“Recession is Coming!” “Recession is Here!” “Are we in a Recession Yet?”

I’m sure you’ve seen and heard headlines just like this.

So, exactly what is a Recession?

A Recession means that a country’s GNP (Gross National Product) drops at least 2 quarters in a row – 6 months of shrinking. Unfortunately, we only know that we are in a recession after the 2 quarters are over and all the data has been gathered and reported in the media.

Regardless of whether the US economy is in a Recession, your family may be in one. Has your income stayed the same or even shrunk over the last year or two? And we know energy, food, housing and taxes are all increasing. This combination could mean that your family is in a Recession.

Recessions are as important to an economy as the boom times just like a controlled burn improves the health of a forest. During recessions, weaker companies are weeded out and companies who make it through are stronger for the next boom time.

Furthermore, even if the economy is booming, you can be going through a personal recession due to job or lifestyle changes such as a new career, starting a new business, leaving the workforce to take care of a family member or a medical condition.

What should you do?

On the Home Front

1.      Reduce or eliminate the non-essentials. Act as if you are on a desert island. What would you really need to be there? Be brutal and leave no spending unexamined. Newspapers, groceries, telecommunication services, personal grooming, transportation – can any be postponed or eliminated?

You can start by reducing expenditures rather than completely eliminating them. For example, when I looked at my newspaper cost a couple of years ago, I decided it just wasn’t worth it but I so enjoy the Sunday paper that I kept it. Now, I’ve canceled it altogether and when I have the urge for the Sunday edition, I walk to the grocery store and pick one up.

Keep a Needs/Wishes list (you can download one here) so your subconscious mind isn’t constantly reminding you. When you do have extra money, go for the needs and save up for the wants. This is a good habit to get kids to develop, too, and the Needs/Wishes list is a good one for them, too.

Note: you’ll want to involve your family or you’ll feel like the Enforcer if you make all the decisions. And, when offered the opportunity, kids can be very creative. Try to make it a game rather than making the kids feel like they’re in the poor house.

2.      Review all insurance policies. Get appropriate insurance for the best prices. Life insurance, for example, has come down in price over the last few years so you may be able to get equal or more coverage for lower cost. Increase your deductibles if you are able to pay more out of pocket. Make sure your insurance shows that you have alarms, air bags, or a home security system.

3.      Request rate reductions from on your credit cards. Yes, some credit card companies are lowering rates but they often don’t do it unless you ask. If you hear “No”, ask for a supervisor or ask when they would be able to do it for you. You can call in again later if you don’t get the answer you are looking for.

4.      Refinance your car. Believe it or not, this is possible. One of my clients purchased a new Prius last year and the original interest rate was a whopping 12.45%. As soon as she started coaching with me, I suggested she refinance it and she was able to get it down to 8.45%. Just last week, she refinanced it to 6.45%!

At Work

1. Protect your current job. Find out if there’s any additional training you can participate in. Let your boss know you are ready and willing to take on new responsibilities. Look for opportunities to reduce expenses, improve customer service and offer more value to your employer. Take outside courses, read books or learn more online – keep yourself up-to-date on happenings in your field. Try copying articles to your boss that would be interesting or helpful and make a comment or two about how it relates to you.

Attend and participate in at least one professional organization. Offer to be the greeter so you can chat with everyone that attends. See how you can offer value to other members.

2. Think of yourself as a contractor. Gone are the days of life long employment. Your employer will keep you around as long as they get more out of you than you cost them. You should be thinking the same way; if you’re growing in your profession and earning a salary appropriate to your skills and talents, then stay with your current employer. But always be on the lookout for better opportunities. Your loyalty is to you and your family rather than your employer. Always keep your resume fresh and your ears to the ground at work. Read your company’s annual report (and others in your field) and set up a Google alert so you can be informed and watching for current news about your employer.

3. Change your income tax withholding. Did you get a refund this year? If so, you can increase your monthly take-home pay by reducing the amount taken out for taxes. The average family gets about $2000 back and that’s $166 per month (just for federal). Of course, you have to remember that you won’t get a refund next year. You should target paying exactly what you owe. Check out the IRS withholding calculator for an estimate http://www.irs.gov/individuals/page/0,,id=14806,00.html. You can change your withholding any time you want. Note: if you are working several jobs, add all the income together and do the calculation.

4. Check your benefits. Make sure you are taking advantage of all that your employer has to offer – health care and health care savings accounts , retirement contributions (you and your employer), education assistance for you, scholarships for your kids, child care accounts, etc. If you have a health care savings account, review what is a covered expense and make sure you don’t lose anything you’ve contributed

5. Continue funding your retirement. This should be one of the last things to go because retirement is inevitable and the longer you have your money in a retirement account, the more it grows. $10,000 in a retirement account for 10 years at 7% will be approximately $20,000 but for 20 years, it will be about $40,000 and 30 years will be $80,000 — and it will be even more if you continue to contribute. If you must stop your contributions, restart as quickly as possible.

When all else fails…

1. Contact your car loan holder or mortgagor and ask for an extension. If they say “yes”, they’ll extend your loan by a month and will probably ask you to cover the interest for the month. This will increase your total costs but it’s better than having your home foreclosed or your car repossessed.

2. Get counseling. Talk to Consumer Credit Counselors or a Mortgage Counselor. Watch out for scams in this area. Above all, don’t ignore your creditors – you’ve promised to pay and they expect you to do so. But they’re used to dealing with people who are struggling and most have programs that can help you out of a temporary jam.

3. Consider borrowing from your 401k. You will have to pay it back over 5 years so if you’re already having trouble making your payments, this one isn’t for you. For example, if you borrow $50,000 at 4% interest, your payments will be over $900 per month after taxes so subtract $900 from your current take home pay. Can you afford that? Plus, if you are laid off or leave your job, the entire amount will be due or it will be taxable (see below).

Don’t you dare…

Raid your retirement accounts. The government heavily discourages you from doing this by tacking on any withdrawals to your income (you pay taxes on the amount and it could push you into a higher tax bracket) plus a 10% penalty. One of my clients took $40,000 out of their 401k last year and it pushed them into the 35% bracket. So out of the $40,000, they paid the IRS $14,000 in additional income tax plus $4,000 in penalties and that was before Oregon got them (another 9% or $3,600). In the end, they netted $18,400! And since they didn’t have enough taxes withheld from it, they’re in “hock” to both the IRS and Oregon.

One final note…

Have you ever noticed that the more you focus on the negative things around you, the worse things seem to be?

The good news is that you can ‘choose’ to do just the opposite! If you focus on all the wonderful things in your life, guess what you get more of? Exactly! Wonderful things.

So while you’re out there breathing anyway, see how many things you can find in your life today that are wonderful and focus on them. Think of family, friends, home, a job, your health and more! (This is another great thing to teach your kids).

By the way, ‘choice’ is one of the biggest principles we teach in all of our programs. financial freedom, after all, is your choice.