Preparing for Recession
By Gary Foreman
Lately it seems everyone is talking about a possible recession (or even a
depression). When the Federal Reserve drops rates by 3/4% between meetings it's
probably time for all of us to take notice. No one knows for sure whether we'll
end up with a recession or not. But, as we all do know, it's always better to be
prepared for financial challenges. Just in case.
The first thing is to know what your current position is. Are you spending more
than you're making? Do you even know? Where does your money go each month? The
only way to really find out is to track your spending for a month and compare it
to your income. Don't forget to include items that happen just a few times a
year (property taxes, auto insurance, etc). If you are working you should be
making more than you're spending each month. That extra money can be used for
paying down debt or building an emergency fund.
Next, pay down debt. It's easier to survive a job loss if you don't have a lot
of bills each month. Now is the time to reduce credit card balances. Even it it
means taking a second job or cutting off cable television. You'll be tempted not
to do anything. Just remember that if you do lose your job it will be too late.
Look for big savings items. With lower rates now might be the time to refinance
your home or car. Compare insurance rates. Make sure that you really can afford
the house or car you're paying for. Typically if your house is over 40% of
income or your car is over 20% you need to do radical surgery. That means moving
to a cheaper home or car.
Take a serious look at your food/grocery/eating out expenses. Most people spend
15 to 20% of their money on food. But, it's real easy to spend more. And, it can
happen a little at a time. That luscious $4 dessert won't bankrupt you by
itself. But, it will take you one step further from your goal.
Look at your employment situation. If you're honest with yourself, it's not that
difficult to recognize job troubles ahead. Is your employer in trouble? Is the
whole industry suffering? Could your job be done by someone else for much lower
pay? Either within the U.S. or without? Does technology threaten your job? If
you can answer 'yes' to any of those questions, you'd be wise to consider what
your life would be like without your present job.
Ask yourself if you'd be likely to find the same type of work at a different
employer. It could be that your field is changing. That happened to me. If
you're facing a similar situation begin learning a new trade now. Don't wait
until you lose your job. Waiting will only make the transition longer.
No, I can't say whether you'll be affected by a recession or if there will even
be a recession this year. But I can tell you that you'll be better able to
handle one if you begin preparing now.
Gary Foreman is the editor of The Dollar Stretcher.com website <
www.stretcher.com> and newsletters. Not only does the site host thousands of
articles on various ways to save money, but you'll also find a vibrant forum
where people share their dollar stretching ideas. Visit today!