Dos and don'ts for financial planning during a recession

During a recession, it is more important than ever to make sound financial decisions.

Unfortunately, some common mistakes can lead to further financial difficulties. In a 2020 article, the Wall Street Journal interviewed 30 financial experts, researchers, academics and other professionals about the biggest money mistakes that people made during a recession.

We’ve picked out the best tips for you below:

The Dos

1. Create an emergency fund

One of the biggest mistakes working adults make during a recession is also the same mistake many make during good economic times – not saving enough money, says James Choi, a finance professor at the Yale School of Management.

It is typically recommended that you should have an emergency fund that covers at least three to six months of your living expenses. This acts as a financial cushion to support you in case of job loss or unexpected expenses.

Read more here: 5 effective ways to build an emergency fund

2. Review and refinance your existing loans

As interest rates usually fall during a recession, this could be an opportunity for you to reduce your monthly payments for your mortgage, student loan or other debt.

According to one mortgage broker, fixed home loan rates in Singapore is likely to fall below 2% over the next year and a half, which is a far cry from the 4.0% and up rates we saw in 2022.

3. Spend time with your friends, family and on yourself

Another common mistake people make during a recession is becoming so hyper- focussed on earning money, that they sacrifice their social relationships, personal growth and physical health, says Ashley Whillans, an assistant professor at Harvard Business School.

These sacrifices could lead to higher mental and physical toll down the line, which in turn may cost you more monetarily as well (for medical and other related bills).

4. Talk about money with your loved ones and others

In 2024, Cornell University found that the more stressed-out people were about finances, the less likely they were to talk about money with their romantic partners.

However, research has shown that discussing money with your spouse and partner during hard times can not only lead to better financial recovery, but also improved personal relationships.

Planned conversations help couples see their financial challenges as a shared problem (e.g., “Our income decreased by 50% last month”) rather than an individual problem (e.g., “You lost your job last month”), and this shared perspective results in greater collaboration, says Grant Donnelly, assistant professor of marketing at Ohio State University.

Another avenue you can take is to also seek professional financial advice. Consulting with a financial advisor can provide valuable insights and help you make informed decisions. An advisor can tailor strategies to your specific financial situation and goals, ensuring you navigate the recession effectively.

Find out more: About our financial planning tools or speak to one of our financial representatives here.

The Don’ts

1. Panic sell investments

Recessions can cause market volatility, but it's crucial not to make impulsive decisions based on fear. Panic selling investments can lock in losses and prevent you from benefiting from future market recoveries. Stay calm and adhere to your long-term investment strategy.

Read: Lessons from the world’s most unlucky investor

2. Refuse to tap into your emergency fund

We’ve talked about the importance of creating an emergency fund, but it is also important to leverage your savings when the need calls for it.

One way you can use your emergency fund is to pay off any high-interest debt, like credit card debts, as quickly as possible. Debt with high interest rates can drain your finances, especially during a recession when income may be uncertain.

If you have a fairly substantial emergency fund (enough to cover at least two years of your living expenses), you may also consider investing a portion of it during a recession at lower stock-market prices to further strengthen your long-term financial position.

3. Put your career on hold

One of the most common mindsets during a recession is to wait-and-see when it comes to their careers. Many people choose to stay where they are in their careers believing that their current employment will definitely offer more job security than what is available in the market.

What you should consider though is something called “career cushioning”.  The concept is quite simple – while you are still at your current position in a company, you are actively looking at other options, taking action and preparing yourself in the event you find it necessary to abandon ship. It’s about having backup options just in case you get laid off.

Read more here: Is your career recession-ready?

4. Go without insurance

During a recession, some people opt to cut costs by temporarily dropping their insurance coverage. But without healthcare coverage, just one unexpected illness or injury could be financially devastating.

Instead, what you can consider is to review your coverage to see if there are less-expensive options that can still meet your needs. A good financial representative will be able to help review your policies and make the necessary adjustments to ensure you have adequate coverage.

Read more here: How can CI insurance protect your finances?