How to Prepare, Survive or Profit from a Recession Is a Recession Inevitable? A recession, a period of economic decline, is declared if the U.S. gross domestic product (GDP) decreases for two consecutive quarters. That has not happened, so we are not currently in a recession. However, it appears that the economy is slowing when you consider the stock market and employment decreases and the sub-prime mortgage crisis that is rippling through most of the global economies. The stock market and industry hates it when the recession word is mentioned. Emotions can have an extremely negative effect on the stock market and consumer spending. The concern is that fear’s chilling effect will slow the economy down further. However, intelligent people should always at least observe their environment to prepare just in case. Personal Recession The most important question of the day is this: “Is your personal economy facing a slowdown?” To determine if your household is facing a recession, examine your financial net worth or balance sheet, income and expenses, and savings. Your eFinPLAN Financial Plan will have these calculations. Otherwise: To calculate your personal balance sheet; first list your invest-able assets (savings and investments), and personal property. Second, subtract from that number your total debt, including mortgage, home equity loans, credit cards and any consumer debt such as your auto loans. To calculate your income and expenses, add up how much money you make and subtract how much you are spending each month. Also determine how much you are putting into savings for future needs such as retirement and emergencies. If you are spending everything that is coming in, “living pay-check-to paycheck,” then you probably are in a personal recession. Another indication is your debt (payments)-to-income ratio. If it is 36% or less, then you are probably in pretty good shape. If it is 37% to 42%, it is probably time to start reducing debt before it gets out of control. If it is 43% to 49%, financial difficulties are probably imminent unless you take immediate action. If it is 50% or more you probably should get professional help to aggressively reduce debt. Tips for Financially Challenged Individuals Those in financial difficulty are more susceptible to the effects of a recession because they probably don’t have adequate savings or the ability to borrow more without risking financial disaster. Negative financial circumstances can come at any time, such as a major car repair or a large health bill that isn’t completely covered by insurance. But if a recession were to occur there would be a greater likelihood of other consequences, such as: · Corporate cut-back · Difficulty obtaining credit · Smaller wage increase or bonus reductions · Inability to sell real estate · Less overtime pay or slow sales commissions Prepare Stay positive. Keep or work at having a good positive mental attitude. When you are positive you can see that there is truly a light at the end of every tunnel, not a train coming, but the light of a new day full of new exciting opportunities. Don’t beat yourself up over past mistakes; staying positive will help you make good decisions and stick with them. This will help you keep from just giving up and continuing with careless financial management. Prepare in case you are thrown a financial curve ball. Financial challenges always come whether or not there is a recession; a recession just makes them a little more likely, so be wise by trying to: · Delay large purchases such as new car, flat panel TV or big vacation purchases. You can always buy an item later, but you usually can’t take it back. · Avoid unnecessary smaller ‘want’ versus ‘need’ purchases. Avoid the shopping mall and dreaming over catalogs. · Accumulate money in savings or rainy day funds so that you don’t have to pull money out of retirement funds, borrow, or fall behind on payments during a hardship. Savings can be invested in a money market account earning interest, which is better than paying loan interest. · Develop and follow a budget and limit discretionary spending. Utilize good budgeting software to track all your expenses. Examine it to determine if you are overspending in any particular category. · Save on gasoline by combining trips, by car pooling, or by using public transportation. · Becoming a student of money saving techniques: There are many excellent authors to help you save money, such as Mary Hunt (www.debtproofliving.com), and money saving blogs that provide a whole host of money savings tips. Budgeting, limiting unnecessary purchases, and spending wisely can save you a few hundred dollars per month to help you build up your rainy day fund—all with little sacrifice to your standard of living. · Manage your health by exercising more, eating less and quitting smoking; doing these things can lower your health care bills. · Save on groceries because they are a large percentage of family budgets. Therefore shop with a list, coupons and a self-imposed price limit at lower priced stores. Subscribe to thegrocerygame.com, a computerized system of finding the lowest prices on name brand goods. This alone recently has saved 25% for our family of four. · Develop your long-term goals by writing them down, and map out a plan of action to put your spending into the proper perspective. To get started, list 10 things you want to accomplish; these goals can be things you want to achieve now or in the future. Secondly, get a financial plan. If you can afford to, hire a financial planner. Not everyone can, and some people prefer to do some of it themselves. Today more tools and resources are available than ever before to help you do a lot of it yourself, such as our online financial planning software, eFinPLAN.com. Tips for Financially Healthy People Some people seem to be naturally better financial managers than others or perhaps have not faced financial setbacks. If you have a firmly established financial plan and excess income and savings, recessionary times provide opportunities that you may want to take advantage of. · Consider becoming self-employed and or buying a company. Are you an experienced business person with great ideas, work ethic, contacts and management skills, but are burned out in your corporate position? The timing may be right because owners facing recessionary times may want to retire or avoid enduring an economic downturn. Your ideas may breathe new enthusiasm and life into a business. Seek qualified legal and tax counsel to steer you through the transaction process. · Purchase discounted large items by waiting for manufacturers to offer deep discounts. · Invest but don’t try to time the market by moving out of stocks, but stay with the proper asset allocation (that fits your risk tolerance and return expectations) between stocks and bonds regardless of short-term economic forecasts. When stock values decrease, you can purchase more shares for your money. You may enjoy great appreciation when the stock market goes back up. If you are nearing or in retirement, you may want less volatile investments, but be sure to seek qualified assistance from a professional trusted investment advisor before reacting to stock market fluctuations. Your eFinPLAN includes your proper asset allocation. · Purchase real estate. Recessionary times may provide opportunities to purchase property at discounted values. Real estate purchased for investment purposes should always be for the long term, since it can be costly to own and difficult to sell. Always seek financial, tax and legal assistance prior to purchasing. If you are wise, plan accordingly, and stay positive, recessionary times hopefully will not affect you deeply. Regardless of a recession, proper planning can help prevent a financial disaster and hopefully increase wealth. Remember, the best years can be ahead for those who correctly gauge the signs of the economy and their personal situation, take control of their finances, and seek ways to grow wealth regardless of the financial climate. | 
