Your Recession Survival Guide

Step #1: Be sure to act on our earlier advice. As we've told you in recent alerts, get conservative with your investments, increase your savings and consider refinancing your mortgage. (Get all of the details here.)

Step #2: Buy Municipal Bonds because they are currently yielding more than taxable bonds. Those higher yields are making a compelling case for anyone in the 25% marginal tax bracket as well as higher earners to consider municipal bonds. We think you should consider purchasing municipal bonds over Treasuries. As always, discuss it with your tax professional, and only buy bonds rated AA or better ... both tax-free and corporate (taxable) bonds. Tough economic times could cause bond defaults of marginal companies. See Should You Buy Municipal Bonds? for more information.

Step #3: Pay down your debt. A lot of people don't think about it this way, but paying off a credit card carrying an 18% interest rate is the same as earning 18% on an investment. You're not going to find a better return than that in most places, especially right now. For our advice on the best way to do this, see Pay Off Your Credit Cards in One Year.

Step #4: Invest in yourself. This is an often overlooked but important step. Since your job could be vulnerable in a recession, spend a few bucks to upgrade and expand your skills. We know it can be difficult to come up with the extra money, but it's worth it if you can. By making yourself more valuable to your employer, you'll be able to better weather downsizings. If you are out of work or seriously concerned about losing your job, you'll find a lot of helpful information in Dealing with Job Loss: Our 7-Step Action Plan.

Step #5: Re-evaluate. We believe this recession will be felt by all of us. For the first time in more than 70 years, consumers will be forced to pull in their horns because houses are worth less, wages aren't keeping pace with inflation and basic necessities are, seemingly, costing more each day.

Now is the perfect time to look at all the "stuff" we've amassed and realize that we CAN live a comfortable, enjoyable life without the vast majority of it. Get rid of what you don't need. Have a yard sale or sell it on eBay to raise a few extra bucks. You'd be surprised at how valuable some things are! (Read Could Your Trinkets Be Treasures?). If you don't want to sell your things, donate them to charity to help someone in need and give yourself a nice tax deduction.

Believe it or not, recessions can be good for us - if you're smart. They clean out excess. When this one is over, everything will be more affordable, including stocks, and you'll be in a better position to take advantage and enjoy!

To learn more on how to survive a recession, click below:

• 3 Ways to Protect Your Money From Harm
• Our Roadmap for a Profitable 2008

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