Make Yourself Recession-Proof

By Lewis Schiff

Question of the week

A friend of mine argues that the hits to the economy from Hurricane Katrina, the Iraq war and high gas prices mean that a recession is just around the corner. What do you think?

What do Hurricane Katrina, skyrocketing energy costs and higher inflation and interest rates mean for the U.S. economy? If you poll ten different economists, you'll probably get ten different answers. But one thing is certain: Many people are worried.

Just two comments from members of the Armchair Millionaire community highlight this concern:

"I'm not smart enough to know where the nation's economy is going in the near future. I'm more concerned about what I see around me in individuals who are deep in debt, digging deeper and not saving a dime." --kirkisms

"I read somewhere that each American owns over $120,000 of American debt. How can a country survive such an economic situation? Our financial survival is based upon assumptions that may whither with an ongoing war effort, with disasters like Katrina, and with increasing costs such as that of oil. I predict a recession will be forthcoming within the next three years." --Chris

While you can't control the direction of the economy, you do have a lot of control over your personal financial situation. We may not see a 1929-style crash again, but short-term bumps in any economy are inevitable. My guide will show you how to ride them out.

The Armchair Millionaire's Guide to Making

Yourself Recession-Proof

Keep cash on hand. When the chips are down, cash is king. Nothing is better for seeing you through a recession or unexpected job loss than an emergency fund. Aim to have at least three months' worth of expenses stashed away in a money market fund. Six months' worth would be even better.

Don't get in over your head on fixed expenses. If you stretch yourself too far when you take out a mortgage or car loan, you could be in trouble down the road. By making those big, fixed expenses well within your reach now, you'll have some cushion in the future should your income drop.

Don't overextend yourself. Just because you have a $50,000 home equity line of credit doesn't mean you should use it. Likewise with the credit available on your credit cards. By leaving yourself room to use credit when you really need it, you'll be much better able to weather an economic downturn.

Keep your skills current. Especially if you work in an industry that ...

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