How to Recession-Proof Your Finances

From layoffs and losses to bailouts and bankruptcies, millions of Americans are coping with the challenges of an increasingly volatile economy. For some, this means having to find new jobs after years of steady employment. For others, it requires cutting costs so they can live within their means.

The fact is, no one knows exactly when the economy will rebound. But fortunately, there are steps you can take to safeguard your financial future, no matter how gloomy the economic outlook may be. Follow these easy tips to start recession-proofing your finances today.

1. Pay Down Your Debts. Paying what you owe is one of the smartest financial moves you can make-especially during an economic downturn. And the good news is that by following a few smart strategies, you can bounce back from debt. In some cases, you may even be able to use the recession to your advantage by refinancing to lower interest rates or making use of government assistance programs. For more information about dealing with debt, visit our Debt Relief Plans and Services Center and Debt Management and Budgeting Guide.
2. Save for a Rainy Day. When the economy is in turmoil, it's more important than ever to have an emergency savings fund. Ideally, this fund should cover six to nine months of living expenses in the case of a layoff, medical crisis, or other unforeseen event. If you don't have an emergency fund yet, open a new savings account, and start making regular deposits. Even if you can only afford to save small amounts, your money will add up over time. To find out more about your financial preparedness, take our "Are You Prepared for a Financial Emergency?" quiz.
3. Crunch the Numbers. A detailed budget is the basis of any sound financial plan, and it can be especially helpful when you're trying to survive a recession. If you're currently keeping track in your head, consider creating a written budget that charts all your monthly expenses, such as the costs of housing, food, transportation, and utilities. Don't forget to include other expenditures, like clothing, entertainment, and home maintenance. Or check out our Budget Planner-an easy-to-use tool that enables you to crunch your numbers in a just a few clicks.
4. Sharpen Your Skills. As unemployment rates continue to rise, you'll want to do everything you can to ensure your income. If you're currently employed but uncertain about the future, try to make yourself indispensable at work by increasing your visibility, taking on new responsibilities, and continually honing your skills with job training or advanced education. If you're unemployed, reach out to industry contacts, keep your résumé up-to-date, look into ways to Earn Extra Money, and check out our comprehensive guide to Dealing With Job Loss.
5. Get Back to Basics For some people, the hardest part of coping with an economic downturn is downsizing their standard of living. But if you're living beyond your means, you could be at risk for financial ruin. To avoid that fate, it's critical that you spend less money than you earn. If you're having trouble resisting the lure of credit, visit our guide to Living Without Credit Cards. And remember-you don't have to spend lots of money to have a good time. Check out Making Every Penny Count and Having Fun Without Spending a Fortune for affordable ideas.
6. Shop Smarter. In times of recession, it's particularly important to bargain hunt, compare prices, and pass on items you don't really need. To determine whether a potential purchase is a necessity, ask yourself if you can truly afford the item, and do a cost-benefit analysis. You may find that some goods are just too valuable to pass up, while others are a waste of money. Visit our Guide to Shopping Wisely for more tips, and if you think your spending habits may be out of control, take our Emotional Spending quiz.
7. Stay in Your Home. Sadly, in 2008, more than 1 million Americans lost their homes to foreclosure. To avoid becoming a victim of the housing crisis, create a plan that will help you stay in your home. If you're up to date on your mortgage payments and have an adjustable-rate or option ARM (negative amortization) loan, consider Refinancing Your Home Mortgage to a lower fixed rate. If you can't afford to make your payments right now, contact your lender as soon as possible so you can come up with solutions together. For more information, read Protecting Yourself From the Mortgage Meltdown, and use our Home Financing Calculators to determine how much house you can really afford.
8. Do It Yourself. While the recession is presenting many challenges, it's also creating exciting opportunities to make the most of what you have. If you've been laid off from work and haven't found a new position, take this time to roll up your sleeves and do odd jobs around the house. If cash is in short supply, stop eating out, and start Planning Your Meals to Save. With a little creativity, you can even Save on Personal Care Expenses, become a Frugal Fashionista, and Get Valuable Items for Free.
9. Keep Everything in Perspective. According to experts, many Americans are experiencing acute stress, anxiety, and sleeplessness as the result of job losses, foreclosures, and other economic uncertainties. And these symptoms not only take emotional toll; they can increase your risk for serious physical conditions, such as obesity, smoking, alcohol abuse, and heart disease. For this reason, it's important to keep a positive attitude, maintain a healthy lifestyle, and remember that recessions eventually lead to recoveries.

Although you can't change the economic forecast, there are things you can do to weather the current financial storm. To find out if you're truly prepared, take our "Are Your Finances Recession-Proof?" quiz, and be sure to check out our Article Library for more smart strategies to help you ride out the recession.

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