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The recession has affected almost every other industry and many people have experienced pay cuts and layoffs – very frustrating for them, as they have been hardworking and conscientious employees. It’s not their fault, but feeling frustrated, anxious or panicked is counter-productive.
The natural reaction of these people is to worry about the future. This can cause them to adopt sudden reactions about their finances that are detrimental to their retirement goals. The practical way to survive a recession is to soberly assess your financial situation and act accordingly.
In any recession, cash is king as a lack of consumer demand causes the economy to spiral into deflation. For families with shaky finances or uncertain employment, it is wise to put more money into emergency savings. The more unstable your job, the more conservative you should be with your finances.
If your paycheck is steady and secure, work off your credit-card debts. Try to use as little credit as possible whenever possible. If you’re shopping and have enough cash to make the payment, stick to it. Don’t open an in-store account just to get the discount. When your monthly credit card bills are due, pay them on time rather than just making the minimum payment. You’ll only dig a deeper debt pit by snowballing your debts.
Manage your credit wisely and check your credit report often. You should aim to keep your credit score high to get better interest rates for availing new credit in future. More importantly, this is the time when the credit card companies open their predatory claws. People with low credit scores are particularly vulnerable and have to struggle harder to deal with their financial woes.
But even if your credit score is respectable, you can expect credit card issuers to raise your rates and lower your credit limits. If this happens to you, file a formal complaint with the credit card company and tell them you plan to close the account if the rate is not lowered. Usually, they will give way if your account remains in good standing for a long period of time.
Overall, I am not against using credit cards. They offer solid security on online transactions and credit cards, with their cash back bonuses and reward points being a great way to save some money. Just make sure the card doesn’t charge you an annual fee.
You can continue to spend and invest but they should be reassessed to capture a smaller portion of your income. I do not suggest you to dump all your investments, irrespective of the fundamentals. Changing your investment mix and making sure they are right for the time being will suffice.
Never put all your eggs in one basket. This is a basic investment rule for a bull or bear market. Diversify your investments between different sectors and different types of assets such as stocks, bonds, gold, funds, fixed income and cash.
Next, review your individual retirement account or company 401(k) investment plan. are Ponzi schemes (look no further than Trustworthy bernard madoff) that may have offered you high and stable returns in good times, but are likely to close in a market downturn. Your retirement account should be conservative. I don’t know about you, but I can accept zero returns for my retirement fund but not zero principal.
To help you make the right financial decisions, you should also closely follow financial news to stay abreast of the latest happenings in the economy. Pay attention to any new tax laws that may help or affect you. Be adaptable because change often comes with effort.
The more you stay in touch with the news and information around you, the easier it will be. Lastly, have a solid backup plan with an emergency fund to cover 6-8 months of expenses. You can’t go wrong with this saying in life: “Tomorrow belongs to those who prepare for it today”.
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