Financial experts are finally using the "R" word: recession. The economy is on the downswing, the price of gold is booming as investors look for something more tangible to invest in, and the stock market is taking a beating. People are fearing for their jobs, their retirement accounts and their ability to hang on to their homes.

I expressed some of my concerns about a possible approaching recession last September. I also posted a few tips to help prepare in case the economy should take a downturn, which it appears it has. It's not too late to enact a few of these tips, if you haven't done so already or you have just discovered Savvy Frugality. In fact, I am beefing up my emergency fund beginning next month, I have already taken steps to reduce monthly expenses and retire my debt, and if I should lose my job my car payments will be met, thanks to the unemployment insurance I took out on my mini-van. I had already diversified my income, but to be honest, if I lost my job tomorrow that would certainly hurt.

But what if you haven't prepared, and you're already feeling the crunch of an economy gone sour? The first step is to recognize there is a problem (which the White House has finally done, and they have offered a "stimulus package" for the U.S. economy), and then develop a plan.
Drawing upon my own experiences from the Recession of 1991, during which my family suffered greatly (I was out of work for six months, and it took years to recover), I have developed the Savvy Frugality Recession Survival Guide:

1. The first thing you want to do is insure your most basic needs: shelter and food. Stick any extra money in a high-interest savings account to help cover rent or mortgage payments if the worst should happen. In fact, your emergency fund should have three to six months worth of living expenses in it. If you don't have that much in your emergency fund, do what you can to start saving that amount now. Take a part-time job. Bank unexpected windfalls. Sell stuff you really don't use or need anymore and stick it aside for a rainy day. If a month comes where you can't pay the rent, you'll know it's raining. Stockpile dried goods in a closet designated your "emergency pantry". This can include canned goods you found on sale at a ridiculously low price, large bags of rice, dried beans, canned meats...things that will keep for a few months to a year. Think Y2K preparations...without the irrational fear of planes falling from the sky. During the Recession of '91, there were times I didn't know where my family was going to get its next meal. That's not a good position in which to find yourself.

2. If you have a retirement account, make sure it's diversified. Don't have everything in stocks. you should have some savings in lower-risk investments, too...such as bonds, or cash. Warren Buffet does, and he's done OK for himself. Put your short-term savings in high-yield savings accounts or money market funds...accounts where you can access your money quickly in an emergency. I have some savings in the online bank Emmigrant Direct, but ING is good, too. They both pay more than 4 percent interest. Whatever you do, DON'T cash out your 401k. You'll need that money when you retire.

3. Stop spending on non-essential items. I know the government wants us all to go shopping with a $500 tax rebate they want to give us this tax season to help stimulate the economy, but that $500 will do me more good in my emergency fund than it will going toward a new flat-screen TV. Put discretionary spending on big ticket items on hold for now. Reserve your money for NECESSITIES: food, shelter, clothing, transportation. The key is to live BELOW your means. If you are living on credit or are spending more than you earn, you're in trouble.

4. Make yourself indispensable at work. If you depend on a job for a paycheck, look for ways to help your employer make more money, better ways to doing things at work, make yourself available for special projects, be the first to arrive and the last to leave each work day, etc. If you are the model employee at work, and your boss has to start trimming the payroll, they will keep a top performer over somebody who does the minimum. On a related note:

5. Have something else going on the side. I do some freelance writing which helps bring in extra income, but you may have some other skill you can put to use to have another source of income besides your job. Use that cash to beef up your short-term savings and your emergency fund. Network with others in your line of work, outside of your current company. The more friends you make in the industry, the more people there are to help you with job leads should you find yourself looking for work.

6. Investing. You can hedge your investment bets in a recession by buying stocks in companies that seem to weather recessions just fine. Companies that sell food, alcohol, tobacco, utilities...things people will use regardless of how the economy is doing...are usually stable. Also, when stocks are bottoming out, that's a great time to go shopping and pick up some bargains on companies that are stable and are leaders in their industry. The book Rule #1 by Phil Town deals with buying stocks while they are "on sale".

Most important: don't panic. By planning ahead and taking action now, YOU are controlling your own financial future.

(This post is also featured on's Money Central Smart Spending blog. )


  1. Anonymous // January 24, 2008 at 10:24 PM  

    For what it's worth, I think you may want to consider looking at recession as 'Glass Half Full' rather than 'Glass Half Empty'.

    More specifically, interest rates are at record lows (5.25 for 30 year fixed) and foreclosures are a-plenty equates to a perfect buying opportunity.

    I'm not saying it's for everyone - but if you're credit is good - it's a FANTASTIC time to buy certain types of real estate (short sales/foreclosures).


  2. SavvyFrugality // January 24, 2008 at 11:39 PM  

    That's a good point and it fits with my tip about investing. When prices are at their lowest, whether in stocks or real estate, it is a great time to pick up some bargains, as long as you have the cash to do so. At the same time, you certainly don't want to overextend yourself and buy something you can't afford. Too many people have done that, and that's why the real estate industry is in the spot it's in now.

  3. Loren Woirhaye // December 24, 2008 at 2:34 PM  

    I recently published a 63 pg. guide to making money and surviving in these times. A lot of what I wrote is aligned with what you say here. Perhaps you would like to review it and give your honest opinion.


  4. Lia // January 5, 2009 at 4:16 AM  

    Good point on overspending on "investments." yes it's a good time to buy cheap real estate and stocks, but not having enough savings to tide through the recession (should it get worse) is also not right. Investment spending should only be from super extra extra money you have. Free government grants and benefits like food stamps, liheap, unemployment insurance and the like are also helpful when you're really strapped.

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