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Four Simple Steps to Recession-proof Your Income

Recession. It's a scary word that makes even the most fiscally responsible among us cast a nervous eye on our bank accounts. Even scarier, not everyone can even agree whether our economy is in a temporary slump or an all-out free fall. But, recession or not, you can take steps to ensure that you and your family are secure in a weak economy.

And, remember to stay calm. The worst thing you can do is make hasty, fear-based decisions. Take a deep breath and think rationally. It's important to realize that, with a little preparation, you can be ready if and when a recession hits. You can't control the economy, but you can control how you react to news of an impending recession.

Step One: Sharpen your Job Search Skills

One of the most frightening things about a recession is the possibility of losing your income when your company decides to cut costs. Nobody wants to think about being out of work, but there are things you can do right now to make sure that you won't be completely caught off guard:

* Revise your r�sum�. If you've been out of the job market for a while, now is the time to give your r�sum� a makeover. Review it and add new, relevant work experience, skills, awards, and anything else that will make you stand out from the crowd if you need to start looking for a new job.

* Know your options. It doesn't hurt to start looking at alternatives - spend a little time skimming through the want ads in your local paper, and check out job search websites like Monster.com or Careerbuilder.com. Find out who is hiring people to do what you do. If you see something that sounds intriguing, go ahead and apply. You never know - you may find your dream job. And, remember that some industries are more stable than others: Healthcare and education, for example, are not as dependant on the economy as the construction industry. Get creative and think about how your skills might transfer to a different field.

* Start networking. Consider joining a business networking group to expand your list of contacts - they say that when it comes to landing a job, it's often all about who you know. Connections can come in handy if you're faced with an unexpected layoff. Networking sites like LinkedIn.com and even FaceBook.com are great ways to stay connected to coworkers and business partners.

Remember to keep saving money, even if your job is secure: In a recession, raises and bonuses tend to be less than they are in a more stable economy.

Step Two: Beef up Your Emergency Fund

Experts recommend that you should have some extra cash saved up for emergencies like an injury or the unexpected loss of a job. Your emergency fund should allow you to cover your mortgage, bills, groceries, and other living expenses for 3-5 months. If you already have emergency savings, keep adding to it. If you don't, start now:

* Pay yourself first. Even if you're on a tight budget, make an effort to put something into savings every payday. Make some adjustments to your spending, like giving up restaurant meals or cutting your entertainment budget, and start funneling more of your income into savings.

* Think Interest. Put your emergency savings into an interest-bearing savings account or a money market account so you'll earn some money on it while you save. But, make sure you don't invest your emergency funds into anything that makes you pay a penalty for withdrawal, like an IRA - the whole point of having emergency savings is to have money when you need it.

* Restrict your access. If you aren't careful, you may end up spending your emergency fund as fast as you put it away. To avoid using your emergency savings, consider putting the money into a separate account at a different bank. And, don't carry an ATM or debit card that's linked to that account.

Step Three: Don't Spend That Bonus-Raise-Tax Refund-Stimulus Check Etc...

Even though you might be expecting some additional income this year, that doesn't mean you have to rush out and spend it. Instead of rushing to the mall and buying that flat-screen TV you've been eyeing, take a minute to think about other, more responsible ways you could use the money:

* Save it and forget it. It's money you didn't have before, so it should be pretty easy to pretend you never got it in the first place. Deposit it into your savings account or use it to pad your emergency fund. But, do it quickly - the longer you have that check, the more likely you are to spend it on something frivolous.

* Pay off debt. If you've got a car loan, a student loan, or credit card bills hanging over your head, this is a perfect opportunity to take a big bite out of your debt.

Step Four: Identify Sources of Extra Cash

Whether you want to add to your emergency fund or just pad your savings account, there are several things you can do to put a little extra cash in your pocket:

* Sell your stuff. Scour your storage spaces, purge your closets, and ransack your attic. If you haven't worn it, used it, or thought about it in a decade, it's time to let go. Have a garage sale, sell it on eBay, or take out a classified ad - put the extra money into your savings or your emergency fund.

* Get a second job or work overtime. What better way to impress the boss than to stay late or come in early to knock out a few projects? Not only will you show some initiative, you'll also add to your bottom line. If you don't get overtime, consider a part-time job on evenings or weekends - a little extra income never hurts.

You can't prevent a recession, but you can prepare for one by making smarter financial choices. In any economy, learning to spend less, save more, and cut costs can pave the way to financial stability and peace of mind.

(c)2008 Mike Peterson

Mike Peterson is the author of "Reality Millionaire: Proven Tips To Retire Rich" and co-founder of the American Credit Foundation, Inc., a nonprofit credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit: www.debtguru.com

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