Thriving During the Great Recession

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.

Get out of debt. The average American is now responsible for more than $17,000 in debt, excluding mortgages, according to Experian, a credit reporting company. As credit card companies continue to crack down on credit availability through higher interest rates and lower credit limits, consumers will find it harder to take out cheap loans. That makes paying off debt an even bigger priority.

Even negotiating lower rates with credit card companies has become more difficult, says Emily Peters, personal finance expert for Credit.com. "We used to always tell people to call and at least try to get them to lower your rates, but now, people are calling the company and that's triggering a rate increase," she says. Here's what can happen: The call leads to a review of your credit file, and if there are any red flags, such as late payments, you could end up with a higher interest rate. "Now I tell people to call only if there are no red flags and you know you have excellent credit," says Peters.

For those juggling multiple types of debt, such as student loans and car loans, it pays to focus on the highest-interest debt first, which is almost always credit cards, says Torabi. If you pay off a credit card loan that carries a 20 percent interest rate, consider it the equivalent of earning 20 percent interest on savings, she points out. Getting rid of that debt and consistently paying your monthly bills will also boost your credit score, which affects not only your ability to take out loans but sometimes job prospects and apartment applications.

Reinvigorate your career. Slowdowns often lead people to question their job stability, even if they haven't been directly affected by layoffs, says Anya Kamenetz, author of Generation Debt. "It's causing people to re-evaluate . . . and ask themselves, 'How committed am I to this job? What would happen if I lost it?' " she says.

Leaving the workforce to go back to school is a popular option, but Kamenetz says it's not necessarily a good idea. "Even though it seems like a place to hide out, if you're building up debt and rushing into a program you haven't done a lot of research on, you might find yourself worse off," she says.

At the same time, career expert Lindsey Pollak says it's never a bad time to leave a job that you hate. But if you have expenses you can't cut—a family to support, for example—she says it might make sense to stick out a less-than-perfect job for a few years while waiting for the economy to pick up. "Use this time to position yourself. Read books, meet people, learn from positive stories of people who are succeeding," she recommends.

Freelancing, even while you're employed at a full-time job, can boost income security, Pollak says. She starting freelancing by leading workshops and providing writing and editing services after the magazine she worked for went out of business in 2001. Although paying for health insurance was stressful, she says, the recession made it easier for her to find work because many smaller companies and nonprofits needed work done but couldn't afford a full-time staff member.

After Alix McMurray, 50, who lives in eastern Colorado, was laid off from her job at a nonprofit last fall, she decided to reinvent herself—something she had done before when she shifted from the publishing industry to psychotherapy. "One of the problems is that you lose a lot of ground every time you shift over. You have to start out at the entry level," she says. McMurray focused her job search on areas she considered recessionproof, such as in healthcare and education. One of her challenges, she says, was finding a new employer who was "free of bias about hiring an older worker." She has now found a job.

Rethink big life events. Some of the biggest expenses are tied to life-changing events, such as marriage and buying a first home. For some people, the recession means waiting—or at least scaling back. Many young adults who were thinking about buying a first home are now reconsidering whether it's still a good idea, Kamenetz says. "Even though prices are coming down, they're still high above historical levels. . . . The idea of it being a central thing you need to do to become middle class has been chipped away," she says.

Mortgages are also harder to come by. Mike Larson, a real estate analyst at Weiss Research, says anyone with a credit score below 700 or less than 5 to 10 percent for a down payment will find it difficult to get a loan at a relatively low interest rate. "Lenders just don't want the risk," he says. Waiting to buy until you have enough for a significant down payment and an improved credit score could result in big savings.

Stephanie Coontz, director of research for the Council on Contemporary Families, says the economy has long affected family choices. During the Great Depression, she says, many marriages were postponed because couples couldn't afford to get married and live on their own. The birthrate also dipped. The baby boom following World War II was partly "a response to the relief from the hardships of the Depression and war," she says.

Since her contract as a recruiter wasn't renewed last fall, Jennifer Rescigno, 36, of Sussex County, N.J., hasn't been able to find work. As she continues to look for a job—even a career change—she and her husband have put off plans to have kids. "I don't have a house, I don't have room for a baby . . . [and] I wouldn't want to bring somebody into that if I was unable to support them," she says.

Still, there are ways to fulfill your dreams without breaking the bank, says Carley Roney, cofounder of TheKnot.com. "We've been surprised at how the recession is not affecting these very dramatic milestones," she says. "There's a certain momentum . . . . If you were about to get engaged, there's really nothing that's going to stop that." To save money, couples might settle for less expensive rings or a shorter guest list.

Look for the silver lining. Recessions give people a chance to re-examine their lifestyle and make welcome changes, says Neiser. "It's causing people to think before spending, to become more efficient. Americans are making those changes and looking inward—they're re-evaluating the pursuit of happiness," he says.

Indeed, Rescigno, the out-of-work recruiter, says the break gave her time to write, something that she has always enjoyed. She recently entered a writing contest to try to pen a 50,000-word novel in a month. She says, "I was having fun doing it—so at least I have that."