With unemployment rising and cost-of-living pressures continuing, now is a good time to check how prepared your finances are for a change in circumstances. The ABS reported that Australia’s seasonally adjusted unemployment rate rose to 4.7% in September 2026.
You don’t need to be worried about losing your job to benefit from preparing for it. Some of the best financial habits are the ones you build before you need them. The goal is to prepare for a possible recession, protect your finances and focus on what you can actually control.
No one has a crystal ball. We can’t predict exactly what will happen to the economy, interest rates or the job market. But we can make decisions today that put us in a stronger position if things change.
Here are five things I’d start with.
1. Build an emergency fund
An emergency fund gives you breathing room when something unexpected happens, whether that’s a large bill, a period without work or a change in your household income.
Start by working out how much you need to cover your essential expenses. The common advice is to save three to six months of expenses, but the right amount depends on your circumstances, including your household costs, family responsibilities and how easily you could find another job.
If you don’t have much saved yet, don’t let a big target put you off. Start small and build it over time.
It’s also important to be clear about what counts as an emergency. Your emergency fund should be there for genuine emergencies, not become another account to dip into whenever you want something.
Tip: Start with a small, achievable target. Think essential expenses, not your current take-home pay. Work out what one month of essentials would cost, then set up an automatic transfer each payday. You can build towards three to six months over time.
2. Have two budgets, not one
This is one of my favourite exercises because it gives you a plan before you need one.
I encourage people to create two budgets: one for their current lifestyle and another for their bare essentials.
Your everyday budget includes the things you enjoy, such as dining out, holidays, subscriptions and fitness memberships. Your bare-bones budget strips this back to the costs you need to cover to keep your household running, including housing, groceries, utilities, transport, insurance and minimum debt repayments.
For example, if your essential expenses are $5,000 a month and you have $20,000 in accessible savings, you have four months of essential expenses covered, assuming no other income or unexpected costs.
Then take it one step further. Decide what you would cut first if your income changed, and what you would cut next if you needed to reduce spending further.
You don’t need to make those changes today. The point is to have a plan rather than trying to work everything out under pressure.
If you share finances with a partner, have the conversation together. Agree on what matters most and how you would manage if one income disappeared.
Tip: Create your bare-bones budget this week. List essentials only: rent or mortgage payments, groceries, transport, utilities, insurance and minimum debt repayments. Leave out Netflix, takeaway and the gym. Add up the essentials, then decide which discretionary costs you’d reduce first if your income dropped.
3. Review your debt and regular expenses
When you’re preparing for a possible change in income, it’s worth looking at how much of your pay is already committed to regular repayments and bills.
Review your home loan and check whether your interest rate is competitive. If you have an offset account, make sure it’s linked correctly and doing what you expect it to do (we recently did an episode on offsets not linking!).
Look at your other debts, subscriptions, insurance premiums and household bills to see where you could reduce costs.
This doesn’t mean cutting every expense or putting your life on hold. It’s about understanding where your money goes and knowing which costs you could reduce if you needed to.
One phrase from a podcast discussion I had with Sarah Megginson on How to Raise Rich Kids that I particularly like is: “Speed to your needs and wait for your wants.” Works for us adults too!
Covering your needs comes first. Your wants can often wait, particularly if you’re trying to build a buffer or prepare for a period of lower income.
Tip: Find one expense to reduce and one debt to review. Check your home loan rate, look at your regular bills and subscriptions, and identify one change you could make now. Small savings can give you more flexibility later.
4. Protect your ability to earn
Your savings and investments matter, but for most working Australians, their future income is one of their most valuable financial assets.
You can’t guarantee that your job will always be there, but you can take steps to improve your position.
Keep your résumé up to date, maintain professional relationships and think about whether your skills are current. If you needed to find another role, would you know where to start? Are there skills or training opportunities that could make you more employable?
It’s important for you to be able to demonstrate your value at work. Keep a record of your achievements, the projects you contribute to and the results you deliver. This gives you something concrete to draw on during performance reviews and when discussing opportunities for progression.
Tip: Update your résumé while things are going well. Make a list of your skills, interests, experience and achievements. Keep building professional relationships and consider what you could do to make yourself more employable. It’s much easier to do this when you’re feeling secure than when you’re worried about your next pay cheque.
5. Don’t panic with your investments
Economic uncertainty and the scary newspaper headlines that come with it can make people feel they should sell shares, move their super into cash or stop investing until conditions improve.
But a recession doesn’t automatically mean every investment will fall, and headlines aren’t a reason on their own to abandon your long-term plan.
Markets and the economy don’t always move in the same direction. Trying to predict exactly when markets will fall or recover is difficult, even for experienced investors. That doesn’t mean you should ignore your investments. It means understanding your timeframe, risk tolerance and financial position before making changes.
If your income becomes uncertain, you may need to prioritise your emergency fund and household expenses over investing more money. That’s different from making a rushed decision to sell long-term investments because the news feels frightening.
Tip: Review your plan before reacting to the headlines. If you can comfortably continue investing for your long-term goals, consistency can help. If money is tight, it may make sense to temporarily reduce contributions while you manage other priorities. Make the decision based on your circumstances, not panic.
Prepare, don’t panic
There’s a difference between what you can control and what you can’t.
You can’t control the unemployment rate, government policy or the direction of the economy. You can control your spending, how much you save, how you manage debt and the steps you take to protect your ability to earn.
And these steps are useful whether or not Australia enters a recession. You may never need to rely on your emergency fund or put your bare-bones budget into action, and hopefully you don’t.
But if your circumstances change, you’ll be glad you prepared while things were still relatively calm.
Tip: Pick one action and do it this week. Start your emergency fund, build your bare-bones budget, review a bill or update your résumé. You don’t need to overhaul your finances overnight. A few practical steps now can give you more options later.
Want to hear the full conversation?
Listen to The Australian Finance Podcast, where Owen Rask and I discuss how to prepare your finances for a possible recession, including the financial steps above and a few non-financial ones that might surprise you.
Watch or listen to the full episode: Australian recession alert: How to survive it (financially).
