This is an update of a post from late July – given the events of the last couple of weeks, taking some of these steps is now even more critical.

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

When you see Hank Paulson on TV do you start experiencing shooting pains going down your left arm?

Have you slipped to the point where you’d rather watch the latest Paris Hilton “reality” show than anything on 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.

Distinguish between what you truly need, versus what you want. The list of things you need is short: you need food & water, shelter, clothing, a means of survival (for most this means income,) and you need to protect your family’s well being and future (medical care, proper hygiene, life & disability insurance for yourself.)

Is there much more that you truly need?

The next time you are considering a purchase – especially anything which doesn’t fall into the list of needs above – ask yourself if you need it, or just want it…  and then give yourself some time – maybe even several days – to reflect on your pending purchase.

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.

In today’s environment, this next one may now be tough to do; check with your local bank.

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 this 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.

Please stay calm – we’ve all been hurt by the market mess, but the world will continue to rotate about its axis, and life as we know it will not end. Take the right steps today, and you’ll be better positioned to come out of the current economic malaise in the best possible shape.

Good luck – and if you have strategies of your own for dealing with this situation, please share them!

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2 Comments on Several strategies for surviving the market/economic meltdown

  1. Lizzie says:

    I liked the “beads of sweat” part! I have taken to turning off the news, both literally and figuratively. We’re not rushing out of the stock market (no. 7), I’m trying to be patient (no. 8), though I am worried about the money we had set aside for our college freshman and our high schooler. But there’s nothing I can do right this moment, so I’m opting for the “be patient” approach. This is such a mess right now, and Danny Schechter has written about it in his book, “Plunder.” He dissects the news and the crisis, going behind the scenes and identifies the key players and culprits of the financial industry, government deregulation and the media.


  2. Michael W. says:

    Number 6 – it’s time to be on best behavior at work – is so true, now that I have inched slightly higher in the food chain I can see how the friendly upbeat employees get at least a small amount of extra consideration – it won’t save a doomed job, but could well be the “feather that tips the scale” in any gray area situations.

    Since this website is very gadget oriented, you could add another point: read many good reviews, make very few bad purchases.

    Your review on the Rick Steves Classic convertible carry-on piece is a good example. An exasperated frequent flyer who used to check their bags is now facing a hefty $25 fee for checking bags (with some frequent flyer club exceptions). Your reviews help them choose between the ultra-light, bargain priced Steves Classic convertible backpack and the robust, but more expensive RedOxx AirBoss. Both are tops in their respective niches, but which one is right for the newbie converting to the “no checked luggage” approach?

    And, let’s face it, you do a good job of helping us vicariously enjoy some of the smarter gadgets without having to go out there and buy them and try them ourselves.


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