5 Steps for Surviving Tough Economic Times

by James & Miel on September 28, 2008 · 0 comments

Hello All,

Unless you’ve been living under a rock, you’re probably aware that the economy is being severely pressured on a number of fronts. A lot of the chatter on the web had focused on what individuals can do to keep their own financial house in order when the big banks are loosing their shirts.

Since the press is calling our current economic times the worst crisis since the great depression, I though I’d get some perspective on the issue. So I got on the phone with some senior citizens who have been investing the depression in the 1930s. They had these points to say:

1) Don’t Overspend: When times are rough, you don’t want to waste money. This means you should consider eating at home, using up your stuff in the back of the cupboard, and bringing your lunch to work. Also, avoid making major purchases on credit – for example you probably shouldn’t consider taking a large vacation and putting it on your credit card.

2) Hold Onto Your Job: When recessions come knocking, almost all forms of economic activity have a pull back, this means that there will be fewer jobs and larger layoffs. If you have a job, do whats required to remain employed.

3) Have Cash: Don’t live paycheck to paycheck. Do build up an emergency fund. Also, the general sense was that these economic times were troubling, but that many banks were secure. If you have cash, you might consider putting it in a good quality local bank. Lots of local banks have limited exposure to subprime mortgages and are profitable.

4) Wait Until Prices Are Low To Invest: How do you know when prices are low? Well there will be lots of headlines about huge double digit declines in the asset class you’re looking at. The trick will then be to locate good quality conservative companies to invest in. The investors I spoke with liked natural resource stocks like oil, metal and coal.

5) Enjoy Every Sandwich: During the great depression people were really, really poor. The situation was so desperate that 20% of the country was out of work, in some states nearly 40% of people were unemployed. It was so bad that people would kill themselves out of desperation. Some people lost their homes, farms, businesses – everything.

Unlike the 1930s, there are some government protections that blunt the impact of economic downturns. For example, the FDIC now ensures bank deposits and unemployment assistance is available in many states. While the role of the federal government can be controversial, on the whole the public is better protected now than it was in the 1930s.

On a more personal level, you might consider taking appreciation for what you have. For example, if you might consider going through some of your old music or looking for clothes in your closet that once brought you joy. The main point is to enjoy and appreciate what you have today.

Best,

James

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