As inflation soars to a 40-year high, consumer confidence dips to a near-record low and the Federal Reserve looks on track to hike rates at the fastest pace in decades, the top concern facing the U.S. economy right now is that the rug might be ripped out from underneath it — kickstarting the next recession.

Economists in Bankrate’s Second-Quarter Economic Indicator poll put the chances of a recession in the next 12 to 18 months at 52 percent. Yet, preparing your wallet for any downturn requires work long before the recession officially starts. Here are nine tips to help make sure your finances are more resilient during a downturn.

1. Take a hard look at your finances and create a monthly budget

Recessions often take away Americans’ comfort in the economy, leading to reduced job security or worse, job loss. The bottom line is preparing for any of those recession-induced emergencies comes long before the downturn actually starts.

If you’re feeling uneasy about the economy right now, the most important step you can take is familiarizing yourself with your monthly budget. In an emergency, you want your income to last as long as possible. Having an idea of how much money is flowing out of your pocketbook — and where it’s going — can help you identify the best course of action for planning how you’d handle unemployment or any other emergency.

Write down every financial firm you regularly work with and whom you regularly pay a bill to. See how much cash you have available right now, whether in a checking or savings account. Find out the categories where you spend money most. It’s always a good idea to go through your monthly expenses and identify which items are discretionary — services or items you can live without — and which items are a necessity.

Creating a monthly budget is even more important to ensure you’re living within your means and not overspending. Doing so when the economy is strong could help set you up for success during bad economic times.

2. Limit your expenses, particularly big-ticket items

Once you get an idea of how much money you’re spending, try to find the areas where you can cut back. Most of the time, those are nonessential purchases.

“You have to pay your rent; you have to pay your car insurance; you have to eat to live. Your groceries, your utilities — those are all going to be essential expenses,” says Lauren Anastasio, CFP, director of financial advice at Stash. “But dining out, vacations, cable — anything that you would potentially consider a luxury or a lifestyle expense — that’s discretionary spending.”

Sometimes, it’s easier to start small. Try cutting back on meals out, reducing the number of streaming services you have or refraining from making any major financial commitments you don’t immediately need, such as going on vacation or paying for a months-long membership.

Experts typically recommend spending no more than 30 percent of your net income (that is, earnings after taxes) on discretionary items.

After that, it might make sense to reduce the bigger-ticket purchases — though sometimes it’s easier said than done because it could involve a lifestyle change. Some Americans might find success in moving in with roommates to limit how much they spend on rent. Another alternative? Trim your monthly mortgage or car payments by refinancing any loans you have.

3. Pay down high-interest credit card balances and refinance variable rates into fixed

The other costliest corners in your budget could be high-interest, variable-rate debts. That’s even more true at a time when the Federal Reserve is lifting its key interest rate — known as the federal funds rate — by the fastest pace in decades. The Fed’s actions influence all other forms of short-term borrowing.

High-interest debt commonly comes from a credit card. Even when the Fed’s rate was at its lowest, the average credit card annual percentage rate (APR) hovered close to 16 percent, according to Bankrate data. Carrying a balance from month to month could potentially cost you hundreds, if not thousands, more a month.

“Being in a position where you’ve eliminated those types of high-cost obligations allows you to better prepare for other things financially,” Anastasio says. “The more you’re able to put aside for saving and the less debt you have, it’s going to be available to you in case of an emergency.”

Use Bankrate’s tools to calculate a debt-payoff plan or take advantage of balance-transfer credit cards with zero percent intro APRs.

4. Use the freed-up cash to bolster your emergency fund

Freeing up breathing room in your budget is crucial because you can then use it to bolster your emergency fund. A February 2022 Bankrate poll found that 22 percent of Americans have more credit card debt than savings. Meanwhile, more than half (58 percent) of Americans in a June Bankrate poll are concerned with the amount they have in emergency savings.

Part of the reason why an emergency fund is so crucial is because unemployment insurance (UI) on average only replaces half of jobless Americans’ income. The average weekly benefit in the U.S. reached $398.87 in the first quarter of 2022, according to the Department of Labor. Not to mention, unemployment benefits eventually expire. Most jobless Americans can expect 26 weeks of benefits, with some states paying more and others less. Congress has the power to enhance the program, as lawmakers did during the coronavirus pandemic — but with inflation a top concern, an extension as generous as before might be off the table.

To help serve as crucial income, your emergency fund should cover at least six months’ of expenses, according to financial experts. That can seem like a daunting task, but don’t underestimate the power of small contributions.

Regularly adding to a high-yield savings account over time can build the crucial savings habit. Better yet, automate your contributions to put the process on autopilot.

5. Decide where to park your emergency fund

Next comes the important step of deciding where to park your cash — a task even more important when inflation is high.

Banks are lifting savings yields at a rapid pace in response to the Fed’s aggressive rate hikes. Right now, the highest-yielding bank in Bankrate’s list ofBest Bank Accounts is earning about 17 times the national average.

But don’t sacrifice liquidity for yield. In a downturn, you want to make sure your cash remains liquid and accessible, so you can turn to it whenever you need the cash. That means you shouldn’t lock up your money in a certificate of deposit (CD) or select an account that limits your number of withdrawals.

6. Assess your individual financial situation before paying off other debt

U.S. households have more than just credit card debt. Americans also have $11.4 trillion total in mortgage debt, $1.6 trillion in student loan debt, $1.5 trillion worth of auto loans and $319 billion on home equity lines of credit (HELOCs), according to the New York Fed’s survey of household debt and credit for the second quarter of 2022.

But it might not make sense for consumers to concentrate on paying down debts that have relatively low interest rates and attractive provisions. One such example could be student loans, according to Greg McBride, CFA, Bankrate chief financial analyst. Borrowers are often able to negotiate a temporary payment plan or apply for forbearance in the event of unexpected job loss, though rules differ for private lenders. Another case in point: Federal borrowers’ payments have been on pause for more than two and a half years due to economic disruptions from inflation and the coronavirus pandemic.

Take a look at your emergency fund. If you don’t have much cash that you could use in the event of unexpected job loss, you might want to consider allocating any extra money toward your savings account instead. A lack of savings might be another reason why consumers keep incurring credit card debt. A January Bankrate poll found that less than half of Americans (or 44 percent) could cover an unplanned $1,000 expense with their savings.

“If an emergency arises and you’re putting every dollar toward eliminating debt, you have no choice but to go back to credit cards to cover the expense,” Anastasio says. “Everyone needs to have a cash cushion.”

7. Don’t make knee-jerk reactions with your investments

A downturn is often synonymous with a plunging stock market. Companies often find it hard to hire, expand and invest when times are tough. Even worse, they might decide to start laying workers off.

But changing your strategy during a recession would be the worst thing you could do, McBride says. That goes for all individuals, whether they’re 20 or just two years away from retiring.

“It will take a tough stomach because in a recession a stock market will easily fall 30 to 40 percent, peak to trough, but making regular contributions and reinvesting all of the distributions will make those market gyrations work to your benefit,” McBride says. “A recession is a tremendous buying opportunity.”

If you’re planning to retire in the next few years, consider having your first few years of withdrawals already on hand, in cash. But even then, don’t shy away from keeping equities in your portfolio. Those are often where you’ll get the best returns adjusted for inflation.

“Do not make changes that jeopardize your long-term financial security based on short-term economic events,” McBride says. “Even for someone who is on the cusp of retirement, retirement is going to last 25 to 30 years. A recession is going to last a year.”

Even so, the market doesn’t always behave the way you’d expect it. After plunging nearly 31 percent in March 2020, the S&P 500 took off like a rocket during the coronavirus pandemic, hitting 70 fresh all-time highs in 2021 alone, despite the economy being in the worst recession since the Great Depression.

A lot of that’s because markets are forward-looking: Even when the U.S. economy is in the middle of a recession, investors could be looking ahead by months, if not a full year, to when the environment is better.

8. Think about your career and earnings opportunities

To recession-proof your career, one of the best investments you can make is pursuing an education, says Tara Sinclair, an economics professor at George Washington University and a senior fellow at Indeed’s Hiring Lab.

During recessions, the unemployment rate for those with a bachelor’s degree or higher is much lower than for those who have a high school education or less. Joblessness peaked at 5 percent for those with a bachelor’s degree or higher in the aftermath of the Great Recession of 2007-2009, compared with 11 percent for those with no college and just a high school diploma, according to the Department of Labor.

Networking and maintaining strong connections with workers in your field could also help you find new opportunities before they’re listed online in what’s bound to be a more competitive market. Better yet, strengthening your skill sets and pursuing more training could make you more marketable in your field.

“Economists are always emphasizing the importance of education,” Sinclair says. “Even if you can’t build up a financial buffer, focusing on making sure that you have some training and skills that are broadly going to be employable is really crucial.”

9. Don’t panic: Recessions are inevitable, but they’re not always as bad as the coronavirus pandemic or the Great Recession

“Recession” is a scary word for the Americans who’ve lived through two severe recessions, each surprisingly more severe than the last: the coronavirus pandemic and the Great Recession before it.

Even worse, attempting to predict economic downturns — the way many are attempting to do right now, amid decades-high inflation and an aggressive Fed — will set even the experts up for failure. No event illustrates that more than the coronavirus crisis. At the beginning of 2020, economists hadn’t even considered that a global outbreak could wreck the U.S. economy’s longest expansion on record.

Though most economists would lump the two causes of recessions into supply shocks or demand shocks, each of the past 33 recessions (as tracked by the NBER Business Cycle Dating Committee) have been caused by something a little different, Sinclair says.

“Some people say economists exist to make weather forecasters look good,” Sinclair says. “The complexity of the macro economy is such that we haven’t yet figured out a clear, causal model of how things work. We can’t predict with any kind of confidence what’s going to happen, particularly when things are changing dramatically. Obviously, if recessions were easily predictable and preventable, we’d expect policymakers to be doing just that.”

The most basic definition of a recession is a sustained period of economic contraction across the economy. Simply put, the start of a recession is the point at which the economy is contracting, not growing.

But not all downturns crater U.S. economic growth and cause double-digit unemployment. In the aftermath of a recession in the early 2000s, nationwide unemployment peaked at 6.3 percent. The recession before that, joblessness rose to a high of 7.8 percent.

Bottom line

Taking steps to prepare your wallet for a downturn when times are good can help take away some of the stress and worry surrounding recessions. And rest assured: Even if economists can’t predict recessions, they almost always know when the U.S. economy is in the middle of one.

For Americans, “I don’t think there’s ever a bad time [for them] to evaluate their finances and check in with themselves,” Anastasio says. “If someone personally feels nervous that there’s change on the horizon, it’s always a good time to say, ‘What can I do personally to put myself in a stronger financial position, so I can sleep better at night when the time comes?’”