The recession has hit almost every other industry, and many people have experienced paychecks and layoffs—much to their dismay, for they were hard workers and conscientious workers. It is not their fault but feeling frustrated, anxious or panicked is counterproductive.
The natural reaction of these people is to worry about the future. This may cause them to make quick reactions to their finances that are detrimental to their retirement goals. The practical way to survive a recession is to calmly assess your financial situation and act accordingly.
In any recession, cash is king as the economy tends to contract due to lack of consumer demand. For families with fragile finances or uncertain employment, it’s wise to put more money into emergency savings. The more you shake your job, the more conservative you should be about your money.
If your paycheck is stable and secure, then you should get rid of your credit card debt. Try to use less credit whenever possible. If you’re shopping abroad and have enough cash to pay, stick with it. Don’t open an account in the store just to get a discount. When your monthly credit card bills come due, pay them off on time, rather than making only the minimum payments. You will only dig a deeper debt hole by doubling your debt.
Manage your credit wisely and check your credit report often. You should aim to keep your credit score high to get better interest rates for new credit in the future. More importantly, this is when credit card companies unleash their predatory claws. Those with low credit scores are particularly at risk and have to struggle more to deal with their financial problems.
But even if your credit score is respectable, you can expect credit card issuers to raise their rates and reduce your credit limit. If this happens to you, file a formal complaint with the credit card company and tell them that you plan to close the account if the rate is not reduced. Usually, they will give way if your account has been in good standing for a long period of time.
In general, I am not against the use of credit cards. They offer strong protection on online transactions and credit card rewards with cashback and rewards points are a great way to save some money. Just make sure the card doesn’t charge you any annual fees.
You can continue to spend and invest but it must be revalued to occupy a smaller percentage of your income. I am not suggesting that you dump all of your investments, no matter the basics. It is enough to change your investment mix and make sure it is appropriate for these times.
Don’t put all your eggs in one basket. This is a basic investment rule for a bull market or bear market. Diversify your investments between sectors and also different asset classes such as stocks, bonds, gold, funds, fixed income and cash.
Next, review your individual retirement account or the company’s 401(k) investment plan. There are Ponzi schemes out there (look no further than Trust Bernard Madoff) that may have offered you high and steady returns in good times but would likely collapse in a market downturn. Your retirement account should be conservative. I don’t know about you, but I can accept zero but not zero returns of principal for my retirement fund.
To help you make the right financial decisions, you should also monitor financial news closely to keep up with the latest happenings in the economy. Pay attention to any new tax laws that may help or affect you. Be adaptable because change often comes with bad times.
The more you stay connected to the news and information around you, the easier it will be. Finally, have a solid backup plan with an emergency fund to cover 6-8 months of expenses. You won’t go wrong with this life adage: “Tomorrow is for the people who prepare for it today.”