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Rescued Out of a Recession

By Deborah Nayrocker
Guest Writer

CBN.comAmericans are seeing signs of an economic slowdown.

In the past twenty years there have been two U.S. recessions. Both were mild and short, lasting about eight months, according to the National Bureau of Economic Research. Now there are reasons to wonder if a recession is on the horizon. And if so, it could be worse than recent ones.

Robert Gordon, a member of the National Bureau of Economic Research committee, thinks a recession is possibly coming. The housing troubles and the nation’s mortgage market are facing their biggest meltdown since the 1970s. Additional consumer challenges are rising energy costs and higher food prices, he says. These factors, along with already heavy debt loads, are making household budgets tighter.

You shouldn’t wait for the government to act to help restore confidence to consumers and investors. How can you protect your money and make it through these more challenging financial times?

1. Get spending habits under control.

Kevin and Jan admit that their financial problems are causing a lot of tension in their marriage. As they look back at their spending habits, they realize they need to stop impulse spending.

They recently moved into a new house, even though their past house wasn’t sold yet. So they are paying mortgage on two houses, past (until sold) and present.

Last year they went to a car dealership to buy a new car and left with two new cars. Now they have monthly car payments on two cars.

They have $30,000 in credit card debt, as well as student loan payments, Kevin said. And a big chunk of Jan’s income goes to day care expenses for their children.

Kevin and Jan agree that they need to cut back drastically on their expenses to survive financially. They have decided to begin to take action, agreeing to sell their homes and live in more affordable housing. They are also selling one of their new cars. These are a few of the steps they’ve decided to take to get their household budget under control.

This young couple has learned the hard way that if you can’t afford it, don’t buy it. They are learning to exercise personal responsibility.

2. Pay off your credit cards.

Get yourself in a good financial position by eliminating your credit card debt. Make credit card payments on time. Late payments add high fees and increase already high interest rates. Keep interest rates from working against you. Pay on time and avoid drawing cash from your credit card.

Send more than the minimum payment to pay off the balance as quickly as possible. Make a list of your credit cards and the balances. Make extra payments on the card with the smallest balance first. Then continue and pay the card off with the next highest balance.

3. Save, save, save.

When there’s a recession, cash is king. It’s not surprising that Americans now have a negative savings rate. The personal savings rate as a percentage of disposable income is below zero.

  • Saving in an emergency fund is a great way to be prepared for unexpected expenses. Begin with an emergency fund account of $1,000. Consider this: If you save just 10% of your income every month, within a year you will have enough to cover your living expenses for a month.
  • Have access to cash. Having a little extra money in your money-market account or high-yield savings account is a smart plan.

4. Don’t take money out of your 401(k).

Make retirement planning an important goal. Continue contributing to your 401(k) plan and don’t take money out of the accounts. Aim to put enough in your 401(k) to get the full matching contribution from your employer. By saving consistently, your investments will not be overwhelmed by market declines. Monthly savings will greatly impact the growth of your accounts.

If there is a serious economic dip into a recession, you will be far more prepared. And if there’s no recession? You have positioned yourself for a promising and better financial future.


Deborah NayrockerDeborah Nayrocker writes on personal money management topics, showing others how to take control of their financial future. Deborah is the award-winning author of The Art of Debt-Free Living--Living Large on Less Than You Earn. She is also the author of Living a Balanced Financial Life, a popular Bible study focusing on money management.

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