Recession-Proofing Your Finances
A recession is two consecutive quarters of declining GDP. They happen every 7-10 years on average. You cannot prevent them, but you can prepare.
Before a Recession
Build 6-12 months emergency fund. Pay down high-interest debt. Diversify income sources. Keep investing (do not stop SIPs). Avoid large new debts.
During a Recession
Do NOT panic sell investments. Continue regular investing (you are buying at lower prices). Cut discretionary spending. Update your resume. Avoid lifestyle inflation.
Historical Recovery Times
| Recession | Market Drop | Recovery Time |
|---|---|---|
| 2008 Financial Crisis | -57% | 4 years |
| 2020 COVID | -34% | 5 months |
| 2001 Dot-com | -49% | 4.5 years |
Markets have recovered from every recession in history. Those who kept investing during downturns came out far ahead.