The New York Times advises readers not to panic over their finances, amist growing worries about a prolonged and painful recession.  Instead, the Times recommends that people take stock of their financial situation by doing the following (I’ve added my comments in bold):

• Take a hard look at your job situation.  Could a layoff be in your immediate future?  If you’re not sure, it’s probably a good idea to dust off your resume, update it, and begin networking now.  As I’ve recommended in prior posts, consider creating other streams of income that have nothing to do with your current job, such as teaching at your local community college or becoming a mystery shopper.
• Review your debt situation - ask yourself, can you afford your lifestyle?  Are you struggling to cover your monthly expenses?  If you are unsure, check out www.about.com’s post on the warning signs you have too much debt.  The Wall Street Journal recently reported on the increased demand at food banks from middle-class families.  One family who bought a house that was too big and a car that was too expensive had to go to the food bank because they couldn’t afford both the loan payments and groceries.  Not being able to afford food in this country is pretty shocking and sad.  However, if I were to choose between a BMW and food, I’d take the food.
• Resist the urge to stop investing in the market.  Do not let your emotions get the better of you by buying high and selling low.  I’ve heard several people complain about the recent declines in the stock market.  One friend wanted to stop investing altogether because she couldn’t bear the $20,000 haircut that her 401(k) account just took in the last month.  This is precisely the wrong time to stop investing.  The Oracle of Omaha, Warren Buffet, has said that the stock market is the only place where people run away when there are bargains to be had. 
• If you are planning to refinance your home or buy a new home, borrow the proceeds using a 30 year fixed rate mortgage, not an ARM.  This should be a no-brainer, with all of the fallout over the subprime mess.  If you currently have an ARM loan, start researching interest rates for 30 year fixed loans.  The Federal Reserve’s recent interest rate cuts should trickle down in the next three months.  However, because Wall Street and investors are so jittery about mortgage loans, interest rates have been fluctuating day-to-day.  The key is to lock in a rate during a dip, which may be as brief as one day.

If your job is stable, your mortgage and other living expenses are manageable and you are continuing to invest in your 401(k) without worry, then stay the course.  As the Times advises, keep doing what you’re doing. 

The Times article also says don’t panic in these recessionary times.  However, my view is that if you are living paycheck to paycheck, you need to scare yourself silly into taking action.  Conjure up images of soup kitchens and homeless shelters, if you have to, because you may be one paycheck away from living in a tent like other former homeowners in so-called “subprime shantytowns.”  They are apparently cropping up in Los Angeles and other hard-hit areas in California.