Recession: How To Protect Yourself
A recession seems like a very real possibility right now. The good news: there’s still time to prepare. Start by following these eight tips for protecting yourself against the recession:
Save aggressively
1. Cut your expenses. Create a realistic budget and stick to it. Prior to any purchase, whether it’s a new TV set or a Starbucks frappuccino, ask yourself, do I really NEED this item, or do I just WANT it?
2. Generate a little extra cash. Declutter your home and sell stuff on eBay. Put ads on your blog (don’t have a blog? Start one. Read this article on How To Blog) and try to place them in a way that will optimize click-through rates.
3. Pay off debt more aggressively. Consider taking advantage of current low interest rates to pay off as much debt as you can, especially credit card debt.
4. Create an emergency fund. Try to keep between three and six months’ worth of living expenses in short-term investments. This is especially important during an economy slowdown, because people do lose their jobs more often during a recession. Your emergency fund should be held in an FDIC-insured account, or in short-term treasuries.
Protect your portfolio
You don’t necessarily need to make any changes to your investment portfolio. I don’t plan on changing my investment mix: our portfolio is quite conservative as it is. We have an emergency fund, a good mix of stocks and bonds, and reasonable exposure to foreign stocks. So I pretty much plan to stick with my convictions and wait out the recession.
However, if you feel you might be too exposed to a slowing stock market, here are a few things you can do:
5. Change your asset allocation. Don’t pull out of the stock market entirely, because you do want to benefit from the eventual upturn, but this might be a good time to unload the losers in your portfolio and use the money for buying quality municipal bonds or treasuries.
6. Diversify.
6.1. Allocate part of your investments into international stock. The standard formula calls for 15%, but we choose to be more aggressive and keep around 25% of our stock portfolio in foreign stock. We’ve been very happy with DODFX (no load, expense ratio 0.66%). In addition, we have some exposure to emerging markets, China, Japan and Europe.
6.2. Make sure you don’t have more than a small percentage of your portfolio in any one company. Specifically, many financial advisers recommend that employees invest no more than 10% of their retirement money in their company’s stock.
Protect your job
7. Do your best to keep your current job. Especially if you work at a large, stable company. Make sure you are perceived as valuable at work. Ideally, you want to be at the top 10% of your company to avoid the layoffs, which ARE more common during a recession.
8. Prepare for layoffs. Put more effort into networking. If you lose your job during the recession, the best way to get a new one quickly is through your network of friends and colleagues. LinkedIn, Facebook and other social networking sites are great for maintaining and expanding your network. Keep in touch with people and help them as much as you can, without expecting anything in return – for now.
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I am not a financial adviser. The information provided here about protecting yourself against a recession is general in nature. Prior to taking any action, please consult a financial adviser regarding your specific situation.
Related Articles:
Surviving The Recession
Slowing Economy: Protect Your Money
Photo credit: Anders V
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Acacia responds:
Posted: March 19th, 2008 at 12:48 pm →
How does one create an emergency fund when they live paycheck to paycheck and have credit card debt?
MomGrind responds:
Posted: March 19th, 2008 at 1:25 pm →
Check out the following resources:
Motley Fool – alternatives to having an emergency fund
Paula Gregorowicz – paying down debt vs. saving
ironman responds:
Posted: March 19th, 2008 at 4:56 pm →
Very timely. Thanks.
Jill responds:
Posted: March 19th, 2008 at 7:57 pm →
Thanks Vered. Not sure I can pass as valuable at work
but the networking advice is important. I’ve been neglecting that lately.
Improve Your Finances With Common Sense @ The Roundup responds:
Posted: March 23rd, 2008 at 9:30 am →
[...] How To Protect Yourself Against Recession @ Mom Grind [...]
Vanessa responds:
Posted: March 23rd, 2008 at 2:50 pm →
Tanks for your article. I found it when I goggled ” Beat Inflation”. I am no financial expert, it is just that I am 55 years old and remember the late seventies and the early eighties. When interest rates shot up to nearly 20% and gold to 900.00. Oh yes let us not for get the housing crisis do to creative financing. Now it is creative financing by the banking industry on a larger scale. I saw the same thing going on early last year and became the mother hen to my friends and family telling them to get ready. Beginning last year I started cutting my cost Living on unnecessary expenses. Things I thought I could not live with out. How wrong I was. I called my cellphone carrier and mentioned changing companies and got a unbelievable deal of only paying for minuets used at an receivable rate of .05 cents. Never mind rollover minutes that you pay for and never use or using the phone so much hoping to not waist the money you have already spent. I got rid of all our credit cards and total destroy those daily credit card offers that come in the mail. I have made a total risk to move my investment to Gold because it was the only thing holding true to the pattern of inflation. Interest rates are being keep artificially low when they should be increasing . I locked my 95 year old mothers saving in a year CD at 5.25 just before the rate drop.
Thanks to your website I can try a few more cost cutting ideas. I am looking to ways of evaluating our grocery bill and bring down the cost. Gasoline is another major problem and that I have tackle by combining trips. But at the rate gas is going up I have got to do better.
Thanks again
Vanessa
MomGrind responds:
Posted: March 23rd, 2008 at 4:40 pm →
@ ironman: Glad you found it useful.
@ Jill: Sure you can.
@ Vanessa: Sounds like you did really well preparing for a possible recession. It’s great that you were able to save in places where you didn’t think it was possible to save.
If you’re looking to save on groceries, try reading this great post by Alanna Kellogg. Lots of good advice there.
I don’t think I can be of much help with saving on fuel – still need to figure this one out myself – but you may want to check out this article for a few ideas.
5 Strategies to Survive An Economic Slowdown | Moolanomy responds:
Posted: March 25th, 2008 at 6:06 am →
[...] How To Protect Yourself Against a Recession at Mom Grind [...]
Michael responds:
Posted: April 16th, 2008 at 2:30 am →
Grow a garden(as much as possible. If possible, have a greenhouse)
Live below your means
Shop less for food, less trips that would waste gas
buy a bike(I need to do)
BUY STORED FOOD AND WATER (www.efoodsdirect.net)
buy some gold/silver coins(www.the-moneychanger.com)
Read, study and live according to God’s Word rightly divided(www.gracealive.org)
Get rid of whatever you don’t need, now is the time(Spring Cleaning)
Use the time you have wisely(easier said than done)
Get enough sleep
Enjoy at least 10min of sunshine when possible
Trust Jesus CHrist as your Lord and Saviour: Christ died for your sins, was buried and rose again the third day. Simply believe this to be true, cause Jesus Christ did this for you.
Without Faith in the God the Creator of the King James Bible: what does anything material do for you if you died in an economic depression?
If you gained the whole world, and lost your soul for the world’s goods and pleasures: what good would that do you?
By the way, in an economic depression: what good is FIAT monopoly money from the federal Reserve going to do for you?
if at all possible: get mad and get going to call the White House and your Congressman to tell them : GET RID OF THE FEDERAL RESERVE: THEY ARE A MAJOR REASON WE IN THIS COUNTRY WILL BE DEVASTATED BY AN ECONOMIC DEPRESSION. WHO DO YOU THINK ALLOWED AMERICANS’ TO GO THROUGH THE FIRST GREAT DEPRESSION? FEDERAL RESERVE HAD A HUGE PART IN IT!
MomGrind responds:
Posted: April 16th, 2008 at 9:51 am →
@ Michael: living below your means is so important but so hard to do. Thank you for your comment!
How Do You Deal With The Recession? | MomGrind responds:
Posted: October 6th, 2008 at 1:01 am →
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Recession Forces Americans To Delay Retirement | responds:
Posted: December 20th, 2008 at 2:51 pm →
[...] reading: Dealing With The Recession Protect Yourself Against The Recession Redefining [...]
Surviving A Recession responds:
Posted: January 6th, 2009 at 6:55 am →
I think the first four items you mentioned: cutting expenses, cutting debt, increasing income, create an emergency fund, are the keys to surviving a recession. Anything else is icing on the cake. But, before I would protect my portfolio I would protect my house. So many people invest instead of paying off debt. Paying off debt is in many respects an investment. Anyway, great information.
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Posted: January 8th, 2009 at 5:14 pm →
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| body detox responds:
Posted: August 1st, 2009 at 7:59 pm →
the economic recession has been pretty hard on us. there is some good progress on the economy this year. i just hope that the economy will continue to recover in the following months and years.
Jacee responds:
Posted: August 15th, 2009 at 2:28 am →
i am hoping that the global economy would recover from this economic recession. life has been very hard with these massive job cuts.
Janet Reyes responds:
Posted: December 8th, 2009 at 12:12 am →
Our country was also hit hard by the Economic Recession. At least we are seeing some signs of economic recovery now. I hope that we could recover soon from this recession.
……..
Cameron responds:
Posted: December 29th, 2009 at 12:41 am →
Our country had been so much affected by this Economic Recession. there are lots of job cuts and company shutdowns. We are seeing some signs of economic recovery right now and we hope that it would continue.
| Acneguy responds:
Posted: January 5th, 2010 at 8:48 am →
I think we are also seeing some signs of recovery from the Economic Recession. Of course, we have no idea of how long it will take to completely recover, but some say it’s going to be longer than for the other recessions in decades. I also scanned an article yesterday that said business owners need a new set of tactics to do well during recovery.