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Does watching or hearing the economic news each day make tiny little beads of sweat pop out on your forehead?

When you see Janet Yellen on TV do get a clammy feeling on your hands and does your stomach start hurting?

Have you slipped to the point where you’d rather watch reruns of “I Love New York” on MTV than CNBC???

For those of us who’ve gone through several recessions, I can readily admit it’s no fun, but just as clear is the fact that most recessions are part of a normal cyclical pattern and most are relatively short. If you’re alarmed by our economy or are feeling helpless, there are several steps you can take to ride out the current economic downturn…

What strategies should you follow in order to best weather a recession?

Not too surprisingly, personal finance experts’ best tactics for surviving recessionary periods are the same basic tactics they recommend in good times. The only difference is the fact that now the degree of urgency has been cranked way up. Take advantage of the current economic doldrums by taking steps to ensure you’re doing the right things from a personal finance perspective.  In no particular order, here’s the list:

1.  Build your emergency fund. You’ve no doubt heard this before, but now the importance of an emergency fund is more obvious. Conventional wisdom holds that you should have an emergency fund that’s the equivalent of 3 to 6 months’ living expenses. I’d add to that by suggesting that if your income is over $100K, your fund should cover 6 to 12 months’ expenses – it’ll take you that much longer to find another job if you’re laid off. In uncertain economic times, having a nest egg you can fall back on should the worst happen will provide a lot of peace of mind.

Don’t have an emergency fund? Start one today. Open an online savings account at ING Direct, e-Trade, or another firm and set up an automatic transfer from your checking account to the online account. Stretch yourself a bit when it comes to your monthly (or more frequent) contributions… it’ll grow quickly. If you receive a windfall – a bonus, etc. – and don’t have an emergency fund, put the entire windfall in your fund to help establish it!

2. Reduce debt – especially credit card debt. Now is not the time to be carrying credit card debt (when is??) Pay down your credit card debt and use cash instead. Don’t make impulse purchases. Distinguish between what you want and what you truly need. If you regard the economic crisis as just that – a CRISIS – and keep that fact in the back of your head, you may be able to resist making imprudent purchases.

Not to state the obvious, but this is not a good time to incur additional debt – a new car, vacation home or timeshare, that Lamborghini you’ve always wanted, and so forth – let the economy rebound before making any significant “investments.”

3. Reduce your expenses. This is a great time to take inventory of the expenses you incur each month that could be reduced or eliminated. Cancel memberships (gym, etc.) you aren’t using; seek less expensive entertainment options; dine out less frequently; get rid of your land line and use cell phones; vacation locally vs. an elaborate, expensive getaway… take a hard look at how you’re spending your money and make an honest appraisal of what’s necessary and what could be trimmed back… and then do it.

4. Network, network, network. Always a sound strategy, networking is essential during difficult economic times. Touch base frequently with former colleagues, industry contacts, and recruiters. Remember the cardinal rule of networking – don’t expect to get something out of networking unless you put something into it. Share information and leads with your network. Networking has been compared to a marriage: you get out of it what you put into it. Take some time this week to network. If you’re a more recent graduate, touch base with former classmates and/or professors. Build a healthy network and then spend a little time each month working it.

5. Take out a home equity line of credit.  This may seem counter-intuitive, given my comments in the 2nd and 3rd points above. If you have established a fair amount of equity in your home, establish a home equity line of credit with your bank. And then don’t use it. There may be fees to open an equity LOC; check with your bank. I opened a home equity LOC when we bought our home, and doing so was free. Your mileage may vary; you may have to pay for a home appraisal and a modest application fee. Should the worst happen, you’ll have another safety net available to you. Finally: if you don’t have the discipline to ignore the LOC (that is, not use it), please don’t do this.

6. Add value at work.  Now is not the time to be showing up late for work, taking hour and a half lunches, and annoying coworkers. Bring unique value to your employer, and help your boss be successful. Please refer to my post “8 critical tips for new employees,” – it covers the basics well. Also, click on the following link for an excellent article on “How to recession proof your job.”

7. Don’t panic and rush out of the stock market. The market’s down and so is your portfolio; resist the temptation to sell off and cut your losses. The market will rebound eventually. When it does, check your asset allocation and make sure it’s appropriate for your age and the number of years you have to retirement. And if you have extra funds available now, it’s a good time to invest, particularly if your time horizon to retirement is greater than five years.

8. Be patient. Be patient and calm: the economy is cyclical, and it will recover. Most of the recessions during the last 50 years have lasted for a year or so – this is not forever! Take the steps reviewed above to put yourself in a better position, and relax. This crisis will pass, and if you’re wise you can come out of it in far better shape than you entered it.

Make it a great day – start on at least one of these steps today.

kc 7.31.08

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2 Comments on The 8 strategies you need to survive a recession

  1. […] PracticalHacks lets us know The 8 strategies you need to survive a recession. 3. FiscalLiberty on the other hand debates 3 reasons America NEEDS a recession. […]

  2. To me #7 and #8 are the most crucial ones and as an investor I have yet to live and see a general crash of my investments since as of yet only individual stocks have crashed.


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