by Benjamin James

Created on: August 25, 2008   Last Updated: September 12, 2008

The headlines are abundant with news about job cuts, soaring energy and food prices, and failing financial institutions. For many of us though, the headlines serve only as a reminder of the depressed economy. Despite the dismal headlines and the shrinking value of your dollar, you have the ability to do well in this economy. By reallocating your income, you can overcome the current economic storm.

The quickest way to better position yourself in this economy is to downgrade, sell, and cancel. I had a conversation with a man recently about the economy and he proceeded to tell me he just sold his boat, which he was making monthly payments on, and traded in his BMW for a less expensive car. When I asked him why, his response was, "so I can sleep at night". This man was clearly concerned about the state of the economy in relation to his financial standing and decided that he valued peace of mind over his possessions. If you want to survive in this economy, consider downsizing or selling some of your assets and canceling some of the services you pay for. While it is always wise to live below your means, it is imperative if you want to thrive in this economy. Living below your means will help ensure that you always have enough money.

It is not just downgrading the big-ticket items; the small purchases count too. Rethink every nonessential purchase you are about make. The majority of the purchases we make serve only as instant gratification. However, this happiness fades quickly and then we are left either deeper in debt or with less cash on hand. When you pick up a product that you want to purchase, set it back down and leave the store. Give yourself time to make sure you really want to spend the money. You can always go back and buy it. However, you will often find that you do not really want to spend the money or you will find a less expensive or free alternative. People who have enough money understand that every dollar spent is potentially a wasted opportunity somewhere else.

Saving an emergency fund can help get you through a job loss. Save your emergency money in an insured and liquid savings vehicle with the highest rate you can find. This will ensure your money is there and easily accessible, should you find yourself in a bind. Although there is no magic number for how much you should save for emergencies, saving 6-8 months worth of your income will give you a nice cushion. Commit to saving as much as you can from each paycheck to reach your emergency fund goal.

Many consumers have found themselves with high debt and no savings. Should these people concentrate on paying off their dollar guzzling debts or focus on saving for a rainy day? In an economy where job cuts and inflation rule, focus more on increasing your nest and not adding to your debt. Having extra cash on hand is what will help you survive economic storms. Not having an emergency fund will only dig you deeper into debt when an emergency does occur. Continue to faithfully make your debt payments, and a little extra if possible, but concentrate more on feeding the pig for now. Once you have your savings built up and the economy swings upward again, you can be more aggressive with tackling your debt.

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