A "Perfect Storm" for Recession?

There seems to be a lot of portents and indicators that the U.S. economy is teetering on the edge. The doomsayers are starting to talk about the dreaded "R" word in whispered tones. In some ways, they might be right, there’s a lot of things going on right now that aren’t particularly pretty for the United States economy.

The Dollar is at an all-time low against other currencies. (Today, 1 EUR = 1.459 USD)
Crude oil hovers near $100/barrel
Consumer Confidence is at the lowest point since 2005
Existing home sales in 2007 forecast to be lowest in 5 years
Mortgage banks and lenders declaring billions in losses (BofA, $3 Billion, Wachovia, $1.1 Billion, Citigroup, $11 Billion, Morgan Stanley, $6 Billion, and others yet to declare, but stating there would be losses)

And these are just the ones from a brief search.

It’s scary. I remember some of the hard times during the DotCom bubble burst of 2001-2002, and some of the difficulties during the 1993 slowdown personally. I’m not looking forward to things if they head south.

I’m an Optimistic Pessimist

Having listed all the reasons to worry, I think that some simple precautions are all most people will need to weather anything short of another Great Depression. If you have some contingency plans ready, even bad events aren’t quite so bad.

Battening Down the Hatches

First and foremost, is the emergency money. Having a stash of 3-6 Months salary-equivalent of money stored away can weather you through quite a bit. This should be calculated by taking all of the regular bills, payments, and other normal day-to-day expenditures for a month and multiplying it by the number of months you’re most comfortable with. (Optimists will probably opt for only 3 months, while Pessimists my opt for 6+ months.) This should be stored in someplace liquid and relatively risk-free; saving accounts or money market accounts are ideal.

Next is the Job Situation

Should you or your spouse be laid off, an updated resume should be ready to be put out immediately. Don’t wait until you’re shown the door, update the resume with any new positions or skills on a regular basis as a habit. You don’t have to use it until/unless it’s necessary. Also, don’t forget to capture your network of contacts; Bosses, co-workers, clients, or pretty much ANYONE you meet on a professional basis can turn out to be the key to a new position. Sites like LinkedIn are ideal for capturing and managing these contacts, your work history, and many other pieces of information useful on the job hunt.

Cutting Away the Fat

Should your lifestyle have to be radically changed, it’s better to change it immediately, rather than continue to accumulate additional debt/bills through procrastination. Sit down and list out all the things you pay for during the month, then prioritize them on an ABSOLUTE necessity scale. Pretend that you have only half as much money coming in as you normally do, then try to decide what you would have to give up and still survive. Can the Cable TV go? How about that fitness club membership? Any recurring subscriptions or automatic withdrawals that you could shut off?? Make a list of things you can get rid of to save money if it comes down to it. Cut, cut, CUT, until you’re miserable, but guaranteed to survive.

Finally, Get everyone to Calm Down

If you’ve got the plans in place, then you can concentrate on the future, and not on the present. Worrying about what you’re going to do next detracts from actually DOING something next. Get the plans together, and sit down with your family and go over them. Make sure that they know they are CONTINGENCY plans, and not something that has to be done right now.

By prepping the family and letting them know what to expect in hard times, it takes a considerable amount of stress off the situation if and when it happens and lets everyone band together instead of running in circles and panicking.