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How to Make Money During a Recession

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Recessions are scary. With the higher risk of job losses and business collapses, stock market crashes and home value drops, it can feel like no part of your life is safe. 

But recessions also represent an opportunity for those who take the long view. You can buy investments and businesses at a discount and position yourself to earn more when the dust settles. 

As you prepare for the next recession, keep in mind the following ways to make money in a recession. 

How to Make Money During a Recession

There’s no rule that says you have to suffer during recessions. Follow these steps if you want to come out ahead while everyone else sees the sky falling.

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1. Protect Your Earning Power First

If you lose your primary source of income, it doesn’t matter how savvy you are at investing. You won’t have any extra money to invest, and all your effort will go into finding a new job to protect your personal finances.

So your first priority is to protect your job — or your business if you’re self-employed.

How financially stable is your employer or business? How secure is your role? Some jobs are more recession-proof than others. 

If you have any doubts about your job or small business surviving a recession, take steps to shore it up. That could mean switching employers in the same field or changing careers entirely. If necessary, get a new career certification or degree to make a preemptive move while you still have a steady income.  

You can also protect your income by adding new sources of it. For example, you could start a side gig to reduce your dependence on your day job. Or you could start a side hustle to see if it could eventually replace your 9-to-5. There are plenty of ideas for side businesses you can start today. 

2. Boost Your Savings

You’re more likely to experience a personal financial crisis during a recession. That means you should prepare in advance by boosting your savings rate to pad your emergency fund and savings account. 

Break out a red marker and start slashing expenses from your budget. Scratch that — start a new budget entirely. It’s easy to do with a budget template in Google Sheets. Put every single budget category under the microscope. 

In particular, audit your recurring expenses, such as your housing payment, car payments, and insurance premiums. Pick through your credit card and bank statements to find every single subscription service. Then ax every single one that you can imagine living without. It’s best to DIY, but if you don’t have time, opt for a bill negotiation service. 

Cut back on meals prepared by other people. That includes restaurant meals, delivery, takeout, and lunches you didn’t pack yourself. 

Research ways to save money on groceries. Food makes up the third-largest expense for most households. 

But as your largest structural expense, spend extra effort on reducing or eliminating your housing payment. 

3. House Hack

I haven’t paid full price for housing in over a decade. For the last seven, I’ve lived for free.

Look for ways to generate revenue through your home to offset your housing costs. It’s called house hacking, and there are many ways to do it. 

You could bring in a roommate or set up a basement or garage apartment or an accessory dwelling unit. You could rent out storage space in your garage or parking for cars, RVs, boats, or other large vehicles. My business partner went so far as to host a foreign exchange student for four years, and the stipend covered most of her mortgage payment. 

Get creative with it. If you can eliminate your housing payment, it frees up an enormous amount of money for investing. 

4. Play Defense With Short-Term Investments, Offense for Long-Term

You don’t want your short-term investments to lose money due to the recession. After all, your short-term investments are typically meant to be safe ways to earn a modest return while parking your money for under a year. 

Do some research on recession-proof investments for any money you might need to access within the next year or two. If you see risky assets among short-term holdings, divest now and move the money into safer harbors. Those could include precious metals, consumer staples, or dividend stocks with strong cash flow, among many others.

But your long-term investments are another story. You actually want to seek out the assets that fall the most during recessions to potentially buy them at a deep discount. 

Just ensure you buy assets that will rebound in the long term rather than evaporate entirely.

5. Buy Heavily Discounted Stocks

In recessions, stocks nearly always fall — and dramatically. 

You could wring your hands and stress over it. Or you could consider the stock market to be “on sale,” like a Black Friday for your net worth. 

Stock markets usually fall in the six months leading up to a recession, and in the midst of it, the S&P 500 has averaged a 16% return in the 12 months following recessions. And in the bigger picture, it’s averaged around a 10% annual return since its inception. For more information, see our article on average historical stock market returns.

The safest bet here is buying large-cap U.S. stock exchange-traded funds, such as index funds that mirror the S&P 500. That provides you with diversification among companies with sound fundamentals and balance sheets. But some types of stocks fall more during stock market corrections than others, leading to deeper discounts.

Tech stocks, growth stocks, and small-cap stocks tend to fall more than established, cash-flowing blue chip stocks. In other words, you can buy them at a deeper discount. Buy exchange-traded funds specializing in these types of stocks to distribute your risk across many companies rather than picking individual stocks. For instance, you can buy an index fund tracking the Nasdaq for tech exposure or a fund tracking the Russell 2000 for small-cap stocks.

Of course, the greatest upside potential comes from picking stocks that have collapsed in value and stand poised for a substantial post-recession comeback. But individual stocks also come with far greater risk, as any one company can go out of business. Only pick individual stocks and managed mutual funds if you’re a seasoned investor. 

6. Don’t Fixate on Your Net Worth (Right Now)

It’s no fun checking your net worth during bear markets. All you see is red. So don’t check it right now. 

Tracking your net worth each month is only helpful if it motivates you to keep good financial habits, such as saving and investing money. When your net worth drops, focus on the process rather than the immediate results.

Specifically, focus on saving and investing as much money as you can while financial markets are on sale. 

You won’t see any results in the short term. In fact, you may well see losses as the market continues falling. But keep investing knowing you’re positioning yourself for huge returns later. If you wait for the recovery to become obvious, you’ll miss the steep initial rebound. 

7. Use Dollar-Cost Averaging

Along those lines, set up automated recurring investments every week or two. It’s called dollar-cost averaging, and it helps your portfolio mimic the market as a whole. 

Consider opening an account with a robo-advisor to set up automated recurring investments. Or you can create a custom investment strategy with your financial advisor. 

It may not be sexy, but it works. It sure beats the returns when you try to time the market. 

8. Max Out Your 401(k) Contributions

Some investors pause their 401(k) contributions during recessions and market crashes. As outlined above, it’s the worst possible move you can make.

Instead, lean into discounted stock prices and maximize your retirement plan contributions. In particular, take advantage of your Roth 401(k) or Roth IRA, paying taxes on the contributions now so you don’t have to pay them on returns after your investments bounce in the inevitable economic recovery. 

9. Create Passive Income Streams

Just as it helps to create additional streams of active income during recessions, it also helps to bring in more passive income. 

With enough passive income, you can cover your living expenses, and your day job becomes optional. It’s called financial independence, and when you reach it, you no longer have to worry about petty concerns such as losing your job.  

Financial independence comes with a slew of other benefits too. You can pursue your dream work, regardless of how well it pays. You no longer have to pay for costs like life insurance or long-term disability insurance. And you can move anywhere in the world, including inexpensive countries where $2,000 per month buys the good life. 

10. Take Advantage of Lower Interest Rates

When recessions hit, the Federal Reserve typically lowers interest rates to stimulate the economy. That makes it easier for companies to borrow and stay in business and ideally start growing again. But it also makes it cheaper for you to borrow.

You could refinance your home to lower your monthly payment. Or if you’ve been thinking about buying a home, you can do so with cheap financing when interest rates drop. 

Low interest rates also make it cheap to borrow for investing — such as buying rental properties. 

11. Buy Investment Properties

Recessions sometimes cause real estate prices to dip. Housing markets don’t fall as steeply as stocks, but you can often score a great deal during recessions. That could include buying foreclosures, which tend to rise during recessions, or fixer-uppers the seller doesn’t have the money to repair themselves. 

While home prices sometimes dip in recessions, rents don’t actually fall. At worst, they level off for a time. Lower prices with stable rents mean you can earn better cash flow on investment properties than usual. 

Done correctly, rental property investing can help you build passive income streams. Just invest some time learning how to invest first, as new rental property owners tend to lose money. 

Most owners lose 50% of the rent to non-mortgage expenses like property taxes, insurance, vacancies, repairs, maintenance, property management costs, accounting, and legal costs. In the industry, that’s known as the 50% Rule, and it leaves unsuspecting novices losing money on properties rather than earning it. 

12. Buy Businesses at a Discount

Public companies see their value fall during recessions but so do small private businesses. If you’ve always dreamed of owning your own business but hate the idea of starting from scratch, you can often buy operating businesses during recessions at deep discounts. 

Sometimes, the owners simply get tired of running them or reach retirement age. Either way, you can score better bargains when the economy collapses. 

In fact, recessions offer a glimpse into the worst-case scenario for how various businesses perform in bad economies. You don’t have to wonder if a company can survive a downturn — you can see it in their books. 

Just be careful as you hunt for bargain businesses during recessions. The last thing you want to do is buy a dying business and pay for the seller’s escape to a Mexican beach somewhere.  

13. Sell Your Stuff

When all fails, you can always sell your unused stuff. 

That could mean selling on Craigslist or other local online classifieds. Or you could sell on worldwide e-commerce platforms like eBay and Amazon. 

For that matter, you could host a good ol’-fashioned yard sale. Just do some basic research on what your goods are worth on the secondary market before pricing them. For more information, see our guide to pricing garage sale merchandise. 

Final Word

As Warren Buffett famously put it: “Be fearful when others are greedy, and greedy when others are fearful.” 

Most people spend economic downturns panicking, selling off stocks, selling real estate, chewing their fingernails to the quick. That makes it a great time to do the exact opposite. 

Stay calm, keep investing, and hunt for bargains. But most of all, protect your income sources — because without income, you can’t take advantage of the fire sale going on all around you. 

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