The California wildfires serve as a grim reminder of how quickly one’s personal economy can change. If the rain of an economic downturn were to fall on you tomorrow, would you know how to find shelter from the storm?

Troubles come and troubles go. Economic recovery is sure, eventually. In the meantime, if you play your cards right, you will not only survive a period of economic decline, you will thrive. Knowing how to survive will help you stave off potential disaster.

Develop your greatest asset. Your attitude—the way you respond to life and all of its circumstances—is more important than anything. It is more important than the past, than struggle or success, than education or experience. It is more important than how much money you have, how much you owe, what you would like to do or where you would like to go. When you face tough times your attitude will be either your greatest asset or worst liability. The key to changing your attitude is reprogramming your mind. Whatever you choose to focus on is what you will move toward.

Assess your resources. Figure out exactly what you earn, what you own and what you owe. What insurance do you have? How long would it take your unemployment benefits to kick in? Do you have enough cash to bridge the gap?

Live below your means. It’s a simple strategy: Spend less than you earn. Stop living paycheck to paycheck. Start swimming against the tide of the consumer credit culture that says you can have it all while making it possible for you to spend consistently more than you earn. A good rule of thumb: Adjust your lifestyle so that it fits within 80 percent of your income. Start NOW to cut a little from every area of your spending. Take it a step at a time. You will be amazed how quickly your financial picture will change for the better.

Get out of unsecured debt. Is your money being sucked into a compounding interest sinkhole? If you’re not paying off your credit cards every month, that’s just what can happen. The minimum payment on credit-card debt is calculated as a percentage of your current balance. The minimum payment drops as your balance is paid, but thanks to the magic of compounding interest you’ll end up paying for a long, long time if you allow the credit card company to determine the way you pay off the balance.

Build a nest egg. No matter where you live or work, the future is uncertain. You do not know when you and your income are going to temporarily part company. Start right now to accumulate cash. Don’t stop until you have squirreled away an amount that will pay your bills for a full three months (six is better). Then leave it alone. Don’t borrow from it or play around with it in any way. This is a sacred sum because it could mean the difference between survival and disaster in lean times.

Put the lid on stress. Stress is not only hazardous to your health, it can make otherwise tolerable events of life unbearable. Stress skews your judgment and makes you more prone to make hasty, stupid financial decisions. Releasing the stress in your life will help to clear your mind so you can manage your finances calmly and intelligently. For every one thing that goes wrong, there are a hundred blessings. Count them.

Layoff-proof yourself. If your employer downsizes, some will lose their jobs. And many will not. Make sure you’re one of the latter. Keep your expense account significantly below your authorized amount. Don’t complain but instead develop authentic gratitude for your job. Don’t whine, demand or play workplace politics. Keep a low profile. Do more than is required without demanding recognition. 

Stay in the market. If you are in the stock market, don’t sell. Stick it out. Remember, until you actually sell you haven’t lost anything, even if on paper it appears that you have. History has shown stocks to be a great long-term investment. Don’t fret, don’t stew and don’t hover. Just get on with your life and devote your energy and attention to the other eight items in this list.

Avoid scams. They are the natural outgrowth of a stunted economy. When going through tough times, brace yourself for the onslaught. You’ll be able to paper a small room in your home with all of the pre-approved offers for credit cards, loans and “opportunities” to get rich quick. Run from anything that promises instant wealth with little work. Shun new credit because it will lead to new debt.

Now more than ever, debt is the problem, not the solution. 

© 2007 Debt-Proof Living. All rights reserved. Used with permission.

 "Debt-Proof Living" was founded in 1992 by Mary Hunt.  What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt.  Today, "The Cheapskate Monthly" is read by close to 100,000 Cheapskates.  Click here to subscribe.