While it’s always sad to see companies laying off thousands of workers, the impact usually doesn’t strike home until it happens to you. The old saying is that when your friend or neighbor loses their job – we are in a recession, but when you lose your job – it’s a depression.  

Even if you have not yet been impacted by the current economic recession that is gripping our nation, you should certainly be preparing in case your job is impacted tomorrow. Economists are already predicting that unemployment rates could reach 10% by 2010. 

“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” Proverbs 22:3. 

There are already too many simple minded individuals that are continuing to live their lives in blissful ignorance to the serious threats that might soon impact both them and their families. So what should the prudent man be doing now? 

Set Your House In Order

While you still have a steady paycheck, you should take a serious look at your income and expenses. If you’re spending more than you’re currently making, then drastic changes need to be made immediately. Even if you are currently exercising good stewardship, it’s still a good time to evaluate how you could cut your expenses if things really get bad. 

If you’ve been following the Biblical principles of finance, you have also set aside enough money to sustain you for at least six months in case something catastrophic does happen. If you haven’t been setting aside an emergency fund, then you can’t afford to wait any longer. The next couple of years are not going to be the era of prosperity that we have grown accustomed to. No doubt millions of more workers will lose their jobs in the coming months and those that have a safety cushion will be much better prepared that those that have just continued in their free spending ways. 

Prepare A Resume

Writing a resume is generally not high on people’s list of fun things to do. It takes a lot of time and effort (and rightly so). That 1-2 page document has to contain the highlights of your working career and be enticing enough for employers to want to hire you. A resume should be written, rewritten and then polished some more. In fact, it should be an ever-evolving document. The serious job seeker may even want to tailor their resume for each job they apply for. That way you can better show how your experience and skills fit with the requirements of the job you are applying for. 

Find Job Opportunities

For individuals that haven’t changed jobs in a few years, you may not realize that a lot has changed in the job search process. If you are looking for job openings in the newspaper, you will be seriously disappointed to find that very few companies use newspapers any more to advertise jobs. Over the last decade, most job openings have shifted to being advertised on the internet. 

Finding a job on the internet can seem daunting, but it’s actually very simple if you know where to look. CareerBuilder and Monster are the two largest job boards and should definitely be one of your first stops. You also might check for a career specific website like Dice for technology professionals or eFinancialCareers if you are in finance. 

In addition, over the last couple of years a new type of job site has come on the scene called aggregators. Companies like Indeed and Simply Hired search thousands of job boards for you and then aggregate them all on their websites. This can be a huge timesaver. Even if you are currently employed, it’s still a good idea to check every few months to see who is hiring and what opportunities are out there. 

Alternate Income Sources

With the economy failing and fewer companies hiring workers, it may take several months for you to find a new job if you are laid off. Again, hopefully you have some savings set aside to help during this period, but if not you may need to look for additional sources of income. 

There is always part-time work and that doesn’t necessarily mean flipping burgers or serving up lattes. As companies downsize their staffing levels, many will find it necessary to bring on part-time contractors to help with the workload. Sometimes your former employer can be a great source of contracting work. In addition, there are several good websites that can help you land freelance jobs such as Guru.com, RentaCoder.com, and eLance.com. 

If you have ever considered starting your own business, now may be the perfect time. For one, you will have the time now to devote to your business endeavor. And secondly, many individuals end up using their severance payout as seed money to launch a business. It may be as simple as selling items on eBay or writing a blog about something that interests you. You would be surprised at how many million-dollar businesses have been started after their founder was laid off from his regular job.

So while there is little you can do to fix our ailing economy, you can’t simply ignore the risks that living and working in these economic times pose. No one wants to lose their job, but at the very least you can prepare for it and hopefully make it as painless as possible.

The recent massive rate cuts and economic stimulus package indicates that the government thinks the economy is in worse shape that many had originally expected.  While these actions may indeed boost the economy and financial markets in the short-term, over the long-run they may lead to an even worse recession in the future.   

One of the primary issues with the current economy is that the average consumer is very highly leveraged.  They have taken out home equity loans and racked up high credit card balances to support a lifestyle they couldn’t afford.  The sub-prime loan crisis was in large part caused by individual’s sense of entitlement to houses they couldn’t afford.  

The motivation behind the Fed’s recent rate cuts is to make money cheaper by enticing consumers and businesses with lower interest rates.  Unfortunately, giving highly-leveraged consumers access to cheaper money may hurt the economy in the long-term as they use cheap debt to continue to fuel a lifestyle they can’t afford.  

Greed and indiscretion has led us to this point.  Government handouts and cheaper debt won’t correct the situation.  And it goes much deeper than just the housing market.  Household spending, consumer debt, financial sector profits – all need a correction to get back to sustainable levels. That’s bad news for investors and the global economy, which still depends heavily on U.S. consumption for growth. 

So how can you navigate the current market volatility without losing both your money and your mind?  Well, maybe the most important advice is to take a step back and remember that it’s just money.  Money should serve you, rather than you serving money.  That being said, there are some specific investment strategies you can take to benefit from the current market conditions. 

Bear Funds

There are several mutual funds out there which hold “bear” portfolios.  These are funds that sell short, buy put options, use leverage, or employ other strategies to increase in value as stocks decrease in value. 

Bonds

When the stock market begins to decline, investors often run to the safety of bonds.  This ends up driving their prices up and their yields down.  Also, the recent Fed rate cuts have also hurt bond yields.  A 10-year government bond currently yields around 3.5% while a high-quality corporate bond yields around 5%.  So while bonds tend to be much safer than stocks, don’t expect them to deliver spectacular returns. 

Defensive Stocks

Defensive stocks are those companies which tend to perform well regardless of whether the economy is good or not.  These are consumer staples companies – providing products that consumers need regardless of the economic situation.  Food and utility stocks are perfect examples, as consumers will still need to eat and warm their houses regardless of what the overall economy does. 

Precious Metals

When the stock markets falls, investors tend to flee to the safety of precious metals.   Already gold prices have topped $900 and most expect it to top $1,000 before the year is over.  It’s possible to capitalize on these rising prices by either investing in individual mining stocks or precious metal funds.  

Value Investing

It’s easy to get depressed when you see the stock market dropping and all you hear is gloomy news about the economy, but maybe you are taking the wrong point of view.  When people go to the mall and find a spectacular sale – they are generally quite excited.  The same can be true in this current market.  Lots of good quality companies suddenly find their values greatly depressed by the current economic misery.  Buying these companies can end up being the smartest investment decision you make.  For example, after the dot-com bubble burst, Corning (GLW) saw its stock price drop to under $2 per share in late 2002.  However, just four years later the stock price was back over $20.  Individuals who were able to invest in a pessimistic marketplace ended up with phenomenal returns.  Those types of returns are only made possible by the excessive negativism that prevails during a bear market. 

Finally, it’s important to remember is that even the worst economic recessions don’t last forever.  The U.S. economy is extremely resilient.  Over the last 63 years, there have been 10 recessions. The average length of these downturns has only been about 10 months.  In fact, there have only been 2 recessions in the last 25 years (early 1990’s and 2000-2001) and both have been relatively brief. 

So while the economy will certainly recover from its current recessionary woes, the prudent man still should foresee the evil that could come over the next few months or even years.  Unemployment always rises in periods of economic recession.  So now would be a good time to make sure you have an adequate Emergency Fund in case the worse should happen.  It is recommended to have at least enough money set aside to cover 3-6 months worth of living expenses.  This money should be kept in a safe and highly liquid savings or money-market account. 

It is also a great time to focus on any outstanding debt that you do have.  Recent Fed rate cuts have lowered mortgage rates to their lowest level in years.  So it may be wise to consider refinancing your home if you have a higher interest rate.  Also, any credit card debt you have should be attacked immediately.  Living a financially-responsible lifestyle will enable you to weather any type of economic conditions.