Update: I wrote the post below in February 2008. I submit that anyone who took this to heart would have survived just fine and might not even noticed the recession—it takes a keen eye to see these things unless you’re actively looking for them, e.g. by counting customers, hummers, or billboards—unless they saw on the news. Unfortunately, very many didn’t and they are still struggling unloading stuff they paid for with money they didn’t have and subsequently never got to earn. Now they find themselves “unwinding” the trade they made, possibly obliviously, on their lifestyle.

Actually the time was several months ago, but since the recession has not been officially declared there is time to prepare. You can still make a difference in your life at this point by adopting a few of these measures.

  • Establish a cash position. During a recession cash is king. The reason is that credit is often harder to obtain. Also with uncertain future prospects the certitude of cash can not be beat. Some people call this an emergency fund. I would not go that far. For instance, you could use the cash in the “emergency” that a stock goes on sale. In general, you should not count on being able to sell some other stock to fund the purchase because the other stock is probably on sale too. Cash can also be used to buy things from people and companies that need money now.  Finally, cash can be used to pay for living expenses without sending you into a spiral of debt that is hard to get out of. The coming years are when the next real estate fortunes will be made.
  • Develop alternative income streams. Having just one albeit impressively large income stream is a very risky position to be in. This means the middle class. Recessions rarely cause pain to the wealthy and the poor. For the middle class losing the job means losing everything while being left with all the liabilities. With multiple income streams such as 2+ jobs, investments, or even better a business with many customers is much safer financially speaking.
  • Learn to cook, sew, and otherwise fix things yourself. Personally I get a lot of satisfaction out of being able to do things myself. However, sometimes it makes sense to outsource things like cooking, cleaning, daycare, painting, and simple repair jobs. A recession is not such a time. If you are laid off you are effectively paying yourself if you are able to boil an egg rather than heading down to the restaurant. Tax free too.
  • Downsize. Convert unwanted stuff into cash before everybody else starts doing it. Get a cheaper place before everybody else starts doing it. If the economy crashes hard you might even be able to buy it back at a discount. Don’t start selling at the moment you lose your job. Most likely a lot of other people will lose their job at the same time. Equally likely they will all think of selling their stock of jet skies and other garage filler while looking for a cheaper place to live at the same time.
  • Don’t sign up for 0% interest buy now, pay in 2009 deals. Companies that are hurting might try this strategy on you. Instead I suggest asking for a discount of 20% if you pay in cash. Besides will you still have a job next year?

Originally posted 2008-02-09 07:37:44.