Tips for Managing Your Finances During an Economic Slowdown

No matter what anyone says, an economic slowdown has arrived in the American economy. Events involving mortgage bond funds and the stock market, high gas prices and more all point to something that surpasses an economic slowdown. They point to a recession. And you need to have your personal finances in a state that will allow you to survive the coming U.S. recession. All the government's attempts at economic stimulus are failing, and that means that you will need to fend for yourself. Here are some tips for managing your finances during an economic slowdown.

Cut Your Spending

Cut your spending now before things get out of hand and your hand is forced. Go through your expenses and see what you can get rid of. Do you really need that premium cable package? Could you do with the package down? How often do you eat out? Economists and personal finance experts estimate that 10 to 15 percent of a household's earnings are wasted each month. See if you can locate that money and set about recovering it.

Increase Your Savings

Set money aside each month (preferably from that recovered waste money) in a savings account. Open a high-yield savings account that offers a higher rate of return. The Fed keeps cutting interest rates, so you won't get anything great, but it's better than a traditional savings account. Consider CDs that will let you lock in a rate so that your cash investments are hit when the Fed cuts rates again. Realize that cash investments may not overcome inflation, but they are better than nothing.

Reduce Your Debt

Make debt reduction a high priority. This is important, since an economic slowdown often results in job loss and inflation, making it difficult to make ends meet. You need to have as few demands on your income as you can manage. A good rule of thumb is this: if your consumer debt (your mortgage shouldn't be included in this) accounts for one third of your income or more, take 75 percent of your discretionary money (from your recovered waste, usually) toward paying down your debts - each one in turn. The 25 percent should go to savings. If your debt payments take up less than one third of your income, split it 50-50. Avoid amassing any more consumer debt during this time.

Invest for the Long Haul

Now is not the time for growth investments with high risk. If you invest now, it should be carefully done. Look at blue chip companies that are likely to recover in the long run. Pick carefully, avoiding the riskier stocks. Stock market bargains abound, and if you choose carefully, you could do very well for yourself in the long term. Just be sure that you are getting bargain - and avoiding basement.

Consider Real Estate

If you are in a position to buy real estate, now could be a good time. There are some fantastic deals as home prices drop and foreclosures rise. Just be sure to investigate the market carefully. Choose areas that are going through a correction and are likely to recover. Avoid areas that are just fading fast.