What to Do While the Economy Tanks

Don't you hate the double whammy? First the stock market plummets, and then the recession arrives. Depending on which commentators you believe, we're in for anywhere from a few months to a few years of leaner, tighter economic times. And we're heading into those times with a lot less money in our brokerage and retirement accounts.

Scary stuff. But there's action we can take to get through these tough times without too much suffering and, as always, some larger perspective that might help us sleep better and retain some good humor.

A road map for leaner times
Like the frog in the gradually warming pot of water, things might not have seemed all that bad to you until recently -- but I suspect that future economists and historians will decide that the recession really began several months ago. It's not arriving, it's deepening, and while that might seem like a distinction of dubious benefit, it might be comforting to think that coming months will bring incremental change, not a wholesale reversal of the present.

OK, maybe not. But if it works for you, run with it. Meanwhile, here are some concrete steps to take to batten down the hatches and get through the rest of the economic storm.

  • Conserve cash and credit. This is probably a no-brainer for most, but it's worth reiterating anyway. Credit is tightening. Home equity levels are shrinking. Your back-of-the-mind emergency plan for financial catastrophe might have included tapping your home equity or maxing out credit cards. But home equity levels and credit lines are shrinking just as layoffs are looming at major employers such as Dow Chemical (NYSE: DOW  ) , General Electric (NYSE: GE  ) , Coca-Cola (NYSE: KO  ) , and Hewlett-Packard (NYSE: HPQ  ) . Now is the time to put off major purchases, pay down revolving credit lines once and for all, and stash some cash in an emergency fund. Start tracking your spending and cut where you can.
  • Find alternatives to major expenditures. Can you put a little time and money into that old car and hang on to it for another year? Maybe you can find a bed for the guest room through Freecycle or Craigslist instead of buying new. There's no shame in buying used -- I'll bet the most financially secure folks in your neighborhood are already doing it, and nobody need ever know.
  • Focus on preservation … Unless you're flush, now is an iffy time to be thinking about a bigger house, a new car or boat, or another big purchase of any kind. While there are tremendous values out there right now, and not just in housing -- an old friend who is involved in the collector-car market tells me that prices for used Ferraris are falling rapidly -- staying lean and focusing on debt reduction and preserving existing property ownership should be the highest priority for most families. Besides, you don't want to be trying to sell your existing house right now. Mine has been on the market since April, and … just trust me on this one.
  • … but don't overlook opportunities. All that said, if you've been waiting for the right time to buy your first house or a vacation home, or saving for a something like a boat (or one of those used Ferraris), or looking to put a block of cash to work in the stock market, get out there and take advantage of others' panic and distress. As long as your credit cards are paid off and your emergency fund is funded, opportunities abound.
  • Buy recession-resistant stocks. People cut back during tough economic times, but they don't cut all the way back. They still buy things like beer (Molson Coors (NYSE: TAP  ) ) and cigarettes (Altria (NYSE: MO  ) ) and toothpaste (Colgate-Palmolive (NYSE: CL  ) ) -- and not coincidentally, all three of those companies are dividend-paying five-star CAPS favorites.

I've been saying for a while that stocks with recession-resistant dividends are a good thing to be holding right now. If you'd like some strong recommendations to buy today, I suggest taking a look at the Fool's Income Investor service. They specialize in exactly this problem -- stocks with great dividend yields that are also great long-term investments right now. You can look at their complete list of recommendations, including their best ideas for new money now, free of charge for 30 days. There's absolutely no obligation to subscribe.

Fool contributor John Rosevear has no position in the stocks mentioned. Dow Chemical is a Motley Fool Income Investor pick. Coca-Cola is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2009, at 2:45 AM, MalikT wrote:

    As the government draws its income from society as a whole, government debt can be seen as an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Governments usually borrow by issuing securities, government bonds and bills. Less credit worthy countries sometimes borrow directly from supranational institutions. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid, as government debt. Debt consolidation isn’t something a lot of people know about or even know if they need. If you are at your credit limit, it might be time for you to look into it. One of the first things you should do if you enter into debt consolidation is to stop using credit if at all possible. Using payday loans is far better than adding fuel to the fire with credit cards. Credit card interest adds up. If they are what got you into trouble in the first place then you might want to lay off the cards. It's better to use installment loans then make the problem worse after you begin <a rev="vote for" title="Still Not Sure? More Signs that You Need Debt Consolidation | Part 6" href="http://personalmoneystore.com/moneyblog/2009/04/16/signs-deb... consolidation</a>.

  • Report this Comment On October 26, 2009, at 9:39 AM, bendjamin wrote:

    Ok. 1 year without 2 days... 26.10.2009

    Recession is stoped.

    so, what about "some concrete steps to take to batten down the hatches and get through the rest of the economic storm"

    Conserve cash and credit. - Yes, absolutely right.

    Find alternatives to major expenditures. - Yes, absolutely right.

    Focus on preservation - You are right

    … but don't overlook opportunities. - You are right

    Buy recession-resistant stocks - it's really wrong for me. i loose a lot...

    http://easyfastcashloans.com

  • Report this Comment On April 04, 2011, at 8:08 AM, seogene wrote:

    Your best investment in hard times is to pay down credit-card and other high-interest debt. The way to do that is to cut discretionary spending - and start with big items. In good times, people will defer paying off credit cards to invest more in stocks and real estate. But those investments could have low or no returns this year. Savings accounts are safe, though yields will get stingier as interest rates fall. It even makes sense to pull money out of an emergency fund to pay off debt. Psychologically, that's hard to do in a shaky economy. Chances are you won't lose your job, however, and if you do, why not run up debt then rather than pay finance charges now? If you want a security blanket, apply for a home-equity line of credit, which will probably have a lower rate than a credit card anyway. But tap it only in an emergency.

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