We all know that the world economy is in a bad shape now. Stock prices have plummeted, jobs are gone, layoffs are inevitable, anxiety levels are sky-high… many countries have officially announced that they are in recession.

Experts always have many suggestions or solutions for us but all these usually boil down to urging us to go back to the basic principles of wealth management. That’s to spend less (reduce expenses) and earn more (increase income). That’s the only way that can help insulate us from the economy’s crisis or at least help us to go through it.

Here are some tips on how to survive in a recession…

1. Manage Your Cash Flow. This simply means write down all the details of your expenses versus incomes. This is the first and the most basic step of financial planning. You should be well aware of or contemplate what would happen to you if you were to get retrenched tomorrow? Do you have enough emergency funds to ride through?

Cash flow management is something we should be doing all the time but perhaps many of us can’t be bothered. But you can’t ignore it now, it’s critical that you assess your financial vulnerability, especially during the economy downturn or recession.

2. Assess Your Debts. Especially the big item debt such as your home loan. If you have a home loan, evaluate refinancing savings to see if there is any cost-saving option you can put into effect. But you must do your due diligence by checking out all the different mortgage rates. Also, check if there is any penalty charges for refinancing.

3. Do not use your credit card if you’re financial adolescent! Credit card debt is the most common among those who are financially immature. Meaning that they build the bad habit of brandishing their credit cards even though they know that they can’t pay the bills in full at the end of the month.

Listen, if you can’t pay your credit card bills in FULL, please DO NOT use credit cards. Using the minimum payment option to pay your credit card bills is a recipe for disaster. Read this article: “How To Avoid Credit Card Woes“.

4. Keep your day job and upgrade your skills. If you still have a day job, consider yourself lucky. It’s not the time to think of quitting your job and hoping to find a better one. As a matter of fact, you’re likely to be required to go beyond your basic responsibilities by your employer as they will be taking the belt-tightening measures as well. So, be flexible and continue to upgrade yourself.

5. Learn to earn extra income. As long as you’re willing to learn new things and take actions, there are still many opportunities out there for you to earn some extra income while keeping your day job. I have discuss some options here: Earning Extra Income.

6. Invest your money. This option applies only for those who have extra cash on hand and want to know where to invest their money. Depending on your investment risk profile, some good investment options are fixed deposit, precious metals and stock market. If you’re risk-averse, invest your money in bank’s fixed deposits or precious metals such as gold and silver.

On the other hand, if you’re a risk-taker, you can choose the stock market as many stocks are now selling below their intrinsic values. However, if you’re planning to enter the market, make sure you adopt an investment strategy that is well diversified across asset classes, countries, sectors and stocks. Note that stock market investment is a long-term investment (at least 3-5 years) so you must be willing to wait for the long haul to enjoy the fruits. Many experts predict that the market can only recover after 1 or 2 years.

Hope you find these tips useful.

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This entry was posted on Monday, November 17th, 2008 at 3:15 am and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.