How To Prepare for Lean Financial Times

By Martin Brown

walletDon’t worry, this isn’t another albeit generally amusing ad for Capital One credit cards.
But the bank’s signature slogan, “What’s in your wallet?” does, at this difficult time, raise an interesting question.

Typically in times of plenty, we think little about contingency and reserve funds. When times are lean, having some extra resources is just about all that we think about. It’s a story that is as old as the Book of Genesis in the Old Testament, when Joseph interprets Pharaoh’s dream that seven lean cows devour seven fat cows, foretelling a time of drought and famine coming to the fertile lands along the Nile.

Thanks to Joseph’s cautionary tale, Pharaoh’s ministers directed that generous amounts of grain be stored for the coming years of drought and low crop yield. And so the story has taken root in our culture over several thousand years:

That fat times are not just for celebrating  bounties of plenty, but also a time to save for the lean years that will inevitably follow.

If you’re under 50, this recession is , possibly, the first one you’ve experienced as a self-supporting adult, and with vastly inadequate resources.

And no doubt you are feeling the consequences.

There are two things that you can do right now to help your present situation, and make certain that this does not happen to you again in the future.

1. Eliminate all unnecessary spending as of today. No, not next week, but now. Under the assumption that you still have a job and a reasonable income flow coming into your home, your lack of savings in past years is no reason to delay saving now. I’m not going to take you through a long list of “living on the cheap,” ideas, but I will tell you this: a month of Netflix is cheaper than one movie ticket, and you can buy four bags of groceries at Wal-Mart for every two to three bags you’ll purchase at your boutique grocer down the block.

2. Now, put these newly-saved funds to good use.
For those who have never been savers, I will tell you that if you are indeed a cautious consumer, this case will eventually add up to something substantial. So, what do you want to do with those savings?

Bank 65% of the money you save in a rainy day fund. Then take the balance and invest it in the stock market.

OI can hear you gasp now. “The stock market! Isn’t that where all this trouble began?” It is, in a sense. But the market is always the leading edge of a downturn, and the leading edge of the next upswing as well.

One basic rule of the market: be a contrarian. When you see everyone rushing in to buy stocks, get out.

And when you see people rushing out of the market, get in.

That doesn’t mean buying any stock your eye happens to land on. You still have to be a smart shopper. Bank stocks in recent weeks are a good example. Given up for dead in February, they have bounced back nicely in the last two weeks. There are always good buys in down markets, you have to do some studying and search out the bargains.

Okay, this time you got caught in a storm without a savings plan or an investment umbrella. That doesn’t mean you can’t learn from your mistakes. When we get back to a healthy economy–my guess late 2010, early 2011,–do what Pharaoh learned to do: eep being a smart consumer, and a good saver.

Come the next downturn when someone says, “What’s in your wallet?” You can flash a wise smile and simply say. “Enough that I’ll be just fine!”

Other SMW Money Channel Articles for You

Economic Shifts in 2009, and What They Mean for You

A Personal Guide to Better Fiscal Health for 2009

Self-Employed, with an Uneven Income? Some Smart Financial Planning Tips