How to Survive a National Financial Depression

Consider gold for an investment during a financial crisis.

Few fears are more palpable than a financial depression. For most individuals, the term "depression" describes an era of the past marked by the crashing stock market, soaring unemployment, poverty and deflation. However, the word "depression" has moved out of history and into the present. According to CNNMoney.com, the world economy is currently on a path that will show its worst performance since the Great Depression. Although such a reality may be overwhelming, you can take steps to come through a financial depression unscathed.

Instructions

How to Survive a Financial Depression

1. Get to know your finances and expenses. Any person facing a financial crisis should be familiar with their ratio of income to expenses. Make a list of all income including employment, social security, pension and any other incoming money. Make another list that includes fixed expenses such as your mortgage, credit cards, car payments, utilities etc. Include a separate list for variable expenses such as gas, food, clothing, childcare and any other cost that changes each month. Free worksheets for listing expenses can be found at Betterbudgeting.com. Subtract expenses from income to get extra monthly cash flow.

2. Understand your cash flow. It is not enough to learn how much money is left each month after expenses, it is also important to know what to do with that money. In a financial crisis, saving is not necessarily the smartest choice. CBSNews.com advises people to consider purchasing gold to hedge against the falling value of the American dollar. Real estate is another option to consider as it typically appreciates; however, in a flailing market, it's important to purchase real estate at a discount (consider foreclosures).

3. Reduce expenses. Decreasing expenses is the most obvious, but often overlooked step in surviving a financial depression. Many people spend a lot of money on unnecessary items. Consider lattes, cable television, new clothing, dining out and any other variable expense that could be eliminated. Additionally, a lot of money can be saved by contacting credit card companies and requesting lower interest rates, refinancing a home at a lower APR and shopping around for cheaper insurance, internet and any other monthly expense.

4. Walk away. Losing a house can be very difficult; however, it has become increasingly apparent that homeowners have been some of the most damaged by the financial crisis. Hugely inflated values were given to homes that have since plummeted in value. Homeowners have responded by giving the houses back to the bank. A news story published in the Huffington Post detailed a massive 'walk away' by a group led by Tishman Speyer Properties. The group gave up 11,232 properties because the value of the properties purchased in 2006 was estimated at $5.4 billion -- the value of those properties in 2010 is only $1.8 billion. Though the numbers look different for individual homeowners, the reality is the same. It is more financially intelligent to stop paying an inflated mortgage when faced with an economic depression.

5. Consider another way of life. It is difficult to foresee how deep the financial depression will run. Rising gas prices affect the cost of food and everyday travel. The collapse of companies means job loss for many. Though many people have become accustomed to hourlong commutes and grocery stores stocked with everything from diapers to avocados, when a crisis strikes, it's important to get in touch with basic life. According to BSCPN.com, people can make more drastic life changes such as choosing to live off the grid (creating your own power source), learning to hunt and stockpiling medicine. Though these may seem difficult to comprehend, it is important to consider them as possible alternatives as the world of finance continues to collapse.

Tips & Warnings

• Learn life skills such as growing your own food, hunting and food storage for additional security.

• Examine any way to reduce expenses such as buying a more fuel-efficient used car.

References

• CNN Money: World Bank: Economy Worst Since Depression
• BSPCN: 12 Ways to Prepare for the Next Great Depression
• Huffington Post: Don't Look Back: Major Players Continue to 'Walk Away' from Poor Mortgages
• CBS News: Should You Buy Gold Now?

Resources

• Better Budgeting: Free Budget Worksheets