pay the mortgage while you look.
Three months of essential spending is the minimum you want, and six months gives you room if the search drags on. How much you need depends on how quickly you could replace your income.
| Your situation | Months to aim for |
|---|---|
| Two salaries coming in, stable sector | 3 months |
| One salary, or a mortgage taking most of it | 6 months |
| Self-employed, on contract, or paid on commission | 9 to 12 months |
| Retired, drawing an income from your pension | 2 years of the income you take |
Keep the money in an easy access savings account so you can reach it the same day without paying a penalty. Resist the urge to invest it - the point of this money is that it holds its value at exactly the moment everything else is falling.
Getting there takes time, which is why it's the step to start now rather than later. Putting aside £300 a month builds £4,500 in fifteen months, and a standing order set for the day after payday means you stop noticing it goes.
3. Clear your expensive debt while you still have an income
Clearing debt before a recession starts with your most expensive borrowing, which for most people is credit cards, overdrafts and store cards. Do it while you still have wages coming in. Your mortgage and student loan can stay on their normal payments.
Debt is what turns a lost job into a crisis. Someone made redundant with a clear credit card has a difficult year. Someone made redundant owing £8,000 on a card is still paying interest on it every month, whether they're earning or not.
| Type of debt | What to do | Why |
|---|---|---|
| Credit cards, store cards | Clear first | Highest interest, and it keeps growing |
| Overdrafts | Clear next | Can be withdrawn by your bank at any time |
| Car finance, personal loans | Keep paying, clear if you can | Fixed payments you'll still owe without a job |
| Mortgage | Normal payments | Low interest, and overpaying locks money away |
| Student loan | Normal payments | Repayments stop if your income does |
If you can't clear the balance, move it onto a 0% balance transfer card or a lower-rate personal loan while you're still employed. Banks decide what to offer you based on your income, so once you've lost your job, those cheaper options are no longer open to you.
4. Protect your income before you lose it
Your income is the thing a recession takes, and it's the largest asset you own. Someone earning £40,000 with twenty years of work ahead is sitting on £800,000 of future earnings, and it's the asset they spend the least time protecting.
Four things help, and none of them cost anything:
Keep your CV current, even when you're settled. Rewriting it from scratch after a redundancy takes weeks you won't have.
Find out what you're paid elsewhere. One conversation with a recruiter a year tells you whether your skills still command your salary.
Check your redundancy entitlement. Statutory redundancy pay is often far less than people assume, and anything above it depends on what your contract says.
Build a second income if the first one is fragile. It doesn't need to replace your salary, only to soften what happens when it stops.
If you're the only earner in your household, price up income protection insurance. It pays a monthly income if illness or injury stops you working, though not if you're made redundant, which is a distinction people often get wrong.
5. Leave your investments alone when a recession hits
The best thing you can do with your investments during a recession is nothing at all. Share prices tend to fall in a downturn, but they have recovered from every downturn so far, and the loss only becomes real on the day you sell.
Selling at the bottom is what makes the loss real. You then have to decide when to buy back in, and markets usually start recovering before the news does, so you buy back at a higher price than you sold at.
Keep paying into your pension as well, and increase the amount if you can afford to, especially at the start of a new tax year when your allowances reset. When markets are down your monthly contribution buys more units than it did before, which makes stopping your contributions during a downturn one of the most expensive decisions available to you. The same logic applies to ISAs and other regular investments.
The one thing to check is where your money is invested, since a portfolio held entirely in shares behaves very differently to one that mixes shares and bonds. If a fall of 30% would stop you sleeping, change it now while markets are calm rather than after they've fallen.
6. If you're retired, build a cash buffer before markets fall
Someone retired and drawing an income from their pension has the harder problem in a recession, because leaving your investments alone isn't available to you when you need to sell them to live on.
The danger is called sequencing risk. If markets fall 30% and you're withdrawing £2,000 a month regardless, you're selling more units each month at a lower price, and the pot shrinks faster than it would have done if the same fall had happened five years later. Two people with identical savings and identical returns can end up with very different outcomes depending on when the bad years arrive.
Holding two years of the income you draw in cash and short-dated bonds fixes it. When markets fall, you live on the cash and leave the investments to recover. When markets rise, you top the cash back up. It buys you the one thing a retired investor can't otherwise buy, which is time.
Working out how much you can safely draw, and where from, is what cashflow modelling is for. It maps your income against different market conditions, so you can see whether your plan survives a bad decade rather than an average one. If that's something you'd like to look at, it's what we do at Vintage Wealth Management.
What not to do when a recession is coming
Three mistakes make a recession more expensive than it needs to be, and each one is a decision taken too late to help.
The most common of the three is waiting for the recession to be confirmed. A recession is two consecutive quarters of the economy shrinking, so the figures only arrive months after it began. Britain's last recession began in the second half of 2023, and the ONS didn't confirm it until February 2024.
Moving into cash and borrowing to keep spending both come from the same instinct, which is to do something. Cash loses value to inflation, and selling out of the market means missing the recovery, which usually starts before the news improves. Borrowing to hold your spending steady turns a difficult year into several, so cut your outgoings in the first month rather than the sixth.
A recession is a national event, but what it costs you is decided by arrangements you made beforehand.
Related reading: our guides to passing on wealth and family business succession.
Preparing for a recession with an adviser
Preparing for a recession works best when the savings, the debt and the investments are dealt with as one plan rather than three. At Vintage Wealth, cashflow modelling is one of the things we do most, mapping how your money would hold up if your income stopped or markets fell. If you'd like to talk through where you stand, or what a bad few years would mean for your pension, we'd be glad to.
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Preparing for a recession takes six steps. Work out your essential monthly spending, build up three to six months of it in savings, clear expensive debt like credit cards while you still have an income, protect your job by keeping your CV current, leave your investments alone, and if you're retired, hold two years of income in cash.
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The three most costly mistakes are waiting for a recession to be officially confirmed before acting, moving all your investments into cash, and borrowing to maintain your usual spending. Each of these decisions is made too late to help, and each one makes the recession more expensive than it needed to be.
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Hold three to six months of essential spending in cash, and no more. Cash protects you from having to sell investments at a low price, but it loses value to inflation every year. Anything above your emergency fund should stay invested, because markets recover and cash does not.
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An easy access savings account is the safest place for money you might need within a few years. UK deposits are protected up to £120,000 per person per banking group under the Financial Services Compensation Scheme, following the limit increase in December 2025. Money you won't need for five years or more is generally better left invested.
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No. Deposits held with UK-authorised banks and building societies are protected up to £120,000 per person, per banking group, by the Financial Services Compensation Scheme, following the limit increase from £85,000 in December 2025. Joint accounts are covered up to £240,000. If you hold more than £120,000, spreading it across separate banking groups keeps all of it protected.
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Your pension falls in value during a recession, because most pensions are invested in shares. If you're still working, keep contributing, since your payments buy more units at lower prices. If you're drawing an income, holding two years of it in cash means you avoid selling investments while markets are down.
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