Ok folks, things just got a lot harder for most of us. We will have to learn a word that most of us are not familiar with. RECESSION. This little bug is when the growth of an economy of a country starts to shrink or reduce. If we enter negative territory, we are in a DEPRESSION. While the various governments try to prevent this, we all have to learn to live more thoughtfully.

Do

• Review your current credit position and your monthly payments including bank charges. Getting a clear picture of where you are, even though it is scary, will help you make decisions driven by facts, not emotion.

• Place a mental restraint on your spending. Consciously review your buying decisions and spending patterns.

• Come with a plan. You are under financial pressure so make a plan. Get a budget together. Cut out the unnecessary things for now. Historically, every recession has been followed by recovery. You will probably not die if you cancel your DSTV or expensive magazine subscriptions (or stop smoking and cut down on the booze). Chances are it won’t be for long.

• Adjust your expectations. Wanted a holiday in Mauritius, settle for Cape Town. As I’ve mentioned before, a lack of discipline and the desire to have your needs met NOW are the worst enemies of good value. Insisting on what you want because you want it, is the behaviour of a five year old.

• Sell your junk. Go through the cupboards and the garage and get your hands on all the hoarded stuff you never use. Your pride will resist, but rather a bit of humility than a whole lot of poverty. Many folks I know are holding garage or boot sales. My wife sells clothes at the taxi rank on Saturdays for extra cash. Take the stuff to Cash Crusaders or the like. Some auction houses allow you to place items with them for a small commission. This has become a great way to dispose of unnecessary items here in my hometown. Otherwise, put stuff up for sale or auction at Gumtree.co.za or BidorBuy.co.za.

• Be aware of prices. When buying groceries use common sense to get the best value (for my advice on this see here). The manager of a large grocery store that I know complained that the margin on specials is only 1-1.5%. Bad for them, good for me. Watch for those specials. As times get tougher the stores will use more specials to attract you into their store – so know your prices and shop wisely!

• Increase your financial IQ. Read the business pages of the paper, listen to the news and try and get a sense of what the fuss is about. Watch the papers and Internet and attend one of the free seminars offered by the banks. These range from investment and portfolio planning seminars to stock market primers. Moneyweb.co.za is a good source of information to increase your IQ. I’m not saying become a whiz, just become a bit more informed and a bit less naive.

• Downscale your vehicle. If you bought an expensive vehicle for reasons other than the purely practical it is time to downscale. A motor vehicle is the single biggest money vacuum in your portfolio. It depreciates as it is used and it costs money to run and maintain. The higher it’s initial cost, the higher its running and maintenance costs. Buy a sensible and unexciting sedan and lose the 4×4. Put the difference in price into your debt or into investments for your future. Better still, buy a decent secondhand car. I can’t count the number of okes I know that suffer high motor car payments for ego’s sake. Been there, done that. (Getvalue advice for buying secondhand cars here)

• Review your insurance policies. Consolidating home and vehicle policies with a single company can save you money. Push for a good deal and shop around. Use Hippo.co.za or the more user friendly insurancehound.co.za to get an idea of pricing.

• Reward yourself for restraint. Maybe you can’t afford the new TV or latest gadget, but a nice meal out with the family of a big chocolate all to yourself can make up for it.

Don’t

• Panic. Emotions are the worst tools for decision making. Get the facts straight.

• Hide away. Can’t pay your house of car? Get to your bank immediately and talk to them. I know they are ‘soddin bastards who want your money, but they are clever SB’s who don’t want to kill the goose who lays the golden eggs. Most banks have developed some way to help you out. Rather confront the problem now than let it go and find yourself in deeper trouble. An acquaintance of mine went to his bank and got an 8 month holiday from paying his bond. Not a freebie, but breathing space to come with a plan.

• Use credit for daily expenses. Using the credit card or overdraft for groceries and petrol is a REALLY BAD IDEA, no matter how desperate you are.

• Be fooled by banks or companies offering easy credit – THERE AINT NO SUCH THING.

• Don’t cancel car, life and household insurance to save money. You are required by law to have life and household cover if you have a bond, and motor insurance if you have borrowed to buy a car.

• Cancel endowment and investment policies to get the money. Doing this costs you more than you gain and I promise you will regret it. Rather pretend these don’t exist and bite the bullet to make sure monthly payments get made. Rather downscale the car than drop the investments.

• Allow your pride to rule your common sense. Back to my first point, emotions are terrible indicators of how to behave. In investing, pride is the thing that prevents clever people from admitting they are in a losing positions.

• Spend more than you make. Sounds common sense, but it related to all the other points including the point about making a budget. This is the time to get control of you spending. It will be tough and it may be painful, but it is a VERY BAD IDEA to buy out the future at the moment. When you borrow money and live on credit , you are actually loaning from the future (accessing your potential future earnings before you have them!). Since the near future is only likely to be full of more tough times, you are EXTREMELY UNWISE to borrow from it.

Warren Buffet is quoted as saying – “Keep the assets that make you money and sell those that don’t”. Good advice.