Can Your Personal Finances Survive a Recession?

Miranda always gets her point across clearly and efficiently. Great column!

I appreciate the compliment!

Miranda, as always, you're right on target! However, what would you suggest for those who don't have the money to pay down their debt and start savings? It's great and easy to say that paying off your debt and saving money is the way to go, but if the recession is coming so fast, do people really have the time to do these things? Would you suggest saving money first as opposed to paying down the debt? If the recession hits at the end of the year, would someone be better off having their debt paid down the little they could have afforded or to have some money saved? Which would you advise?

Some people are already in really bad circumstances. I would suggest taking a hard look at the situation. Are there places to cut back? Most families "waste" 10 to 15 percent of their income each month. In the more desperate circumstances, I would see how long one can keep making minimum payments (icky, I know) and save the money to shore up against the coming recession with savings (especially if the job looks to be in jeopardy).

However, if you have a stable job, it is a good idea to start paying down debt. Having as little debt as possible is important in a recession.

Another thing that can be done now is this: Figure out how much you can cut back each month. Take 15% of that and put it into saving. Put the rest toward debt reduction. If you get a tax rebate, follow the same rule. It may not seem like much, but when you aren't doing any of it right now, any little bit helps. And it will help build good habits.

Thanks for your input. That's pretty much what I told them, to keep paying their minimum payments and try to save up some money until they can start paying a little more on their debt. I, by no means am a financial advisor, but many clients defer to us to give them proper guidance. It's good to know we are on the same page! Thanks and have a great day!

Great article! I also recommend buying some gold & silver (both physical & through exchange traded funds), since inflation is killing the value of your savings everyday. Your emergency funds could be wiped out just by inflation. If you're interested in learning more, check out www.surviverecession.com ...

I agree that including metals can be good for a balanced investment portfolio. It is true that many savings accounts are being killed by inflation (especially since the Fed keeps cutting rates), but a savings account is still a good way to build up very liquid assets that are easy to get to if necessary.

Miranda, I agree with your first two steps: 1. Get out of debt...Yes, and that includes any and all mortgages. 2. Build up an emergency fund...Yes, one year is better. But you're a bit young to have experienced any really bad times, so 3. Consider blue-chip stocks...No, when one has funds available after 1. and 2. above, first invest in I-Bonds and T-Bills. Any stocks at best are speculative and high-risk. 4. Consult a professional...Two questions to ask: - Have the professional show you his or her FICO score. If it's less than 800, walk away, that person is neither qualified nor competent to offer financial advice. - Ask to see their current personal balance sheet. If their net worth is less than yours, walk away. - And if they refuse to do either of the above, don't walk away, run away! Having followed my own advice, I'm not overly concerned about weathering the current economic melt-down.

Blue chips can be good if you are planning on being in for the long haul, and can stomach the risk. And you are right that I-bonds and T-bills are safer. Especially in a volatile market. I like your take on the financial professionals as well! Are they competent? I am not worried about things, either. Although all the Fed rate cuts have me annoyed about my cash investments...