Are You Recession-Proof?

What's the big deal?

It's all over the news, but you personally are not feeling the effects of the bad economy. You're still getting a steady paycheck. You're not swimming in debt. You don't own a home or, if you do, it hasn't dropped significantly in value. You don't play the stock market, or you're fairly comfortable with the dip in your 401k because retirement is light years away. And, bonus!—gas prices are at a 4-year low. 

Good time to buy!

If you happen to be one of the lucky ones, congratulations. And the truth is, the news might just keep getting better for you. Everything is pretty much on sale right now—homes, cars, gas, stocks, and even many of the items on your Christmas list have all dropped in value. So it can be a great time to buy. Extra points go to those with good credit scores: You'll likely qualify for mortgages and auto loans at low interest rates.

Be warned...

Before you get too excited, though, know that no one is completely recession-proof. There could be a 1 in 10 chance that you (or your head-of-household) lose a job. You may think you're safe, but the reality is that many businesses are making tough decisions right now and cutting your position could be one of them. The current unemployment rate is 6.5%, but many project that figure to rise to 9%, 10%, or 11% in 2009. Even if you do hold onto your job, you may be asked to work extra hours, take a cut in pay, or forego a yearly raise or bonus.

Be prepared.

So it's a really smart idea to be prepared for a decrease in earnings. Pay down your credit card debt and keep a liquid savings account to act as cushion if needed. Make sure your credit card company isn't planning to hike your interest rate or, better yet, try to negotiate a lower rate (this will be easier if you have good credit history). And don't go on a spending frenzy just because that 60" LCD you’ve had your eye on has dropped in price and Best Buy is offering 0% financing. Be smart with your money and don't accumulate more debt unnecessarily. Practice these principles in both good and bad economic times, and you'll be just fine.