With the recent turn of events, I have been giving a lot of thought about what to do in event of economic slowdown — i.e., recession, stagflation, depression, financial doom, or whatever you want to call it. As I put this list of 5 strategies together, I realize that they are nothing more than responsible and sensible financial management strategies — something that should be practiced daily, and not only during economic turmoil.
Photo by archidave via Flickr
1. Practice Frugal Living
I believe frugal living is the basic foundation to sound financial success. A good place to start is with my 50+ Frugal Tips, Ideas, and Resources article. In general, the whole concept can be distilled down to these 5 tenets:
- Spend less than you earn
- Buy only what you can afford — This means reducing your reliance on credit card, and paying off your balance in full every month
- Cut your expenses — I listed a couple of money saving ideas in my articles: 40 Ways You Can Save Money And Our Planet and Top 10 Money Wasters, Are You Guilty?. A good place to start is with your budget. If you don’t budget, a money management tool like Mint.com or YNAB Pro can make the process easier.
- Reduce your debt — Except for your mortgage, you should actively try to eliminate your debt. A good place to start is learning about Dave Ramsey’s Debt Snowball, debt elimination process.
- Make every dollar counts — Stretch your money and make every dollar count. In my article 22 Money Maximizing Moves You Can Do Today I shared some techniques that you can use right away.
2. Bear-proof Your Investment Portfolio
Over the years, I have come to believe that best long-term investment strategy is to leverage a globally diversified investment portfolio consists of low cost passively managed funds that reflect your risk tolerance level and investment time horizon. This is a strategy that Larry Swedroe advocates, and you can read it in his book: The Only Guide to a Winning Investment Strategy You’ll Ever Need.
There are two main parts in this strategy:
- Keep the costs low — For instance, limit the number of trades, choose low cost brokerage with minimal fees and low trade commission fees, choose low expense ratio mutual funds, limit tax liabilities, etc.
- Diversify — Spread your investment across different stocks, asset classes, sectors, countries, and beyond equities.
3. Establish An Emergency Plan
If you lose your ability to generate income, do you have enough cash reserve to stay afloat? More importantly do you have an emergency plan to keep you out of trouble? Here are some good articles to get you started:
- Does Your Family Have An Emergency Plan?
- How To Protect Your Greatest Asset, 6 Ideas
- Dave Ramsey Baby Step 1 $1000 Emergency Fund at Gather Little By Little
- Dave Ramsey Baby Step 3 Fully Funded Emergency Fund at Being Frugal
4. Protect Your Job
For most people, their job is their biggest source of income. During recession, the chance of unemployment increases dramatically, and we have seen many examples this past few months. Fortunately, there are a few things that you could do to project your job.
- Networking — If you haven’t done it already, this is a great time to start.
- Get to know your peers and the higher ups better.
- Take on special projects that expose you to other people outside of your immediate workgroup.
- Join caucus groups, industry groups, and associations.
- Help your company increase profit and revenue
- Help your company reduce expenses
- Make sure your good work is noticed
- Expand your skillset — Getting a new certification or skill can make one much more marketable.
If you ended up losing your job, here an article to help you: How To Deal With A Job Loss.
5. Diversify And Grow Your Alternative Income Streams
Now that you all your bases covered, it’s time to think about different ways to increase your income. If you are reluctant about building alternative income streams, I’d like you to consider this statement carefully:
Your job is not going to be there forever. You can’t work forever. And you can’t retire until you figure out a way to replace income from your job.
Don’t wait. The best time to start building your alternative income streams is now.
What others are saying about surviving economic slowdown:
- A Surprisingly Large Number of Things can be Lived Through at Mrs. Micah
- Survive A Recession, Think Long Term at The Digerati Life
- 5 Ways I Plan To Survive The Recession at The Wisdom Journal
- 12 Ways to Make Yourself Recession-Proof at Prime Time Money
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.