8 Steps To Recession Proof Your Finances

Much is being said lately about the state of the economy, the housing loan crisis, loss of manufacturing jobs, our soaring trade deficit and the recent Federal Reserve moves to further lower already low interest rates. It’s a dizzying array of bad news, enough to make your head spin.

You might be thinking “I don’t live in the US, why does it matter?” I’ve got news for you, it matters to everyone, no matter where you live. We are in a world economy, each country, effecting others. In this article, I’m going to give you 8 Ways To Recession Proof Your Finances. Eight common sense things you can start doing today, to help shield your family from the devastating effects of an economic slowdown. Now, as I have stated before, I’m not a financial expert or economist, I hold no finance degree. I’m just a guy that thinks, reads and evaluates what’s going on around me. So let’s get started, shall we.

1. Cut Spending

This is probably the number one most important thing you can do, starting today. I know that it’s counter intuitive. We live in a culture of spend, spend, spend! But, I’m telling you, if you try to out spend the Jones’, it’s a no win situation. When the chips are down, everyone screaming at you to spend will disappear. They won’t nor should they be there to help you. Many will say “It will hurt the economy if you stop spending”. Psssst!!! I’ve got a little secret to share with you. Yes you. Just you. If you stop spending and start saving some money, it won’t have a single noticeable effect on the economy. But it could be the difference between feast and famine for you you and your family. I don’t have enough readers to make even a small splash in the ocean that is the economy. Even if I had 50,000 readers and half of you followed my advice. No dice. Wouldn’t make a difference in the big scheme of things. Now, that being said, if all 230 million Americans stop spending watch out! And if you are one of the unfortunate ones with no savings, you’re on the modern day Titanic with no life raft.

So what can you do? Look for un-necessary spending and cut it. Buying a $2.00 coffee every morning. Make a pot at home. Do you really need 200 + cable channels. Are you eating all of your meals out? Do you go to the mall and drop a ton of money on a regular basis. Stop it! Small changes in your spending habits will add up over time. Live with in your means. Sooner or later you have to spend less than your income. I know, that stinks. But it is a heavy dose of reality that you need to hear.

2. Payoff Debt

If you carry any “bad” consumer debt, you need to pay it off as soon as possible. By bad, I mean anything other than a school loan or a first mortgage on your residence. Credit card debt is really bad debt. High interest rates, excessive fees and very low minimum payments spell disaster for most consumers. Case in point, if you have $1000.00 in credit card debt, at 18% interest and you make the minimum payment, it will take you 153 months (13 years) to pay it off. You will pay $1115.43 in interest, yes, that’s more in interest than you originally borrowed. In 13 years you will have paid $2115.43 total. And if you owe 5,10 or 15 thousand the numbers become unbelievable scary. See me after class for details. Another bad debt to have is an automobile loan. Autos, on average, loose 30% of their value the moment you take possession. Some people call their car an investment. What kind of investment looses 30% of its value on day number one and continues to loose value every day until you sell it? None that I can think of. Pay off your auto loan! Use the money you recoup from cutting your spending to pay off all of your bad consumer debt. There are many schools of thought on how to tackle paying off these debts. AND that is beyond the scope of this writing. Dave Ramsey, author of The Total Money Makeover, has a really great book on how to pay off your debts for good. I highly recommend it to anyone who wants to become debt free.

3. Put Off Unnecessary Expenditures

If you can postpone any major purchases such as a car, computer, television, refrigerator, washing machine or a stereo system, then by all means wait! If your reason for buying such items, is for the awe effect, keeping up with friends and family or to “reward” yourself, then you need to re-think the necessity of adding these items to your possessions. In my opinion, you ought to wait until the old one dies. If the economy continues to worsen you will be in a much better position if you don’t have loan payments on these type of items. And if you paid cash, good for you, and shame on you at the same time. You will now have that much less in savings.

4. Recession Proof Your Job

I have written on this topic in 5 Ways to Recession Proof your Job. But basically, shoring up your existing employment is key to recession proofing your finances. Some things such as lay-offs and down-sizing are completely out of your control. But following a few key steps that I have presented could increase your odds of making it through tough times.

5. Increase Savings

This is another very important piece of the Recession Proofing Your Finances puzzle. Assuming you have paid off all of your “bad” debt, the next logical step is to start saving. I plan on writing extensively on this topic, so here is the abbreviated addition. The first step is to save an emergency fund. This should equal 3-6 months of living expenses. This will enable you to make it through some lean times, a job loss or the inevitable economic slowdown. Next you should set some longer term savings goals and start saving for retirement. Like I said these topics will be covered in detail in later posts.

6. Shop Smarter

Here is another topic I wrote about a while back in 5 Tips To Cut Your Grocery Bill Today! There are many things you can start doing today to get your grocery bill down. One good piece of advice that I didn’t specifically cover is the stock piling of staple items. An easy way to ease the pain of high inflation is to buy in on deals and stock up on items such as paper goods like toilet paper, paper towels and napkins. Canned goods that you use often would be another obvious choice. Laundry detergent and household cleaners are also good choice to stock up on when on sale. These items, will inevitably go up with rising prices.

7. Create a 2nd Stream of Income

Have a favorite hobby? Do you make crafts. Are you good at repairing things around the house. Do you have a topic which you know intimately and could blog about?

These ideas and more could net you a tidy little profit. Besides doing something you love, you could start making a second income to assist in your debt pay-off or savings goals. And if something ever happens to your main job, you will already have something to fall back on. Start working on your second income stream today!

8. Become a Do-It-Yourself-er

Have projects around the house that need to be done? Put on that tool belt and get-r-done. Have you hired a plumber or an appliance repair man lately. It will cost you a small fortune to have just about anything around the house fixed. From installing a new toilet to fixing a broken hot water heater, home repairs are easier than ever with all of the Do It Yourself books and giant Do It Yourself hardware stores. Give it a try and you could start saving yourself a bundle.

In Conclusion

As you can see, there are many steps that you can take to recession proof your finances and your family. I hope you found this information useful and will apply at least some of these steps in your personal finances. If you are already doing some of these things, tell us about it. Looking forward to hearing from you.

Tagged as: personal finances • recession