Your 2009 Recession Survival Guide

by Kimberly Palmer, James Pethokoukis, and Luke Mullins

How to Weather the Storm

Even though you can't control the economy, you don't have to just sit there and be buffeted by these big economic forces. You can do stuff!

Live below your means. Some people are shopping for this year's holiday gifts while still paying off their 2007 purchases, says Gail Cunningham of the National Foundation for Credit Counseling. Now's the time to re-evaluate those habits, she says, before piling on even more debt. You can make sure you pay as little as possible for gifts by using online comparison websites. Another option is taking advantage of layaway programs at retailers that let you pay off purchases before you bring them home. That way, you avoid paying high interest rates to credit card companies.

Bolster that emergency cushion. Even in flush times, financial advisers say consumers should have about six months' worth of expenses in their bank account to guard against job loss or other emergencies. Now, with the unemployment rate headed toward 7 percent, it's more important than ever.

Toughen up your portfolio. It doesn't matter how smart your investing strategy is if you won't stick with it. And the roller-coaster stock market is sure making that tough to do. Jittery investors might want to think about stashing somewhere between 30 and 40 percent of their portfolio in less risky investments, such as bond funds, treasury bills, or money market funds. But don't overdo it. Investors who are decades away from retirement should keep the bulk of their portfolios in stocks. If you want to dial down your risk, look to stock funds that have been bucking the bear, such as Apex Mid Cap Growth and Reynolds Blue Chip Growth. Also, exchange-traded funds, which look like mutual funds but trade like stocks, give you more diversified exposure to a particular sector or industry than betting on individual issues.

Save for a down payment. Unlike in the housing-boom days, borrowers will have to be able to make a sizable down payment to qualify for the lowest mortgage interest rates. So if you're looking to go bargain hunting in real estate, begin setting aside a little bit of cash each paycheck to put toward a down payment. When you begin to feel better about your job security, you'll be ready to take the plunge.

How to Take Advantage of the Bad Times

Time to stop surviving and shift to thriving. It's an ill wind that doesn't blow some good, and you need to make the most of the opportunities that are out there.

Energize your career. Don't just worry about keeping your job--make it better. Lean times present an opportunity for niche employees to put other skills to work and rebuild their reputations as go-to multitaskers. Employees should actively try to pick up the work of their departed peers. Also, volunteering to take on new responsibilities can pave the way for a negotiation in six to eight months, when an employee can prove that the job has evolved and is now worth more on the market. A new outlook and approach like this will help you hold on to your current job, or pave the way to your new career.

Refinance your home. Recent Federal Reserve announcements intended to ease the financial crisis have sharply reduced 30-year fixed mortgage rates, to 5.5 percent at the start of the week vs. 6.2 percent just two weeks earlier, according to HSH Associates. "Recession equals lower Treasury rates, which equals lower mortgage rates, which equals a great opportunity to refinance," says Mike Larson, a real estate analyst at Weiss Research.

Buy a home. Home prices nationally have already fallen more than 20 percent from their 2006 peak, and in certain boom-and-bust states the declines have been even more precipitous. So if you've got a stable job, good credit, a down payment, and a strong stomach, there are certainly buying opportunities out there for you. "I can point to properties here in [Florida] that are off 40 to 50 percent from their peak bubble levels," says Larson, who is based in Florida. "This is creating an opportunity."

Look for the next great stock investments. Not only can you pretty much count on next year being one of lousy economic growth, you can for sure count on Barack Obama being president. And there are a few stocks out there that could get a boost from an Obama administration, including Chesapeake Energy (natural gas) and AeroVironment (aerial vehicles for Afghanistan). Also, keep an eye out for "growthy" (high earnings growth) small stocks, especially techs, which often are the first ones to rise when a new economic expansion nears. Hey, the recession can't last forever, right?

Forget about keeping up with the Joneses. Since almost everyone's budgets are strained right now, cutting back is en vogue. Pollster John Zogby has found that a growing segment of the population has become more focused on spiritual fulfillment than on material success. Similarly, futurist Faith Popcorn's research shows that the concept of "frugality" has taken hold among families, with parents increasingly teaching their children to reconsider how much they consume and whether they could do with less. The "new frugality" movement, as she calls it, will usher in a new set of values for the next generation, she says.

Negotiate almost everything. From credit cards to clothes, companies are open to making deals as they struggle to keep customers. "If you're a good customer, [credit card companies] may be more apt to negotiate your rate because they don't want to lose you," says McHenry of IndexCreditCards.com. At farmers markets and clothing boutiques, simply asking, "Can I get a discount?" can lead to a lower price. Paying with cash increases the chances of making a deal because it allows retailers to avoid credit card transaction fees.
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