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Part Three: How to make money during a recession

There’s a rising anxiety about the U.S. economy. Fueling this is the news of major financial companies taking huge losses due to subprime mortgage defaults, slumping home values, and consumers' purchasing power being sapped by high energy and food prices. According to public surveys, these are above half of people believing the economy is already in a recession. 

With evidence of a slowing economy, workers need to buckle up and arrange their monry on a new basics. Here are a few financial moves to soften the blow.

At first, Build a Cash Cushion, Consider the follow suggestions to increase your cash cushion:

• Decrease your 401(k) plan contributions to the minimum. The increase in net pay should be used to build up your emergency fund.
• Eliminate all unnecessary payroll deductions, such as savings bonds or charitable contributions. 
• Reduce your income tax withholding from your pay, especially if you typically receive a tax refund. Over 70 percent of all tax filers -- about 95 million folks -- receive a tax refund each year, and the average one is more than $2,500. Of course, a large tax refund feels good, but larger take-home pay NOW will help you to build your cash cushion more quickly. Complete a new form W-4 and submit it with your employer’s payroll department. Do it now, so that the change will be effective for the next pay period. You can then put the additional cash you'll get in your paycheck to work increasing your savings.

Next, If you're investing for retirement and can tolerate the risk of stocks over the long term, Consider dividends. Studies of stock market performance find the following:

• Since 1945, the stock market posted annual gains during seven recessions and declined in four of them. The average stock market gain over all 11 recessions was three perecnet.
• The average length of a recession since 1945 has been ten months.
• The most significant stock market losses are typically experienced before a recession.

Check out stocks with decent dividend yields. Companies that consistently raise their dividends give an investor an edge over bonds. A bond's interest rate doesn't change. And over time, inflation erodes the value of a bond's interest payouts. But a company that often raises dividends can help you whip inflation. Reinvesting your dividends over the long term is also a great way to build up a stream of income in retirement.

At tne end, the most important, Plan for the worst. What's the worst that could happen in a recession? If you're nearing retirement, your biggest fear is probably losing your job. Not only would you lose income; you might also have to draw down your savings to make ends meet while you look for work. Rising unemployment, unfortunately, is a hallmark of a recession. So it's best to take stock of your finances and see how well you'd fare if you were laid off.

Remember that the best offense can be a good defense. Being prepared financially will lessen the blow in a recession and gain return in the future.

Part One: What do the Recession mean?

Part Two: Why do the Rscessions happen?

Part Three: How to make money during a recession