During a recession, just about everyone changes their habits and has to work a little harder to make ends meet. Even if your income has not changed over the past year, you have probably felt the impact of this recession in some way. Maybe the falling value of your 401K or investment account is making you think twice about taking a vacation or making a major purchase. For people who have lost jobs or had their hours or compensation reduced, one of the biggest challenges is deciding which items in your budget can be reduced or eliminated and how to pay for the necessities.

This is a dangerous time for many people financially. The way you decide to weather this storm will have a big impact on the next several years of your financial life. You essentially have three options when deciding how to get through this recession:

1)      Change Nothing: There are people who choose to bury their heads in the sand when things get tough and act like everything is fine. This might work for a few months, but eventually this strategy will catch up with you. It’s much easier to make small changes to position yourself more appropriately then it is to run out of money and have to make major decisions that you haven’t prepared for. We’ve seen recessions before, but this one isn’t your typical recession. Those who are proactive will come out ahead in the end.

2)      Cut Costs or Increase Income: If your dollars aren’t going as far as they used to, you can work to either reduce your monthly bills or pad your bank account with some sort of supplemental income. Most of us have items in our budgets that are discretionary, and if you can survive this recession by stopping your gym membership or going without 600 channels on your TV for a few months, you will be glad you did.

Once you have addressed your budget, you can also try to increase your income. Additional work isn’t easy to find in an environment where millions of other people are looking for work, but there are opportunities to make money for people willing to work hard and be creative. Think of people in your circle of friends and family who might know people in a position to hire you part time, or even better, tap into your inner entrepreneur and begin building something that will make you less dependent on your “real” job.

3)      Borrow Money: This is probably the least desirable option, but the reality is that millions of people are growing a mountain of debt that will be a burden that they carry for years to come. This is not a sustainable option and there is no telling how long this recession might last. If you do need to borrow money, do so at the lowest rates possible. Credit cards are convenient, but their astronomical interest rates make them the least desirable option for borrowing.

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Tags: 401k, credit cards, debt, lost jobs, recession

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