Five Frugal Tips for Surviving a Recession

It's pretty clear we're in a recession that's going to drag on longer than any of us originally expected, as I wrote about here and here. There's no time like the present to assess your current financial situation and prepare for the long, drawn out recession ahead. I don't think it'll get as bad as the Great Depression because of the safety nets put in place after that economic catastrophe, but the fact that our economic woes are spreading to other countries like a flu in winter is a sign that we're a long way from the road to recovery.

1. Cash is king. Strive to be cash-based and avoid using credit cards, taking out loans, or financing anything other than income-generating expenses like a college education or necessary and sound investments like a home that you will live in.
2. If you have no savings, make it a priority to start saving. The general rule of thumb is three months worth of expenses. But, honestly, if you're living paycheck to paycheck (or recently unemployed), winning the lottery seems more likely. So do what you can. Starting a savings plan is like starting an exercise regiment. It's painful at first, but becomes easier and even enjoyable once you develop the habit.
3. Scale back your expenses in meaningful ways. There are lots of frugal tips out there calculating how much you can save in a year by not getting your coffee at Starbucks, going to the library instead of buying books or magazines, and bringing lunch to work once a week. But when you're first getting started on being frugal, a meaningful cutback that results in noticeably more money in your pocket at the end of the month can be more motivating than an extra $100 bucks because you gave up your daily Starbucks. Plus one sizeable cut is less irritating than a small cut every single day.
4. Don't panic. Now is not the time to liquidate your investments or move your 401(k) money to cash and bonds. As long as you're not within a few years of retiring your portfolio should recover eventually (certainly well before you retire). You should also continue contributing to your 401(k) because with stock prices as low as they are right now, each dollar you contribute is going a lot further than it used to. It's always a good idea to evaluate your personal risk tolerance and investment goals and make sure your investments are in sync with your needs.
5. Keep spending modestly on the things you really need. In order for the economy to claw back to normalcy, we must keep the economy going by spending as needed. So while it's admirable and oh so frugal to grow your own vegetables in your yard, sensible spending is what our economy needs and what will enable all of us to survive the recession.

This list is just a start. How are you surviving this recession? Post a comment and I'll include your tip on the next list.