Surviving the current recession

Emilita over at "She's Little and Lovely" recently asked me what people should do in the face of the oncoming recession. I'm not a financial expert, so aside from my financial tips, musings and thoughts, I don't think I'm qualified to dole out explicit advice. Instead I've compiled advice from some of the best and the brightest in the personal finance arena to help assuage any money anxiety my fabulous readers may be experiencing.

First up, money expert Suze Orman says that "Many of us share the same problem — we don't think through how our choices might play out down the line. Be it jumping into home ownership without fully understanding the mechanics of mortgages or choosing to become a stay-at-home mom/dad when the family income is already stretched thin, financial stress can be greatly minimized with some advance planning."

Her three tips are to anticipate, address and adjust:

• Anticipate. Living in the moment doesn't mean you can forget about the future. Financial security often boils down to the simple task of anticipating the consequences of your actions. The goal is to make sure that whatever choices you make today you can handle tomorrow. If you don't have health insurance, the bottom line is that you'd better keep a lot of cash in an emergency fund to pay for life's curveballs.


• Address. If you end up in a squeeze, the worst move you can make is to do nothing. Refusing to open bills or relying on hope and a prayer to bail you out of a steep mortgage won't cut it. The more committed you are to taking action now, the better off you'll be.


• Adjust. If your finances have pushed you to the brink, it's time to step back and go in another direction. For example, I'm a huge supporter of any woman choosing to be a stay-at-home parent but only if it makes financial sense for the family. If it doesn't, there's still no need to jump back into the workforce at 60 hours a week; find a part-time position to help you get on better footing. Every problem is solvable if you stop holding on to the past and embrace the decisions that make sense going forward. [Oprah Magazine]

In terms of investments, Orman says that people close to retirement may need to reconsider. "Many people now have seen their 401(k) either cut in half [or] down 40 percent. [People] may have to work a lot longer than they planned, may not have enough money to generate income to send their kids to school," she says.

With all of these economic puzzle pieces in play, Orman says she wouldn't be surprised if we switched to a cash economy (i.e., buying only what you can afford now). "Banks aren't going to want to give you money where they're afraid that you might not pay them back," she says. "I personally think that's a great thing." Touche, Suze. Didn't clogging up credit lines and living lavishly on money we didn't have lead us to the credit crisis du jour?

Yes, Orman says (well, not to my little ole personal question, but theoretically, she agrees)."People, stop living the financial lies that you have been living. If you don't have the money to pay for something, can you just not buy it? Can you wait?" she asks. You said it, sistah!
If you're 10 to 20 years away from retirement, Suze says there's no reason to panic. "As long as you are invested in good quality mutual funds, diversified across the board, as this all goes down, you're buying more shares," she says. "The more shares you buy, eventually, when it turns around ... the more money you'll make." If you need to start dipping into your savings in the next 10 years, Orman says it's best to take your money out of the stock market and invest in CDs and treasury bills or bonds. [Oprah.com]

Bottom line, Suze explains: "This is not the first time that we have had a recession. A recession is nothing more than a contraction. ... People think, 'The economy did this to me. When is the economy going to change?' As if the economy is going to save them. And what have I always said? Only you can save yourself. Nobody can ever save you." [Oprah.com]

If you feel like you're being pulled out to the roiling sea by an undertow of debt you've accumulated that you can't swim your way out of, CNN Money writer Jessica Dickler lists 10 solutions for your own credit crisis:

• Look at the big picture. Experts agree that before fixing your finances, you must first take stock of your complete financial picture.


• Pay important bills first. (Health, shelter, basic food and transportation to work or school.)


• Call your creditors. Work out a payment plan, lower your rate, lower your monthly payment, or even waive the late fee.


• Transfer balances. If you have a high interest rate on one card and a running balance, consider transferring that balance to a card with a lower interest rate. Be sure, though that the amount you save on interest payments more than offsets the fee.


• Quit the cards. Put.Down.the Plastic.


• Prioritize paying down debt. Pay off higher-interest credit cards first. If they're all about the same, start with the card that is most maxxed out.


• Bulk up your payments. I know, easier said than done when most of us are living paycheck to paycheck. Dickler says to pay more than the monthly minimum on credit cards (i.e., your bad debt).


• Check your credit report for mistakes. For a free copy of your credit report, visit annualcreditreport.com or call 877-322-8228. It's not uncommon to find an old error that's dragging down your credit score.


• Get help. If you feel you need an ally with sage personal advice to weather the storm, find a debt counselor. Dickler says The National Foundation of Credit Counseling (nfcc.org) is a good place to start.


• Start saving. According to Greg McBride, senior financial analyst at Bankrate.com, the greatest barrier to saving is not the means but rather the discipline. Start putting a small amount aside in a high-yield bank money market deposit account or savings account. [CNN Money]

Finally, Money Magazine published a solid story today entitled "9 Ways to tough out tough times." In it, they explain everything from "How to earn a yield of nearly 5%" to "How to know when a stock is really a bargain." Click on over to read more.