5 Ways to Recession-Proof Your Income

Have you ever been knee-deep in financial duress, perhaps losing all of your savings and retirement funds as your employer went belly up? No one wants to get stuck in such dire straits, but it's a valid concern, especially when news mounts about indicators of a recession.

The good news is that an economic recession doesn't have to bring despair to all, experts say, if you make smart moves to recession-proof your income.

Here's how to protect your funds in a recession:

1. Control your debt in a recession.

Bryan Beatty, a certified financial planner based in Vienna, Va., says there is bad debt, such as credit cards, and necessary debt, such as a home or a condo. "A credit card is always subject to have a variable rate, and they tend to get worse for you when times are tough, so try to avoid credit card debt," he says. "One thing I tell people with a home or a condo: That's a necessary debt. You have to have a place to live, and you might as well have a debt with tax benefits."

If you have credit card debt, establish a strategy for paying it off. For those with multiple cards, rather than paying them all down evenly, Beatty recommends being most aggressive in paying off the card with the highest interest rate, and then moving to the next card. Once they're all paid off, don't use them again, unless you can pay off the balance during the same month you made the purchase.

2. Save up for rainy days during a recession.

You should have an emergency fund, to be tapped only for necessities. "Once you get your debt in control, put six months to one year of funds into a safe and accessible account. That's really how you recession-proof your household and your family," says Robert Shemin, the Miami-based author of How Come That Idiot's Rich and I'm Not? "If your living expenses are $2,000 a month, then you need $24,000. It takes a while to get that, but you have to start today. If you only have a small cushion, [a recession] will be very stressful." Rainy day funds and recession planning go together.

3. Stop supersizing your lifestyle during a recession.

America is known for extra-large everything, from meals to cars to homes. Why not cut back on excess? "Sell something. I find that happiness isn't contingent on where you live or what car you drive," Shemin urges. If you're making a big purchase, such as a home, consider whether you really need, for example, a house with five bedrooms, says Patrick Astre, author, speaker and financial expert. A bigger house means bigger bills and smaller retirement savings, he says: "I can give you three guarantees; you will get older, you will die, you won't want to work during retirement. But if you don't save money, you will work till you die." Super size your savings and a recession won't hurt as much.

4. Take a side job during a recession.

You can base the job around your skills, interests or hobbies. "Hobbies can be backdrop jobs along the way, and also prepare you for retirement. So I strongly agree that having a second job of interest is an excellent way to diversify yourself," according to Beatty. "Many people can see slowdowns in their industry ... With hobbies, they are more diversified-[people] can move more toward those hobbies they enjoy, and will be well ahead of the curve, and maybe ultimately go on their own entirely. Many businesses start in someone's basement."

5. Stand on different "financial legs."

These "legs" might be the salaries of a husband and wife, investment portfolios, annuities, bonds, pensions, real estate, or a home-based business, says Peter Lengsfeld, senior financial consultant at Presidential Brokerage Inc., based in Colorado. "The trick with respect to the financial legs is you want to make sure they're not all reacting to the same things. For example, Enron was the classic case where someone was working for a company and all their 401K was in company stock. You want to make sure that the financial legs you establish work somewhat independently of one another."

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