Friday, October 17, 2008

Dealing with a Tough Economy

Do you notice the pervasive doom and gloom everywhere you go? It seems like people only want to talk about how much money they have lost in the stock market, how bad the economy is and how the sky is falling (or is about to fall). OK. I'll admit it. These are scary times, but the good news is that there are things you can do to adjust, prepare and mitigate. Here are some ideas:

1. Keep your job - let's face it, your investment portfolio losses have a far smaller impact on your financial well being, than does a potential job loss.  If you think about this rationally, your long term savings will come back, given enough time. What really matters is your monthly cash flow and keeping your job is the number one priority in a tough economy. Next week I will have a detailed post on the subject, but for now keep this in mind: work hard; deliver stunning performance; don't be a trouble maker. It may not be 100% within your control, but there are many cases in which you can do a lot to avoid a possible lay-off.

2. Cut your spending - I hate to break it to you, but if you are stressed about the economic times, drinking fewer of those $4 lattes is a very good place to start the budgeting process. Clothing? You can probably put off your purchases. Vacation? How about a stay-cation instead or simply a cheaper destination? I am not saying you should go into bunker mode, I am merely suggesting that you should adjust your spending to give yourself a cushion for potentially difficult times.

3. Find new sources of income - others have written about this extensively, but you may want to think about potential new sources of income. "Money and Such" generates ridiculously small amounts of income, but I have given some thought to taking more advertising, and I have even put out some feelers regarding possible part time consulting opportunities. Developing a safety net for yourself BEFORE you need it is the general idea here.

4. Prepare your emergency plan - if you don't have an emergency fund which covers - at the very minimum 3 months of living expenses - start building one immediately. Our emergency fund covers more than 12 months of living expenses. Call this a lesson of living through the very lean times of the dotcom bust in Silicon Valley. Put some money away for a rainy day, because it is very possible that one is coming your way. Although it is not fun to contemplate, start planning for how you would deal with a job loss or other economic hardship. Better to be prepared than to have to figure these things out in the middle of the emotional roller coaster that often accompanies financial difficulty.

5. Smile - the sky is NOT falling. Let me repeat this in a calm and reassuring voice: the sky is not falling and the world is not coming to an end (everyone knows that the end of the world is scheduled for August 2029 when vacuum cleaners will stage a revolution and turn on their human oppressors). Just re-lax. Yes, times suck. I know, I am here too. We lost more money in the last three months than we made in the whole of last year. So what?! Look around you. The sky is still blue (yellow if you live in LA), kids are still playing in the streets. De stress a bit. In five years this will all be a distant (if nauseating) memory. Smile. Your friends, co-workers and random folks in the street will appreciate the gesture.


frugal zeitgeist said...

Right on. My boss has already decided (and shared with me) who he's cutting if we have a layoff. Scary times. Although nothing's ever set in stone, I'm very thankful not to be on that list just yet.

Mama2ce said...

Good tips!

Shadox said...

Frugal - those folks who think that lay-offs are an anonymous, random reduction in force have no idea what they are talking about. Unless an entire division is getting axed, lay-offs are very personal and the decisions of who to let go and who to keep are very deliberate.

Sure, in some cases your position is simply redundant. But in most cases you have to ask yourself: why are you in a redundant position?

I have a post on the subject later this week.

Andy said...

A conservative srategy in terms of saving, investing and living is the best strategy.

Times are tough but one thing is for sure, markets are cyclical so in a few years we will be talking about why house prices are so expensive, is the stock market over valued….