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Can Your Personal Finances Survive a Recession?

Tuesday, December 18 2007

One of the words that is being tossed around with increasing frequency is "recession." And the question becomes this: can your personal finances survive a recession? Heavy debt and low savings are just the things that can cause you money problems during a recession. But there are some things you can do now before the recession really hits, to shore up your personal finances. And if the recession never hits? Then you are that much more ahead financially.

Four things that can help you prepare your personal finances for a recession

There are four main things you can do to prepare your personal finances for a recession:

  1. Get out of debt. This is very important. You need to work hard to reduce your overall debt level. Pay down balances as much as you can. Put together a debt reduction plan that will help you dramatically reduce how much you owe to others. Debt can be a major problem during a recession, and if you have a lot of it, it can become difficult to take care of your other needs.
  2. Build up an emergency fund. You need to build up an emergency cash fund to help you if needed. This is true of any time, but especially true in the run up to a recession. While you probably can't just set aside three to six months' worth of salary now, you can build up a reserve. Every little bit helps, and the important thing is to get into the habit of saving.
  3. Consider blue-chip stocks. CNN Money points out that now is not the time to freak out about the stock market. Indeed, there is a good argument to buy, while prices are low. Here is what Walter Updegrave says on CNN Money:
"But remember, the shares you buy while the stock market is down will likely be the ones that will have generated the biggest gains a decade or more down the road. And the money you invest during market setbacks could very well provide the spending cash you'll need in your later retirement years."
Choose solid stocks that are likely to make a good recovery. They may not offer sexy returns right now, but they are the tried and true that will recover from a recession.
4. Consult a professional. A fee-based financial planner can help you chart your path.


If you plan carefully now, and take the appropriate steps, your personal finances should be able to survive a recession.

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Latest Comments on this post

Hi this is johncena.Thanks for your advice.I appreciate the compliment.
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johncena

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By: john cena on 10/19/08 at 11:04 PM
Can Your Personal Finances Survive a Recession?
Thanks for sharing your insight. It is interesting to see them dodge questions. However, there some interesting insights to be gleaned, and there some detailed plans laid out (especially by Obama). I liked the break from personal attacks. Facts and details may be boring, but I prefer them to "compelling" TV any day.
By: Miranda Marquit on 10/15/08 at 11:15 AM
Can Your Personal Finances Survive a Recession?
Like many Americans who make up that growing class of ?disillusioned? voters, I watched the latest ?town hall?-style TV debate between Barack Obama and John McCain with my expectations held firmly in check. No matter how many direct questions you ask a politician, regardless of their party affiliation, the answers you receive will resemble generalized sound bites. The New York Times described it as ?90 minutes of forced cordiality,? and I must agree. While the exchange was ?mercifully free? of personal attacks (according to the Boston Globe), the result was that it was free of much of the tension that makes for compelling television. McCain continued to trumpet experience, his ?stay the course? stance on Iraq (seriously, he could have been G.H. Bush?s understudy) and his oil drilling policies. Obama continued to criticize Republican policies that he claims have led America into its current recession. If all were based upon the candidates? performance here, we?d have no idea exactly how either of them would work to avert pending economic catastrophe. A coherent economic proposal is what America needs. Obama?s stance on ?predatory lending? ? effectively sanctioning payday advance lenders ? is not a coherent solution to the real economic problems we face. That?s just a juicy steak to feed the banking and credit union dogs.

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By: Payday Loan Advocate on 10/14/08 at 12:15 AM
Can Your Personal Finances Survive a Recession?
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...
By: Miranda Marquit on 4/28/08 at 10:54 AM
Can Your Personal Finances Survive a Recession?
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.
By: Hal on 4/27/08 at 4:52 PM
Can Your Personal Finances Survive a Recession?
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.
By: Miranda Marquit on 4/7/08 at 12:53 PM
Can Your Personal Finances Survive a Recession?
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 ...
By: David Richeson on 4/4/08 at 6:46 PM
Can Your Personal Finances Survive a Recession?
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!
By: Kim Shuford on 1/25/08 at 11:50 AM
Can Your Personal Finances Survive a Recession?
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.
By: Miranda Marquit on 1/25/08 at 9:32 AM
Can Your Personal Finances Survive a Recession?
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?
By: Kim Shuford on 1/24/08 at 11:46 AM
Can Your Personal Finances Survive a Recession?
I appreciate the compliment!
By: Miranda Marquit on 1/24/08 at 11:10 AM
Can Your Personal Finances Survive a Recession?
Miranda always gets her point across clearly and efficiently. Great column!
By: Trisha on 1/23/08 at 12:20 PM
Can Your Personal Finances Survive a Recession?
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