How many articles have I seen in the past month about how to recession proof your 401k? I can think of a couple on MSN, and a bunch on random blogs. Apologies to any of my bloggy friends if you have written on it. Actually I can understand the feelings of panic people are having over 401k, especially those getting ready to retire. If you are getting ready to retire, you can pretty much disregard this article. If not, read on for recession proofing your life, something much more important than worrying just about your 401k….
So I am opening with a disclaimer: I STILL DONT THINK WE SHOULD PANIC OVER RECESSION. Come on people, wheres the widespread unemployment, we are in a frigging correction, not a recession. Though things could get nasty if the fed keeps cutting rates. Inflation is much scarier than a correction. But I digress. But assuming you are scared of the recession, lets look at the effects and how to protect yourself from them:
First what is a recession?
A recession is a prolonged period of time when a nation’s economy is slowing down, or contracting. Such a slow-down is characterized by a number of different trends, including:
-People buying less stuff
-Decrease in factory production
-Slump in personal income and salary growth
-Stock Market goes down/doesnt grow
Mind you all of this has to happen for 6 months straight to be considered a recession. Now lets see what you should do to your life to handle ICOR (In Case Of Recession)… I just made up that acronym, but I like it so tell your friends and when they don’t know what you are talking about, tell them “What, you don’t know what to do ICOR? In Case of Recession?” And then tell them to visit my site.
Before we go into specifics here is the golden rule: It is not your duty, your responsibility or any other word that implies obligation to SPEND to help the economy recover. Let me repeat that. It is NOT your duty to spend money or acquire debt to help the economy.
1) Make sure you have an emergency fund.
You should have an emergency fund anyway. Start with one month’s worth of expenses and work up to two months worth. Then three months. If you have a family, up it to five to six months if possible. If you’re young and single, or a young couple you can probably find ways to work bizzare/crappy jobs with crappy hours to make ends meet in a worst case scenario. If you have kids, obviously you need to be extra careful because you want to make sure they have stability, shelter, you present as much as possible and have good food. If you have dogs, they will probably eat anything so no problems there.
2) Work harder, work faster, work smarter
This is by far the most important thing to recession proof your life. If you master this one, the rest of them wont matter. If there is a downturn in the job market, employers for the most part are looking to trim the fat, though there are exceptions. Ask yourself, if I were a food to fuel my company, would I be kobe beef or a chunk of spam? So how do you improve? Get involved in more things that are core to your company. Outlying projects can be cut, so too can people working on them. Get yourself into a position where you are generating revenue for your company. Work IN the office. Network with people. Update your resume. This should probably be its own article.
3) Take advantage of the lower interest rates
Refinance, then instead of paying the lower amount due every month, keep paying the same amount and shrink that debt down or use it to grow your emergency fund. The less you owe in principal per month the less your payments will be.
4) Be Frugal
Do I really have to say it again?
5) Look for great bargains
If you are having to do something like buy a house, chances are you can get away with offering much much less than you otherwise could. If you have to buy something, be strategic about it.
6) If you are investing do NOT try to cash out
Trying to time the market is dumb. There are is 50% chance of being wrong each time. I don’t care how much research you did. Im not saying you shouldn’t be strategic but playing stock trader during sketchy times is a bad idea.
7) Keep building your 401k/IRA, DONT panic
Unless you are close to retirement, a downturn in the market just means you can buy cheaper. If you are really worried, mix in some (more)bonds. When the market’s at the bottom, buy buy buy.