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11 Ways To Survive And Thrive In A Down Economy

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11 Ways To Survive And Thrive In A Down Economy

Yes, when it comes to the economy, it has been hard in the past decade, and it continues to be hard. 

Only now is the Fed seriously beginning to talk about raising interest rates again, many people are without jobs, and others face crippling debt.  

So, ideally, what do you do not just to survive, but thrive during such times?

One:  Even if the Market is Behaving Strangely, Don’t Freak Out

It is in the nature of the stock market to move up and down, sometimes quite unpredictably. 

However, that doesn’t mean that you want to sell out the second it drops. 

Here’s a small illustration:

You know how awful everyone says the stock market has been, lately? 

Well, observe the following chart of the S&P 500 for the past decade:

p5.1

See that awful canyon of a dip in 2008? 

See all the smaller, but not insignificant peaks and valleys? 

Those probably made all sorts of people very nervous at the time that they were happening.

Yet, do you observe something else? 

The right-hand side, representing the most recent months, is way higher than the left-hand side, which represents the farthest time back. 

In spite of all those peaks and valleys and truly terrible dips, the market has ultimately gone up.

It is, in fact, the tendency of the market to go up over time. 

If you sell off everything the second that times get tough, you miss out on that growth.

Joe Baker of Alcus Financial Group concurs.

He says that people get scared, ask themselves if the market is crashing and if they should shift their 401(k) over to a money market. 

The answer is no; they shouldn’t. Not unless they need the cash very, very soon—say, within a couple of years.

Most recessions last a maximum of six months before the S&P 500 begins to turn itself around. 

Only really big meltdowns last longer, and those take something more like 19 months. 

It’s still less than two years before investors have all their money back, and sometimes more.

So, don’t panic. 

Hang in there for the long haul, and you’re quite likely to turn a profit.

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Two:  When You Can’t Afford Something, Don’t Buy It

This one is a tall order for everybody. 

There’s always something we want that we really can’t afford to buy right now, credit cards notwithstanding. 

It might be a Jaguar, or an expensive designer dress, or that miniatures army of Chaos Space Marines.

Whatever it is—and it can be different things for different people—there is only really one answer to handling the situation. 

Don’t buy it.  It’s the hardest thing to do, especially when you’ve got more than enough credit available to do it, but still say no and don’t buy it.

Your future self will thank you for your self-control.

Three: Ask Yourself if You Can Pay Cash, and if You Can’t, Don’t Buy It.

Our society penalizes people for having no credit—your credit score goes into whether you can rent a house, how much you’re charged for a cellular phone account, and sometimes even whether you can get a particular job. 

So it sounds like odd advice in this culture, but if you can’t afford to pay cash for something, you really can’t afford to pay credit for it either.

You see, there are these magical things called interest rates, and whenever you carry a debt, they kick in and eat up even more of your money than you were already spending. 

For small amounts of money this isn’t so bad, but for big debts like mortgages or auto loans, the differences can be huge. 

And don’t forget that those huge purchases devalue over time, sometimes to the point where you end up paying more than the item is worth.

Long story short; don’t buy a house or a car at a bad time just because the bank will loan you the money. 

You may well live to regret it.

Four:  Make your portfolio as idiot-proof as possible

Don’t put all your investments in the same stock.  Just don’t do it.  This is very good advice, but not that many people follow it.

Hewitt Associates found that for every five workers enrolled in a 401(k) plan, three didn’t re-balance their portfolios once between 2000 and 2004.  This is a common oversight that can lead to a skewed portfolio.

A skewed portfolio leads to greater risk for you, the investor.

Remember to take certain factors into account when diversifying.  Two of the biggies are risk tolerance and age. 

People in the 20-40 range should be investing most of their assets in equities while people in the 60-70 range can put up to half of their assets in stocks.

Also, don’t forget that when you’re playing the long game, you can take market downturns as opportunities to buy in. 

Brett Horowitz of Evensky and Katz praises those who buy low, saying that it’s looking to the future, which in fact it is, given the market’s tendency to climb over time.

Five:  Don’t Let Your Home Imprison You

It is generally agreed upon by experts that when market times get tough, it’s time for homeowners to reevaluate their mortgages. 

If you have an adjustable-rate mortgage, it is a sad fact of life that the bank is probably about to pass its financial hurt on to you by resetting your rates considerably higher. 

Refinancing to a lower, fixed-rate mortgage is the only option under those circumstances.

The problem is, like with most other credit-related endeavors—you’d better have really good credit, or it’s simply not happening.

If you do have a FICO score of at least 680, start shopping around. 

Mortgage rates have been moving up and down like an elevator, so try to locate and latch onto the best rate you can find.

It may even be better to take a slightly higher fixed rate mortgage now rather than going with an ARM that could reset to even higher. 

Unfortunately, there aren’t as many options for people whose credit is not good, and if you fit in that category, good rates may be hard to find.

Of course, mortgages are more expensive with worse credit anyway:

p5.2

As illustrated by the chart, people with lower credit scores are already paying more. 

Once ARMs get thrown in the mix, it gets really ugly. 

Dee Lee, the author of “Let’s Talk Money,” compares ARMs to horror movie monsters, and says they’re just about as safe to be around.

There are consumer groups who can help when your credit is a problem. 

The Homeownership Preservation Foundation has a 24/7 hotline, (888) 995-4673. 

The Homeowner Crisis Resource Center also has professional counselors available at (866) 557-2227.

Six:  Get That Resume Ready

Recessions don’t just threaten the economy generally. 

They can have a huge effect on your employment—or lack thereof—as well.

If you lose your job, it will be hard to get another. 

John Challenger, CEO of Challenger, Gray & Christmas, says that during recessions, corporations are playing the waiting game when it comes to hiring, and won’t want to open new locations or add employees.

And when it comes to keeping the job you have, it isn’t good enough to just work as hard as possible. 

Your job may also depend on where in the company you are employed. 

If your department is overstaffed, or you are considered support staff, you are in prime layoff territory.

The best position to be in is one that actively adds to a company’s cash flow. 

It’s also good if you know how to do a job no one else can, or take up crucial, long-term projects for your employer.

Also, pay attention to whether your boss is on the nice or naughty list with their bosses and connect with those higher up if the latter is the case.

And of course—network, network, network. 

If you do lose your job, you need somewhere to go. 

Depending on your position, it can take anywhere from two months to five months to find a new situation.

It’s a good idea to keep your resume full of successes and fully updated.

Seven:  Focus on Building Savings and Shrinking Debt

This probably seems ridiculously obvious, but it’s a good idea to reduce your bills and build up extra money. 

Not only is there the specter of unemployment in an economy like this one, but a lot of the assets that used to be able to help you out have lost value.

An emergency fund is no longer optional. 

The recommendation for how much to have in savings runs from three to six months’ worth of expenses.

Not everyone has that savings tucked away, however, especially lower-income families.

p5.3

As the chart indicates, personal savings have seriously dipped since the seventies.

So if you don’t have money set aside, start saving. 

And while you’re at it, start paying down those credit cards

According to Demos, for every ten households, six don’t pay off their entire balance every month.

The received wisdom is to pay off the most expensive of the cards first. 

And count on having higher interest rates if you become delinquent. 

Robert Hammer of R.K. Hammer, a consulting firm for bank cards, says that you generally have to pay on time for more than a year before you can ask for lower rates and reasonably hope to get them.

The exception to this rule is if losing a job is what put you behind. 

If you find new employment, ask for lower rates and see what happens. 

Hammer advises that you may get relief under those circumstances.

Eight: When You’re Already in Debt, Don’t Add to It.

There are some debts that can’t be avoided unless one is independently wealthy. 

Houses, for one thing, are very expensive items. 

But if you have to take out a mortgage on a home, don’t turn around and add a lot of credit card debt to the mix.

Keep your payments simple—and your stress down—by sticking to just the one debtor.

Budgeting is probably the best thing you can do for yourself here.  Figure out what you need and figure out what you don’t need. 

Work out how much that daily Starbucks costs you and whether you can easily cut it to save money.

If you can, and the choice is between that and starting to run up credit card debt, ditch the Starbucks and put that money into savings instead.  Speaking of which….

Nine:  Exercise a Downsizing of Your Own

Don’t buy too expensive a house, or too flashy a car, or too much jewelry. 

If anything, live slightly under your means.

Buy a house that’s less expensive than you can afford. 

Drive a car that gets you around safely but doesn’t break your budget. 

Don’t eat out all the time.

You will be astounded by how much money you can save by doing this, and how much you can put into savings, retirement, and other investments.  All it takes is the capacity to tell yourself no when it crosses your mind that you want some luxury item on impulse. 

Just the simple—yet unspeakably difficult—action of repeatedly delaying gratification.

Ten: Broaden Your Skill Set

Whether it’s learning new job skills that will earn you more at the company you already work for, or preparing for a job at a new one, gain more skills and increase your competencies. 

The more marketable skills you have, the more income you can bring in, and increased income is never a bad thing in a rotten economy. 

Some people even choose to work second jobs, however temporarily, just to pad the bank account a little.

This tip is particularly effective when combined with those regarding budgeting and debt control. 

If you already have debt, increased income can help you get rid of it. 

If you don’t, the increased income can go into savings, so that if a disaster ever happens you don’t have to go into debt to deal with it. 

The situation is win-win.

Eleven:  In the Same Vein, Look Out for Opportunities to be Entrepreneurial

Start a business that solves a problem for someone. 

Clean, fix things, landscape—do any job that requires a skill others don’t have or takes care of something no one really wants to do for themselves.  Businesses along those lines can be incredibly lucrative.

All that it takes is a little creativity, and you can come up with things people will pay you to do in no time.

Conclusion

The economy may not change anytime soon, and there isn’t much you can do to change that unfortunate fact of life. 

What you can change is what you do about living in this economy. 

By following even just some of the steps outlined above, you can give yourself a major advantage over the average person. 

Control your debt, start building your savings, and be proactive about your employment. 

Be more selective about your indulgences, delay gratification, and keep an eye out for chances to bring in extra income. 

It may not be easy, but you can still thrive, even in these tough times.

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