There’s currently a debate about the current economic situation. Some will argue that we are already in a recession, while others say it has not yet happened. However, most people do predict that we will, at some point in the not-too-distant future, go into recession, regardless of where they think we are now.

Even outside of the recession component, the economy is on shaky ground. Interest rates have gone up dramatically, and companies are starting to lay off employees. The stock market has seen a lot of volatility, and inflation is stubbornly high. Regardless of whether or not we are technically in a recession, it’s likely a smart time to start thinking about how you manage your money and whether it’s appropriate for the current environment.

There is a term that may be relevant here—the law of the instrument. This is used to describe a cognitive bias where you overly rely on a familiar tool. If you have been used to investing and managing your money in a certain way over the past five years or so during a very strong economy, you might fall into a trap where you are afraid to make a change or unsure of how to go about doing so.

With these things in mind, here are some money management tips that can be helpful in a recession or a general downturn in the economy.

1. Create a Budget

If you’re living without a budget, you should sit down and start to create one as soon as possible.

Recessions can lead to insecurity and take away your sense of comfort in the economy, and you need to prepare as soon as possible for things like job loss. Even if you aren’t ever impacted by that, a budget is going to benefit all areas of your life.

One of the hardest parts about creating a budget is being honest with yourself about how much money you’re spending and where it’s going.

If you face an emergency situation financially, you want your income to stretch as far as possible. If you don’t know how much is going out versus coming in, you are not going to be able to take steps to shield yourself.

Write down every single bill you pay, subscriptions you have, and ongoing payments. Look at how much cash you have easily available and assess the categories where you spend the most money.

Which of your monthly expenditures are discretionary, meaning you can live without them, and which are a necessity? See how much you can save by taking these simple steps.

2. Pay Down Your Expensive Debt

Your high-interest, variable-rate debt is one of the things that you could be spending the most on.

This is usually credit card debt. Even when interest rates were at record lows, the average APR for credit cards was close to 16%. If you’re carrying balances on cards from month to month, this could mean hundreds or even thousands of dollars more a month is being spent.

You can start to pay down this debt with a debt payoff plan, or you might be able to take advantage of a balance transfer card with a zero-percent APR for an introductory period of time.

3. Pad Your Emergency Fund

If you create a budget, you should be able to find places where you can save money, and a good bit of what you’re saving should be cash you put right into your emergency fund.

Emergency funds are essential even in the best of economic circumstances, but especially during difficult times. Unemployment insurance will only replace half of your income if you lose your job.

Your emergency fund, as a result, should cover at least six months of your expenses.

The one upside of interest rates going up is that high-yield savings accounts are paying more, so they can be a good spot to put your emergency fund. You need your emergency savings to be liquid, meaning you can access them easily without penalties if you need them.

Don’t put your emergency savings in something like a CD because you will have to pay and be penalized for accessing that money. You also want to make sure it’s not in an account that’s going to limit the number of withdrawals you can make.

Automate your contributions to your emergency savings, so you don’t have to think about it.

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4. Be Mindful About How You Pay Off Debt

You want to get rid of as much of your high-interest and variable-rate debt as you can, as mentioned above.

However, most households have debt aside from credit card debt, including mortgage, student loan, and auto loan debt.

If you have debt with a relatively low-interest rate, and the provisions are comfortable for you, you shouldn’t put too much focus on paying that off.

If your emergency fund doesn’t have enough money to cover you for six months, then rather than putting money toward low-interest debt, put it there.

5. Don’t Make Short-Term Investment Decisions

With the stock market so up and down, and volatility the new normal, you might make a knee-jerk investment response. It’s easy to see a plunge and overreact and pull your money out.

If you change your strategy during difficult times, it can be problematic. A recession can cause the stock market to drop anywhere from 30-40% in some cases, but if you keep up with your plan to make regular contributions and you’re reinvesting distributions, then you’re making the downswings work in your favor.

Someone who’s planning to retire in the next few years might want to have the first few years of their retirement withdrawals as cash, but then they can still keep equities.

It’s not wise to make a change to your financial strategies in a way that’s going to negatively impact your long-term financial plan based on short-term events in the economy.

Finally, you might want to invest in yourself. Think about taking a certificate course or learning a new skill because this is the best way to continue to make sure that you are an asset to your employer or maybe another employer.

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