How to Cope With Tough Economic Times

A YourMoneyCounts® Exclusive by Lynnette Khalfani-Cox, The Money Coach

Does the uncertain economy have you uncertain about how to best manage your finances? If so, follow these five strategies to cope with tough economic times.

Plan for a Pink Slip

Each month, we hear about scores of U.S. workers losing their jobs - a scary prospect for many. Even if you feel absolutely confident about your job security, every employee (from the workplace newbie to the seasoned veteran) should plan for the prospect of a layoff. This doesn't mean that you should start obsessing over the chance that you may get fired. Instead, you should begin positioning yourself appropriately, and arranging your financial and professional affairs so as to diminish the impact of a potential downsizing. In addition to saving more money (more on that later), you can plan for a pink slip by using these tips:

Polish Your Resume - and Your Skills

Many laid off employees find themselves scrambling to suddenly pull together a resume that accurately and professionally captures their education, experience, and skills. Instead of rushing to compose a resume after a layoff, take time to update your resume now - just in case. And while you're polishing up that resume, it wouldn't hurt to polish your skills as well. By improving your technical, interpersonal, managerial or administrative abilities, you'll be a more attractive candidate should you have to go job-hunting. As a bonus: if you fine-tune your skills while you're currently working - via training or refresher courses - your existing employer may just pay for those opportunities.

Network Within and Outside Your Company

Frequently, landing that next job after a layoff comes down to who you know. So begin expanding your contacts both within and outside your organization. At work, volunteer for important company projects or initiatives that will allow you to meet (and impress!) executives outside your department. Externally, take a client or vendor to lunch, attend industry conferences to become acquainted with people in your field, and don't shy away from networking events.

Maintain Sufficient Healthcare Coverage

The rising cost of healthcare coverage represents a huge financial challenge for many Americans. Currently, about 48 million Americans have no healthcare coverage; many millions more are under-insured. Unfortunately, these individuals and families are vulnerable to crushing medical debt and potential bankruptcy. In fact, a recent study conducted by Harvard researchers, and reported in The American Journal of Medicine, found that illness and medical bills played a role more than 60% of all U.S. personal bankruptcy filings. Ironically, more than three-quarters of bankruptcy filers with medical issues said they had health insurance when they got sick or injured. The lesson: whether you're working or not, seek to have the broadest possible coverage to stave off sky-high medical bills. Many states have laws requiring mandatory health insurance for children. So at the very least, make sure any kids you may have are covered.

Manage Credit and Debt Wisely

In years past, many people got into debt because of extravagant spending. These days, middle-class families find themselves dealing with excessive credit card bills racked up just trying to stay afloat. But amid an economic downturn, you must resist the temptation to use credit to pay for everyday purchases - such as food, gas for your car, or your utility bills. It's so easy to think: "I'll pay that off later." But before you know it, you've got stacks of credit card bills and not enough money to pay them all. To manage credit and debt wisely in this challenging environment, take a realistic look at your budget and don't spend money today based on future expected earnings. Paying your car loan with the expectation that your employer will give you the paycheck you're due next Friday is fine. But booking that December vacation now, using your Visa card, because you anticipate getting a holiday bonus is unwise. Also be wary of taking on debt that requires two incomes to repay.

Ask Yourself "What If?"

One of the smartest financial moves you can make to cope with volatile economic times is to engage in basic contingency planning. Start by asking yourself a very simple, but powerful question: "What If?"

• What if someone close to me gets sick or has an accident?
• What if my spouse dies or loses a job?
• What if something unforeseen happens to me?
• What if there's an unexpected addition to the family - for instance, the birth of a child or an elderly parent that has to come live with me?
• What if my rent or mortgage increases?

You can protect yourself in several of these cases - such as death or disability - by making sure that you have adequate life insurance and disability insurance. Purchase low-cost "supplemental" insurance, in addition to any coverage you may have in the workplace. That way, if you ever lose your job, you still have this insurance protection.

Establish/Build a Cash Cushion

For virtually every "What If" scenario you can dream up, establishing or building a cash cushion will help. So if you haven't started saving, now is the time to do so to better cope with an emergency. For instance, if you do get laid off, you don't know exactly how long it will take to find another job. A good savings goal: try to squirrel away three months worth of expenses. It won't happen overnight. But you can jumpstart your savings nest egg by selling things you don't want or need, or socking away windfalls like a tax refund check or severance package.

Make Every Dollar Count

Lastly, when money is tight, you can strengthen your finances by making every dollar count. If you're spending money, ask yourself: Is this something I need or something of value? If you're saving money, ask yourself: Is this the best savings vehicle I can find? If you're investing money, ask yourself: Is this investment legitimate, properly researched and well thought out? And if you're donating money, ask yourself: Is this a worthwhile donation that I can afford to make?

The answer to all these questions should be "Yes." If the honest answer is "No," re-think what you're doing with those dollars. After all, every dollar really does count in a challenging economic environment.