How to Make Money During a Recession

A recession is a widespread decline in economic activity, typically extending over several months. It is marked by reduced production, employment, and income. Recessions often lead to businesses cutting costs, including hiring freezes, salary reductions, or job losses, creating financial challenges for individuals.

Securing and Enhancing Employment Income

During an economic downturn, maintaining and potentially increasing employment income becomes a focus. Certain industries tend to be more resilient during recessions due to consistent demand for their services. These include healthcare, utilities, and consumer staples, as people continue to need medical care, electricity, water, and essential household goods. Developing skills in these areas through training or certifications can enhance job security. Acquiring in-demand skills, such as IT support, cybersecurity, or specialized trades, can make an individual more adaptable and valuable.

Actively engaging in job search strategies and career advancement is important, even when the market is challenging. Networking with professionals in stable industries, updating resumes to highlight adaptability, and showcasing problem-solving skills are practical steps. For those facing employment gaps, exploring temporary or contract work can provide a bridge. Platforms connecting freelancers with short-term projects or staffing agencies offer opportunities to maintain income flow and gain new experience.

Income from contract work, often referred to as gig work, is considered self-employment income and carries specific tax obligations. Individuals engaged in such work are responsible for paying self-employment taxes, which cover Social Security and Medicare contributions. For 2025, the self-employment tax rate is 15.3%. Since taxes are not automatically withheld from contract payments, individuals typically need to make estimated tax payments quarterly to the Internal Revenue Service (IRS).

Identifying Entrepreneurial Opportunities

A recession can create new avenues for entrepreneurial endeavors, especially for businesses that address emerging needs or offer cost-saving solutions. Services that help consumers economize, such as repair services for appliances or vehicles, or those providing essential goods at lower price points, often see increased demand. Online education and home-based services like cleaning or landscaping also tend to be resilient as people adjust their spending habits.

Starting a business with low overhead minimizes initial capital requirements, making it a feasible option during uncertain economic times. Consulting services based on existing professional skills, online tutoring, or virtual assistant roles can be initiated with minimal upfront investment. Leveraging personal skills or hobbies into a small business, such as selling handmade goods or offering pet-sitting services, provides a direct path to generating income without significant financial risk. Identify specific problems or inconveniences that become more pronounced during an economic downturn and offer practical solutions.

For those pursuing entrepreneurial activities, understanding the tax implications is important. As self-employed individuals, business owners are responsible for reporting all income earned, even if it is not formally reported on a Form 1099-K or 1099-NEC. This income, along with deductible business expenses, is typically reported on Schedule C (Profit or Loss from Business). Accurate record-keeping of income and expenses is important for proper tax calculation and to maximize allowable deductions.

Navigating Investments

Navigating investments during a recession requires a disciplined approach focused on long-term value and stability. Value investing involves purchasing securities that appear to be trading below their intrinsic value. This approach emphasizes thorough financial analysis of a company’s fundamentals, such as its price-to-earnings (P/E) ratio, cash flow, and book value, rather than reacting to short-term market fluctuations. Investors seek a “margin of safety,” buying assets at a significant discount to their estimated true worth, which can offer protection against potential downside.

Considering defensive sectors can be a prudent strategy, as these industries tend to be less affected by economic cycles. Utilities, consumer staples, and healthcare companies provide goods and services that remain in demand regardless of economic conditions, leading to stable earnings and cash flows. Their stability can help preserve capital during downturns. Utility companies benefit from consistent demand for electricity, gas, and water. Consumer staples include food, beverages, and household products.

Dollar-cost averaging is an investment strategy that involves investing a fixed amount of money at regular intervals, irrespective of the asset’s price. This method helps mitigate the impact of market volatility by ensuring more shares are purchased when prices are low and fewer when prices are high, lowering the average cost per share over time. This systematic approach removes the emotional element from investing decisions and can be beneficial for long-term investors aiming to build wealth consistently.

Profits from selling investments are subject to capital gains tax. The tax rate depends on how long the asset was held. Short-term gains are taxed at ordinary income rates, while long-term gains are generally taxed at lower preferential rates. These tax considerations influence investment decisions, impacting holding periods and overall strategy.

Leveraging Personal Assets and Skills

Generating income during a recession can involve monetizing existing personal assets and skills outside of traditional employment or business formation. Renting out unused assets, such as a spare room, a vehicle, or specialized equipment, can provide a direct source of cash flow. Platforms designed for short-term rentals of property or vehicles offer avenues to connect with potential users. Any income generated from renting out property is generally considered rental income and must be reported for tax purposes. While rental income is taxable, various expenses incurred in managing and maintaining the rental property can often be deducted.

Selling items no longer needed is an effective way to generate immediate funds. Decluttering and selling possessions online through marketplaces can convert unused items into cash. If personal items are sold for less than their original purchase price, the proceeds are not taxed. However, if an item is sold for a profit, that profit may be taxable as a capital gain.

Utilizing personal skills for freelance or gig work offers flexible income generation. This can encompass a wide range of services, including tutoring, pet sitting, handyman services, or virtual assistance. Online content creation, such as blogging or managing social media for others, also falls into this category. Earnings from these activities are subject to self-employment taxes and require estimated quarterly tax payments. Maintaining records of income and associated business expenses is important for accurate tax reporting.