Thriving During the Great Recession

How to save more, spend less, and still enjoy life's luxuries.

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No surprise here: Recessions are no fun. While the current downturn has spurred some welcome developments—it has, after all, made frugality kind of cool again—it's also forced many people to put their hopes and dreams on hold. When your savings lose value and you're worried about keeping your job, it's harder to proceed with plans to return to school, have kids, get married, or buy that dream house.

The recession "adds a whole aura of uncertainty that causes people to think carefully before making a big spending decision," says Brent Neiser, director of strategic programs and alliances for the National Endowment for Financial Education. He adds that recessions are a good time to re-evaluate and make changes, such as becoming more energy-efficient, that you have long wanted to do anyway.

If the recession has frozen your own life ambitions, prepare to warm them up. Here's your guide to recession survival:

Spend smarter. Tough times don't mean giving up the spending that's most important to you, whether it's a trip to Angkor Wat in Cambodia or a nice bottle of pinot noir with dinner. Farnoosh Torabi, a senior correspondent for TheStreet.com and author of You're So Money, says you have to prioritize. "Maybe it means giving up the gym membership and going for free runs in the park. If you were a clothes horse in '08 but you're worried about income, maybe you have to be more prudent about where you shop—but not give up shopping," says Torabi.

Jennifer Johnson, a 29-year-old writer for a nonprofit in Baltimore, says that she and her husband, a consultant, went into "recession mode" after he lost one of his big clients. While the couple used to enjoy nice wine, fancy dinners out, and an occasional massage, they now avoid those indulgences. "I approach my weekly grocery shopping like a four-star general heading to battle against rising prices, plotting my game plan in advance and reading the fine print on all the sale signs. . . . I've rediscovered the feeling of triumph when you score an amazing deal," she says.

The recession makes finding such deals easier. Torabi says that these days, retailers may be more willing to barter with customers. "If you don't see a discounted price, then ask for it," she recommends. She also says that strategy works especially well with smaller service-oriented stores, such as hair salons, dry cleaners, and boutiques.

Grow your savings. Now that you've cut back on expenses, figure out how to funnel that extra change into savings. A recent Bank of America survey found that while 60 percent of Americans are spending less, more than half of respondents say they're also saving less, partly because of the rising cost of living. But most financial experts say that during a recession, consumers need a larger emergency fund—as much as eight to 12 months of living expenses—to protect against layoffs and the potential difficulty of finding a new job.

It's also a good time to review your portfolio and assess whether your investments still make sense, says CNBC's Maria Bartiromo. She recommends asking, "'Have the fundamentals of that industry changed? Do I have my assets diversified in stocks, bonds, real estate, and cash?'" At the same time, she warns against knee-jerk reactions such as selling stocks after they've lost value.

For those who want to park their cash in less volatile investments, money market funds, CDs, and high-yield savings accounts are safer alternatives. The downside is that low interest rates have hurt the yields of cash investments.

When it comes to the stock market, some advisers are warning that it may not grow as fast as it would have 20 years ago. That means people have to save more to get the nest egg they want. Brad Sorensen, a senior sector analyst at the Schwab Center for Financial Research, says that while the stock market has historically grown at roughly 10 percent a year, you shouldn't necessarily count on that rate going forward. "After the excesses and returns of the 1990s, we expect to see slower growth for the next few years. It's impossible to predict over the next 40 years, but I wouldn't go to 10 percent. Somewhere around 7 to 8 percent is a relatively safe idea of what returns would be," he says.