In 2012, only a few years removed from the Great Recession, I achieved financial independence and retired early at 34. Before that, I spent 13 years working at financial institutions like Goldman Sachs and Credit Suisse.

While the United States is not officially in a recession or suffering from stagflation — a situation where prices rise despite stagnant or negative economic growth — just yet, the warning signs are there. Often when uncertainty rises, consumers pull back. As spending slows, business revenues decline, hiring freezes and investments stall.

This kind of upheaval can be scary. Still, the important thing to remember is that there are so many things you can do to prepare your finances right now.

Here are my top recession money rules

1. Tackle any maintenance and repairs you've put off

With inflation potentially bound to increase, it's smart to lock in prices on necessities now. That means fixing what's broken and stocking up on essentials before they get more expensive.

Own a car? Handle major maintenance now — brakes, tires, belts, battery, filters, etc. Once warranties run out, unexpected auto repairs can crush your budget.

Same with your home: if your roof, windows, or appliances are on their last legs, consider replacing them while prices are still manageable.

Don't forget your health. Book checkups or procedures before insurance premiums and deductibles rise.

2. Keep 6-to-12 months' worth of living expenses in an emergency fund

During a recession, having cash on hand can mean security and peace of mind.

I recommend having six to 12 months' worth of expenses in a high-yield money market fund or in Treasury bonds, in an account that yields roughly a 4% return.

This way, if you encounter a layoff or an emergency expense, you know that you have a financial cushion that isn't affected by the unpredictability of the stock market.

You may also be less tempted to potentially sell stocks and other investments when prices are down.

3. Clearly define your investment goals

Your time horizon influences your risk tolerance. If you're investing for retirement 20 years out, stay the course.

If you need cash within two years — for a home, tuition, a business or retirement — you could consider shifting into more liquid, defensive assets, such as three-month Treasury bills, short-term Treasury bond ETFs, or a money market fund.

Articulating your goals, and knowing why you're investing, can also make it easier to remain disciplined when markets are volatile.

4. Think broadly about your career

Now is the time to strengthen your relationships with your manager and your team, and network across your industry. 

In times of economic and career uncertainty, the best defense is being crystal clear about your strengths and the value you bring to the table.

Consider, too: How does your experience translate to other fields?

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If you find that you have transferable skills, see if it is possible to switch to a more stable industry or employer while the job market is still relatively strong. It's always easier to land a job while employed. If you are hit with a layoff, make sure you negotiate a severance package.

Ultimately, remember to be generous with your own time and expertise, too. People remember kindness, and opportunities can come from anywhere. 

5. Build alternative income streams

Relying solely on just one paycheck is risky, especially during a recession. Consider building as many income streams as possible.

Some examples include: rental income, stock dividends, bond income, freelancing, consulting, side hustles, the gig economy (think rideshare, delivery, being a handy person) or giving lessons in something that you are skilled at.

In the past, recession-resistant sectors have included healthcare, education, utilities and essential services. Many businesses and consumers will cut discretionary spending during hard times, so position yourself accordingly.

6. Use this time to invest in the future

During a recession, the stock market typically sells off. Instead of running away from it, consider leaning in and dollar-cost averaging for your retirement and your children's future.

Use this time to contribute a little more to your 401(k), IRA, Roth IRA, 529 plans, and custodial investment accounts.

Chances are high that 10 years from now, you'll be glad you stayed the course, and even more grateful you invested a little extra when prices were down. Just make sure you always maintain at least six months' worth of living expenses in cash before investing more.

It's time to prepare, not panic

Recessions, especially stagflation, can test the resilience of even the most disciplined planners. But they reveal opportunities for those who stay level-headed and proactive. 

Remember, recessions don't last forever — they typically span six months to two years, with an average duration of about 10 months since World War II. 

In this moment, the key is to shift from a mindset of fear to one of strategy. Tighten your expenses, boost your cash reserves, diversify your income streams and lean into long-term investments.

With preparation, patience and perspective, you can survive an economic downturn and even use it as a launchpad for lasting financial growth.

Sam Dogen is the founder of Financial Samurai and the author of "Millionaire Milestones: Simple Steps To Seven Figures," his latest book on building wealth in today's world. He also wrote the Wall Street Journal bestseller "Buy This, Not That." In 2012, Sam retired at 34 after working in investment banking for 13 years. He has been helping others achieve financial independence ever since.

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