On Surviving A Personal Financial Crisis - And Other Personal Finance Subjects Like Loans, Credit, Debt, Debt Management, And Saving Money

Most people, myself included, never think about preparing for a recession. It simply never crosses our mind. Well the time has come. Financially surviving a recession takes preparation. It does not matter if the economy is already in a recession. If you have not already set out a game plan now is the time.

The biggest thing about recessions is that they are like snakes. You know they are dangerous. You know they can be deadly. But, until you get bit by a snake you don’t think about preparing for the consequences. But, once you’ve been bit, you will take the necessary precautions to avoid being bitten again, or at least mitigate the consequences.

It’s the same with a recession. Until you are laid off because of, downsizing triggered by a recession. Or, loose your house because you could not get it refinanced during a recession. You probably won’t prepare for a recession. Until the time that the recession actually affects you, a recession is someone else’s problem and not yours. But, when the recession does affect you, you will wish you had prepared for it.

Begin Preparing For A Recession

Track how you currently spend your money. You can learn a lot from tacking every dime you spend. You will be surprised how much money you unnecessarily spend on a day to day basis. One of the easiest ways to do this is to NOT use cash. Use a debit card instead. Use the debit card for everything. This way there is a record of just about every expenditure you have made through out the month.

Buy yourself some basic accounting software, like Quicken. Then input and organize the transactions. Today, most banks allow you to down load all your transactions in a format compatible with most popular accounting software. So, once you have it setup it is easy and simple to do on a monthly basis. If you have been using a debit card for a long time but never tacked your expenses, down load as many months as possible. You will be amazed to see how much money you waste every day.

Create a budget. Once you know where your money is going on a monthly basis it is easy to create a budget. But, here is the kicker. Once you have created a budget for the good times, create a budget for the bad times as well. Use a few different scenarios. For instance create a budget showing a drop in income, either because your hours got cut at work, or because you or your spouse lost their job. Look at how the losses in income affect the money you have available to spend. Then look at your expenses and see where you would have to cut to survive. Once you have worked through several scenarios you are aware of the difficult decisions you will have to make if any of the scenarios actually occur.

Start saving money away NOW. You are already tracking your expenses. You have created several budgets and understand not only where you can cut to save money but also where you may have to cut your expenses to save money if things got really bad. Take your worst case budget scenario. Look at the shortfall in income and start saving that amount of money. That is a minimum. Most experts say you should have at least 6 months of living expenses in a rainy day fund. Me personally, I would double that. In my opinion you should have at least 12 months worth of expenses set aside for emergencies.

Learning how to save money is one of the toughest things to do. The goal in preparing for a recession should be to save enough money so that during a recession you are able to maintain the lifestyle that you have become accustomed to.

Reduce you debt. You know where you are spending your money. You have a good realistic budget. You are saving money. Now it is time to reduce that debt. The less debt you have the closer you are to financial freedom. Having debt is like a sail boat leaving its anchor down while trying to sail into the sunset. The ship will get there but it will be slow going. Start with the debt that is the easiest to pay off, first. Each piece of debt you pay off will increase the amount of money you have at the end of the month. Just keep adding the extra money left over to reducing debt. Once the easy stuff is gone pay off the high interest debt next. Before you know it you will be debt free.

Think of different ways to make extra money. If you loose a significant portion of your income it sure would be nice to have a few realistic ideas of how to replace that income. More over, if you are able to start earning extra income now you can pay off that debt faster.

There are a lot of wonderful financial side affects to preparing for a recession. If you are honest with yourself about where you are financially and are willing to make the sacrifices then surviving a recession will be the least of your worries. Prepare for the recession now and you may be able to reap unforeseen rewards in the future. Five steps to preparing for a recession; track your expenses, create a budget, save money, reduce debt, and make more money. If you think of these five things when preparing for a recession you are more likely to survive a recession.