6 Money Mistakes That Hurt the Most During Economic Downturns

A "smart" money move can become an expensive mistake when the economy takes a turn.

Lowering a payment, slashing the budget or moving investments to cash can bring immediate relief. But if the downturn drags on, the tradeoffs can leave households with bigger risks and fewer ways to recover.

Here are six money mistakes that hurt the most during economic downturns.

Relying on a single source of income means putting your household at risk should an employer or client cut hours, restructure operations, or lay off workers.

Emergency savings can help, but a side gig can provide immediate cash during a downturn.

The Federal Reserve found that 51% of people doing gig work also had a main job. Thirty-one percent said they would struggle to make ends meet without their gig pay.

Consider freelance work, rental income or turning a hobby into a small business when your steady paycheck feels uncertain.

Eric Pemper, founder and managing member of CuraDebt cautions against cutting insurance, medications, preventive care, or necessary home and vehicle maintenance.

"These cuts may improve cash flow temporarily, but they can create much larger expenses later," he said. "Protect the expenses that provide financial security, prevent avoidable problems and allow the household to continue earning income."

Draining an emergency fund during a downturn can leave a household short of cash if a job loss or another expensive problem follows.

Christopher Walsh, a financial advisor at Capital Choice Financial Group , warns that without cash reserves, people may be forced to sell investments after they have already fallen in value. Instead, he recommends building cash during uncertain periods, even if that means temporarily reducing investment contributions.

"If they're getting a 401(k) match, I might have them pause down to their match, because the match is a nice feature, so that they can stockpile cash," Walsh said. "That way if there is a job loss in the future, they've got plenty of cash sitting there to help them weather that type of storm while they might be in between jobs."

"Real damage happens when you close credit cards that are not being used," said Jethro Adedeji, CEO and founder of Crowned Credit .

Adedeji said closing an account reduces available credit, which can increase credit utilization even when the amount owed stays the same. For example, he said a $100 balance on a $1,000 limit equals 10% utilization. Cut that available credit to $500, and utilization rises to 20%.