Recent economic events and increasing unemployment indicates that a recession is looming. A recession can potentially impact your economic freedom, which affects many other parts of your life. I know this from my own experience when I was made redundant from my job after 16 years back in 2003. Since that time, I have learned a lot about surviving and thriving in uncertain times.

How can the free person survive during an economic downturn? This post covers some of the principles that you can use to protect yourself during hard times.

Rely on yourself, not the government

Your economic prosperity and putting food on the table is too important to entrust to a faceless bureaucrat. Look at every single major disaster. Governments have been slow to act and ineffective, and in many cases have caused the problem. Why take a chance?

To use an analogy, you can choose to be like a person trying to live in the Superdome with the flood waters lapping around you and waiting for FEMA to do something, or you can be out of the area and in safety and comfort.

If you are a person who has been financially responsible, it is likely that there is no help for you from the government. Although you have paid a lot of taxes, there is no safety net. I remember when I was made redundant – it took months to get another job. In the meantime, I enquired whether the government office could help and they said that there was nothing available for me. Actually, the extra tax that I had to pay would have been handy then, but it supported someone else, not me.

Instead of being under the illusion that there is someone in the government who will look after you, be responsible for your own economic survival.

Build a buffer

A buffer is a reserve of cash which allows you to support yourself and your family during bad times. Most people have very few savings, and therefore can’t survive an economic downturn. Interestingly, during a downturn most people still spend all their cash, the only change is that they will purchase cheaper items rather than use debt for big ticket purchases. This is not building a buffer. Anyone who does this will not be able to survive.

This morning I read that the savings from a reduction in mortgage rates in Australia will be used to buy consumer items rather than in paying off the debt faster or increasing savings. Many people don’t seem to understand that a new big screen TV will not put food on the table when you are out of work.

If you don’t have a buffer, make it a priority to get one by reducing expenditure where possible and saving money in a bank account. If you have an expensive mobile telephone plan, get rid of it. If you are buying your lunch every day, start bringing it from home.

Diversify your income

The more sources of income that you have, the less you are affected by the loss of one of them. The most vulnerable person is the one who relies solely on a job for their income. Many people lose their jobs in a recession and therefore lose all their income.

How can you diversify your income without leaving your job to set up a new business? The best way is to become an investor. By investor, I mean someone who makes their money work for them by buying and selling in the financial markets. A skilled investor can make money irrespective of which way the market goes by understanding currency trading, futures and options. This isn’t something to jump into if you have no skills or knowledge in investment. If you don’t, then it is time to learn.

It is also important to not be too locked into one employer. If you have skills that are only useful at one employer (for example, a system that is not used elsewhere), you need to broaden your experience. When I was made redundant, my skills were very employer specific, and it took me a while to find another position. Now I put a lot of effort into staying marketable and learning generic skills.

Reduce debt

Debt represents an overhead that needs to be paid, irrespective of your income. Debt is a charge against your future income. If your income is uncertain, pay off as much debt as you can. This will increase the time that you can survive without an income. Your highest cost debt is personal debt that is not tax deductible, so this should be paid off first.

Don’t use your credit card as a personal loan – pay cash for what you need.

Be adaptable

Being adaptable means being able to change your direction to take advantage of new opportunities. I know someone who was a draftsman who was made redundant. At this time, drafting was moving from pens, paper and large boards to CAD. He refused to retrain to learn CAD tools and hasn’t worked since. He did not adapt to the direction that his industry was taking and became irrelevant.

Survival for you may mean learning new skills, working in a new industry or even relocating from an economically depressed area. No matter what is required, you will only survive if you let go of the past and adapt. I did this when I let go of my old job description and reinvented myself as something else.

Conclusion

Economic freedom means structuring your life so that you are in control of your destiny despite economic fluctuations. This means having a buffer of savings, diversifying your income (and skills) and adapting to new opportunities.

Tags: depression, downturn, recession, survival

This entry was posted on Wednesday, October 8th, 2008 at 12:29 pm and is filed under Practical freedom, Self-actualization. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.