8 Tips to Prepare for Economic Uncertainty

Paul Gougé is a lead consultant in planning excellence at Northwestern Mutual.

Whether it's a recession, a stock market correction, persistent inflation, or concerns about losing a job, economic uncertainty can make us question whether our assets can handle it.

Northwestern Mutual’s 2026 Planning & Progress study found that more people expect the U.S. economy to weaken in 2026 (45 percent) than improve (36 percent). The same study found that more than half (52 percent) of Americans say they place too much emphasis on building wealth/growing their assets without dedicating enough to protecting their assets and managing against risks.

The challenge is that uncertainty is a normal part of investing. While nobody can predict exactly when a recession will occur or how the markets will react, you can prepare for a range of economic scenarios. That way you can sleep better at night and avoid panicked phone calls to your financial advisor.

If you're wondering how to protect your assets from economic collapse or how to recession-proof your finances, the answer usually isn't making dramatic moves. Instead, it's about building a stable financial foundation that can withstand market volatility while keeping you on track with your goals.

Understanding the basics of a recession

Most nonexperts probably think of a recession as a significant downturn in the economy. Although economists have a more formal way of defining a true recession, the important thing to remember is that it’s a downturn that lasts long enough to impact most people, businesses, and governments. During the lead-up to a recession and in the recession itself, the unemployment rate rises, and people stop spending as much. Businesses may slow down their production, see lower profit, or even fail. Stock market declines make headlines, and investors lose confidence. To help spur borrowing and spending, the central bank may lower interest rates. And governments may see big budget deficits.

How to prepare your finances for economic uncertainty or a recession

If a recession hits, it’ll change the way most of us spend—especially if we are worried that we might get laid off. We might lose spending power if prices go up and it gets more expensive to borrow money. And a recession could hurt our long-term finances. While an economic slowdown will impact everyone differently, these eight tips and strategies can help you prepare.

1. Revisit your budget

Whether you do a great job keeping your spending on track or you’re barely able to pay your bills, this is the first place to start when there’s economic uncertainty. The goal is to free up some additional money to save and to reduce expenses. That could put you in a better spot if you lose your job due to layoffs or a recession.

Start by tracking where your money is going—what’s coming in each month and what’s going out. Group your spending into three categories:

While it's always a good idea to save about 20 percent of your income, this might be a good time to push yourself to increase what you do save.

Reviewing or creating your budget doesn’t mean that you have to totally deprive yourself. You can probably find some low-hanging fruit—perhaps subscriptions or memberships that you don’t use very often. You might be surprised how much you’re spending on things you hardly use. This is a good time to cut those out and put that money toward savings.

2. Bolster your emergency fund

When economic conditions become less predictable, having money you can easily access—known as liquidity—becomes particularly valuable.

Having access to cash (or assets you can quickly convert into cash) can help you cover unexpected expenses, manage periods of reduced income, and avoid selling long-term investments when they’re down. In a nutshell, it can get you through a rough patch without having to turn to credit cards with high interest rates.

That makes an emergency fund one of the more important building blocks of financial security.

Consider keeping these funds in accounts that balance accessibility with some payback or “yield,” such as:

• High-yield savings accounts,
• Money market accounts or funds,
• Short-term certificates of deposit (CDs)

Some people also keep money on hand to take advantage of an opportunity. Even during a recession, a good possibility might come your way. For example, if that perfect piece of real estate that you’ve dreamed about hits the market, it may help to have cash ready for a down payment.

How much should I keep in an emergency fund?

Most financial experts recommend setting aside three to six months of expenses in cash, but also try to have other resources available that can be converted to cash in a short time span with no or minimal tax penalties, such as a health savings accounts.

3. Get smarter about your debt

While investing remains important, reducing high-interest debt is often one of the most impactful financial moves you can make during uncertain economic periods.

Variable-rate debt becomes particularly concerning when interest rates rise. Credit card balances, payday loans, and other high-interest obligations can become increasingly expensive and place additional pressure on household cash flow.

Consider focusing on:

• Paying down credit card balances,
• Eliminating payday loans and other high-cost debt,
• Reducing variable-rate debt where possible, and
• Refinancing longer-term loans (like your mortgage or student loans) if more favorable rates are available.

At the same time, think carefully before taking on significant new debt for discretionary purchases. Preserving flexibility can be especially valuable when economic conditions are uncertain.

Reducing debt doesn't just improve cash flow. It can also lower financial stress and make it easier to continue investing and saving even during challenging periods.

During a recession, interest rates may drop. That can also make it a strategic time to refinance a mortgage. If you can secure a significantly lower rate, refinancing could lead to substantial savings on your monthly payment. However, be mindful of additional costs and your credit score, as lenders often tighten their credit requirements during recessions.

When you’re trying to pay down debt, it can feel like you’re just barely keeping your head above water. And if things get bad enough, it may be tempting to use some of your retirement savings, like 401(k) balances, to make things easier. Although using money from a retirement account to pay down debt might help in the short term, it can create long-term problems.

4. Stay in the stock market

Stocks serve an important role in a good financial plan by helping you grow your wealth over time. And while we all know the market doesn’t go up in a straight line, watching market swings can be emotional. It’s very common to want to make changes when stocks are losing value—especially if you’re feeling the effects of a recession. But doing so can be costly. Instead of trying to time the market, a better bet for most investors will be to stay invested for the long haul.

To illustrate the point, consider a $100,000 investment in stocks that represent the annualized return of the S&P 500 index over the past 30 years. Missing just the 10 best days of performance halved your gains. If you miss the 30 best days, you’d lose out on nearly all the growth you could have received over that period. The problem is that you never know when those “best days” will be.

It can be easy to want to make changes to your investments or maybe even sell some of them to cover emergency expenses. But it can also be one of the most expensive long-term mistakes that you can make during uncertain times.

5. Invest in a diversified mix of asset classes

Diversification is often one of the most effective ways to manage investment risk.

Different asset classes don't all react the same way during economic downturns. While stocks may experience significant short-term declines, bonds, cash equivalents, and other assets may help reduce overall portfolio volatility.

A diversified portfolio may include a mix of:

• Domestic and international stocks,
• Bonds and fixed-income investments,
• Cash reserves,
• Real estate investments,
• Treasury Inflation-Protected Securities (TIPS), and
• Dividend-paying equities.

Defensive sectors such as consumer staples, utilities, and healthcare have historically been less sensitive to economic slowdowns because consumers still purchase essential goods and services regardless of economic conditions.

Your Northwestern Mutual financial advisor can help you take a disciplined investment approach—combined with regular portfolio reviews and rebalancing—to weather market swings

6. Consider assets that aren't directly tied to market performance

Many people think diversification refers only to investments. But a truly resilient financial plan often includes assets with different risk characteristics.

One example is whole life insurance.

Unlike market-based investments, whole life insurance provides guaranteed cash value growth and a guaranteed death benefit, assuming premiums are paid as required. That means a portion of your financial assets may continue growing regardless of whether the stock market is rising or falling.

Research has also found that a financial plan involving permanent life insurance (such as whole life insurance), income annuities, and investments is more likely to outperform an investment-only approach over the long term.

7. Review your insurance coverage

Economic uncertainty isn't limited to investment risks. A job loss, illness, injury, or unexpected death can create financial challenges regardless of what's happening in the broader economy.

That's why risk management should be a core component of every financial plan.

Review the following key areas:

Health insurance

If your health insurance is tied to your employer, understand what options would be available if you experienced a job change or layoff. Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage, a spouse's plan, or marketplace coverage may all play a role depending on your situation.

Disability insurance

Your ability to earn an income is often your most valuable financial asset. Disability insurance can help replace a portion of your income if a qualifying illness or injury prevents you from working.

Life insurance

Life insurance helps protect your family's financial future if something happens to you, and it comes in various types. You may also have coverage individually or through your employer.

As mentioned above, life insurance may provide additional benefits beyond the death benefit, depending on whether it’s term or permanent insurance.

8. Stay focused on your plan—and work with your advisor

Economic uncertainty can tempt you to make emotional decisions.

Headlines often focus on worst-case scenarios, causing you to wonder what to invest in during a recession or where the safest place for money is during a market crash. Yet successful financial planning is usually less about predicting the economy and more about preparing for a range of possibilities.

A comprehensive financial plan should account for all of these:

• Investment growth
• Cash-flow needs
• Emergency savings
• Debt management
• Insurance protection
• Retirement goals
• Tax strategies

When these elements work together, you can feel more confident regardless of what the economy throws your way.

Your Northwestern Mutual financial advisor can help you evaluate whether your current strategy aligns with your goals, identify vulnerabilities, and make thoughtful adjustments without losing sight of your long-term objectives. They can be your financial co-pilot through life’s ups and downs.

Frequently Asked Questions

What are good strategies to recession-proof a personal financial plan?

Recession-proofing your finances starts with building flexibility and reducing vulnerabilities before economic conditions worsen. Strengthening your emergency fund, maintaining adequate liquidity in accessible savings vehicles, diversifying your investments across multiple asset classes, paying down high-interest debt, and ensuring you have appropriate insurance coverage can all help make your financial plan more resilient. Rather than trying to time the market’s ups and downs, focus on creating an integrated plan that can withstand a variety of economic environments while keeping you on track toward your long-term goals.

How can I secure my finances during an economic downturn?

The best way to secure your finances during an economic downturn is to focus on the fundamentals: preserve cash, control spending, manage debt, and protect against unexpected risks. Building larger cash reserves can help you cover expenses without selling investments during a market decline, while reviewing your budget and paying down costly debt can improve financial flexibility. It's also important to evaluate your insurance coverage and maintain a long-term perspective, as reacting emotionally to market volatility can often do more harm than the downturn itself.

How can I build a resilient investment portfolio for market volatility?

A resilient portfolio is built around diversification, discipline, and balance. Spreading investments across stocks, bonds, cash reserves, and other asset classes can help reduce the impact of market swings, while defensive investments and fixed-income assets may provide additional stability during periods of uncertainty. Investors should avoid trying to time the market and instead stay focused on long-term objectives. Some people also incorporate assets with guarantees, such as participating whole life insurance, because its cash value can grow regardless of stock market performance, providing a potential volatility buffer within a broader financial plan.

This information is for educational purposes only. The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.