Surviving an Economic Downturn

The unemployment rate is on the rise, the stock market has been giving investors a scary ride, the American homeowners' biggest asset has been devalued, inflation is pushing up the price of everything, and we still have a family to feed...

It's easy to get careless about finances when times are good and credit is easy, but the recent problems in the U.S. have forced many of us to take a harder look at how we're earning and spending our money. There may be a lot of money-related problems in our nation right now, but the individual consumer really has most of the control over what happens with their personal financial situation, no matter what's going on with the economy.

Improve your job security.
Some industries, such as manufacturing and construction and certain service-provider positions, have already lost many jobs due to the mortgage mess and the general state of the economy. If you feel your job is at risk, do what you can to be more valuable to your employer so they can't afford to lose you. Job cuts always start with the least productive or least necessary employees, and you'll increase your chance of keeping your job if you can do what others can't or won't do. Even if you don't feel like you may lose your job, it's always a good policy to outshine the other employees at least a little; you may even get a promotion because you stood out from the rest.

Searching for a job? Search harder.
It's easy to get stuck in your comfort zone and only apply for jobs that you have the education or experience for. And it's logical to only want a job that will pay you for your education or experience. But if your industry has been hit hard by job loss, you may need to be more flexible in your job search. Looking outside your chosen field and being willing to learn something new will increase your chances of finding work. This may be the perfect time for a career change.

Keep the income flowing.
There's always a way to earn an honest living, even if it means doing something you haven't done before. A job loss may present the perfect opportunity to start a business and be your own boss. Right now may be a risky time to start a business with a high start-up cost, but many service-oriented businesses can be started with very little investment if you have a marketable skill, can work from home, and already own the tools and equipment for the job.

Live within your means.
It sounds easy; don't spend more than you make. But thanks to the trusty credit card, spending more than we make each month is pretty easy, if you're not careful. If you can't pay all your revolving debt and all your bills each month, it's a sure sign you're living beyond your means. It's important to your financial health to get that under control ASAP, especially now, with consumer prices on the rise and the devaluation of the American home (meaning no more home-equity ATM). You can't fix this problem by increasing your debt load, only by cutting expenses or increasing your income.

Update your budget to reflect current expenses.
Your budget should be updated anytime there's a change to your income or expenses. And this year, everybody's expenses have gone up; certain types of groceries have already seen a 15% increase this year, and experts expect the price of food to go up even more. Gas prices have recently dropped a little, but it's still about $.75 a gallon higher than it was just a year ago. Your budget should include all your monthly expenses, plus put you on a fast-track to paying off your revolving debt. And don't forget about the old rule of paying yourself first; it's especially important now, in the midst of all the economic uncertainty.

Stash some cash.
Financial experts advise to have three to six months' worth of basic expenses in a safe, liquid account, such as an FDIC or NCUA-insured money market account. Saving that kind of money is often easier for those who have little revolving debt. If you have a lot of debt to pay off before you can save that much, at least have about a thousand dollars put away for strict emergencies, so you won't be forced to use credit cards for emergencies and run your debt back up. Then prioritize getting your emergency savings fully funded. When that's done, start saving for things you want, like a big screen TV or a luxury vacation. Having cash means you're in control of your spending, and you won't have to depend on using a loan or credit card to pay for what you need and want.

Reduce your debts.
Every debt you carry is costing you money in the form of interest. Pay them off as quickly as you can manage to. Paying off a high-interest credit card is like earning a guaranteed 18-21%; you can't get a better return on your money anywhere else right now. (It's difficult to get a return like that even in a good bull market.) Credit card minimum payment requirements are designed to keep you in debt for decades and should only be used if you have a temporary shortage of funds; you should be able to pay the entire balance in full most months if you have your debt under control.

Invest for your future.
Every investor has become nervous over the direction of the market recently, but the stock market can't be beat for long-term investments. Right now, a lot of good company's stocks have been beaten down by the economy, and are now undervalued. It's always important to carefully research any stock or mutual fund you're considering, no matter what's going on in the market. And you should have all your revolving debt paid off, plus have an adequate emergency fund before you invest in the stock market. With that said, it's always a good time to invest for your long-range goals. As long as you won't need the money for at least five years, you'll have time to ride out the market's ups and downs.

It's really the same as it's always been.
The advice for surviving an economic downturn is really no different than it is for any situation; be smart in your spending, control your debt, save for future needs, and use your financial common sense. If you can afford it, then enjoy the luxuries that your hard work has provided. If you can't afford it, then don't buy it.

We, as a nation, have gotten used to easy credit and the "buy now, pay later" mentality. But much of that has come to a screeching halt with the housing bust and the credit markets tightening the grip on their cash. It's probably what we needed to get a grip on reality. Consuming more than we produce happens on the national level, just as it often does on the individual level - it's not sustainable. Take charge of your finances and manage your money; don't let your money manage you - no matter what's going on with the economy.