Financial planning during a recession requires strategic thinking and disciplined saving habits. Take a look at Steve Chen, founder of CALLTOLEAP, clip below — as he shares his approach to managing money during economic downturns. His practical advice resonated with me as someone who believes that small, consistent actions can lead to significant financial security.
Chen’s strategy focuses on what he calls “microsavings” — small daily contributions that add up over time. This approach makes financial freedom accessible to everyone, not just those with high incomes or inherited wealth. As someone who has helped thousands build wealth, his recession-proof money allocation plan offers valuable insights for navigating uncertain economic times.
Prioritizing Emergency Funds
The first place Chen recommends putting money during a recession is a high-yield savings account to build an emergency fund. I completely agree with this approach. Having liquid cash available during economic uncertainty isn’t just smart—it’s essential for financial survival.
Chen suggests keeping only enough money in checking accounts to cover necessary expenses while saving about $17 daily in a high-yield account. This disciplined approach helps build a 3-6 month emergency fund, which provides crucial protection against job loss or unexpected expenses during a recession.
What impressed me about Chen’s advice was the practical example he shared:
I saved $500 last month by not ordering takeout and cooked the majority of my food at home instead.
This highlights how small lifestyle adjustments can significantly impact our ability to save. By cooking at home instead of ordering takeout, Chen freed up $500 that could be directed toward building financial security. These kinds of practical trade-offs make financial progress possible even during tight economic times.
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Strategic Retirement Contributions
The second place Chen would allocate money during a recession is toward capturing employer 401(k) matches. This approach makes perfect sense to me. Free money is free money, even during a recession. However, I appreciate his nuanced take on this:
- Contribute enough to get the full company match
- Skip this step if your employer doesn’t offer a match
- Prioritize other financial goals if no match is available
This flexible approach acknowledges that not all retirement contributions are created equal. During economic hardship, it’s wise to be selective about where your limited funds go.
Building Long-Term Wealth Through Index Funds
The third recommendation from Chen involves opening a Roth IRA and automating monthly contributions toward low-cost index funds. This strategy particularly resonates with me because it combines tax advantages with the power of automated investing.
Chen suggests allocating $500 monthly to this investment vehicle. While this might seem challenging during a recession, breaking it down into daily microsavings makes it more manageable. The beauty of this approach is threefold:
- Roth IRAs offer tax-free growth and withdrawals in retirement
- Low-cost index funds provide diversification without high fees
- Automation removes the emotional barriers to consistent investing
I believe this strategy is compelling during recessions when many investors panic and sell at market lows. By automating contributions, you’re more likely to stay the course and potentially purchase assets at discounted prices.
Making Financial Progress Through Discipline
What strikes me most about Chen’s advice is its accessibility. You don’t need a six-figure income to implement these strategies—just consistency and discipline. By focusing on daily microsavings, anyone can build financial security even during challenging economic times.
The key takeaway is that financial progress happens through small, consistent actions rather than grand gestures. Saving $17 daily might not feel significant, but it adds up to over $6,000 annually—enough to build an emergency fund and begin investing for the future.
As we navigate economic uncertainty, I’m reminded that financial freedom isn’t about making perfect decisions but making consistent ones. By following Chen’s three-step approach to allocating money during a recession, we can not only survive economic downturns but potentially emerge stronger on the other side.
