Strategies for Tough Times: Five Steps to Secure Your Financial Future

Read the newspapers, turn on the radio or television, and you'll get overwhelming evidence of something you probably already know: Times are tough. Unemployment is rising. Debt is rising. Credit is difficult to come by. And Americans are saving absolutely nothing. So what do you do? My philosophy in all sorts of tough times is to control the things you can control. You'll be surprised how much of a difference—both financially and emotionally—a few small moves will make.

Step 1: Build a Cushion
Having an emergency fund to fall back on is going to help you sleep at night during the best of times, and in a shaky economy, it can be a real lifesaver, particularly if you lose your job. I usually suggest about three to six months of living expenses for a two-income family, and closer to six if you're single or your spouse doesn't work outside the home. In a downturn, you want to shoot for six no matter what your situation, particularly if you work in an industry that's likely to be hit hard—think financial services, real estate or retail.

If that sounds like a lot of money, remember that we're talking about bare minimum living expenses here. If you're laid off, your spending is going to come to a screeching halt, meaning your emergency fund doesn't have to hold enough to cover your current lifestyle if it involves dining out every Friday night, a daily trip to the coffee shop and a family movie on Sundays. You just need to have enough to float the necessities: gas, bill payments and food.

So where do you stash the cash? An emergency fund is all about liquidity, so you want to put it where you can get to it easily, but that doesn't mean you shouldn'tearn some interest. Check out money market or high-interest savings accounts, particularly those that are housed exclusively online, then request an ATM card for easy access. But remember, this is for emergencies only, so no swinging by the bank on your way to the mall.

Chipping away at credit card and other high-interest debts during an economic downturn is your best investment. So how do you do it? You have to find wiggle room in your budget by looking at where your money is going and brainstorming ways to cut back. For the next two weeks, track every single penny that leaves your wallet, every swipe of your debit card. You'll be surprised at how much of your spending is discretionary—a sandwich here, a rented movie there. Once you see how the little things add up, you'll have an easier time throwing that cash toward your debts, where it can really have an impact on your balance sheet.

And if you think you've cut back on everything you can, remember that other, bigger items can be adjusted as well. Maybe this year, you pick a family vacation spot that's within driving distance rather than having to shell out for pricey plane tickets.

The easiest way to do this is with target-date retirement funds. These guys take most of the work off your shoulders and are offered by most major investment firms. So what are they? In a nutshell, you pick the fund that will mature closest to when you anticipate retiring—so if you're 35 years old, you want to select a fund with a target date of 2030.Then, it will rebalance itself over time, so you're investing aggressively in more stocks, less bonds while you're young, and as you age, the balance shifts to more bonds, less stocks.

If you want a little more control, a general formula for balancing your portfolio is to subtract your age from 100. The resulting number is the percentage of your money that you should have in stocks. One other thing: Don't try to time the market. History tells us that this never works, and the best strategy is just letting your money ride. If you start making moves, there's a good chance you'll end up selling low and buying high, which is the opposite of what you want. The market always rebounds, so sit tight.

I know, it's not quite that easy. But you can take a few steps to ensure that the odds are in your favor. When companies look to cut costs and, subsequently, people, they look at who's generating the most revenue. Are you having a positive impact on the company's bottom line? Be sure that you're working on important projects, and ask your boss if you can take on additional responsibilities. The key is to seem indispensable.

When all else fails, it doesn't hurt to have a headhunter at your fingertips in case so you can take action quickly in case things go wrong. And networking, always key to getting and keeping a good job, is even more important now. Show up to events, join an association—the idea is to keep your name and face fresh in the minds of decisionmakers.

What constitutes a good score has actually gone up, so you have to work a little harder to stay at the top of the class. Things like shopping for credit and high levels of debt all work against you, so keep them to a minimum.

Also, a good score means easy access to cash if you need it, and in these times, everyone should have a home equity line of credit in their back pocket in case of an emergency.