The recession has hit just about every other industry and many people experienced paycuts and layoffs – much to their dismay, as they have been hardworking and conscientious workers. It is not their fault but feeling disheartened, anxious or panicky is counter-productive.
The natural reaction for these people is to worry about the future. This may cause them to adopt knee-jerk reactions about their finances which are detrimental to their retirement goals. The practical way to survive a recession is to assess your financial situation calmly and act accordingly.
In any recession, cash is king as the economy tends to spiral into deflation due to a lack of consumer demand. For families in shaky financial condition or uncertain employment, it is wise to put away more money into emergency savings. The shakier your job, the more conservative you should be about your finances.
If your paycheck is steady and secure, then hammer away at your credit-card debts. Try to use less credit whenever possible. If you are out shopping and have sufficient cash to pay, stick to that. Don’t open an in-store account just to get a discount. When your monthly credit card bills come due, pay them off on time, instead of making only the minimum payments. You will only dig a deeper debt hole 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 to obtain new credit in the future. More importantly, this is the time when credit card companies unleash their predatory claws. Those with low credit scores are especially vulnerable and have to struggle harder to cope with their financial woes.
But even if your credit score is respectable, you can expect credit card issuers to raise their rates and curtail your credit limit. If this happens to you, raise a formal complaint to the credit card company and let them know you plan to close the account if the rate is not lowered. Usually, they will give way if your account is in good standing for a long period of time.
On the whole, I am not against the use of credit cards. They offer solid protection on online transactions and credit cards with their cash back bonuses and reward points are a great way to save some money. Just make sure that the card does not charge you any annual fees.
You can continue to spend and invest but they should be re-evaluated to occupy a smaller proportion of your income. I don’t suggest you dump all your investments, regardless of fundamentals. Changing your investment mix and make sure they are right for the times will suffice.
Never put all your eggs into one basket. That is a basic investing rule for either a bull or bear market. Diversify your investments between sectors and also different classes of assets like stocks, bonds, gold, funds, fixed income and cash.
Next, review your Individual Retirement Account or company 401(k) investment plan. There are Ponzi schemes (look no further than the trusty Bernard Madoff) which may have offered you high and steady yields in good times but they are likely to go bust in a market downturn. Your retirement account must be conservative. I don’t know about you, but I can accept zero returns but not zero principal for my retirement fund.
To help you make the right financial decisions, you should also monitor financial news closely to keep up with the latest happenings in the economy. Pay attention to any new tax laws that may help or affect you. Be adaptable as change often comes with trying times.
The more you stay in touch with the news and information around you the easier this will be. Lastly, have a solid backup plan with an emergency fund to withstand 6-8 months of expenses. You won’t go wrong with this adage in life: “Tomorrow belongs to the people who prepare for it today”