Scary economy, real solutions

There's a lot to fear in the economy these days, but that doesn't mean you should hit the panic button. These simple steps can protect you from looming dangers.

Solution: Beef up emergency savings

As a hedge - just in case the worst happens - the best strategy is to beef up your emergency fund. The standard advice is to keep at least three months' worth of living expenses socked away if both you and your spouse work and six months' worth if your household has only one earner.

But in a recession, a year's worth can make more sense, especially if you're near retirement. If you have no cash or barely any on hand, it even makes sense to sell stocks. It's never a good time to have no savings, and that's especially the case in a downturn.

If like a lot of people you have some ready cash but not enough to tide you over for an extended period, you can avoid dumping stocks. Instead, put off major purchases, cut consumption and, if necessary, redirect money you're regularly investing in stocks into a savings account.

Where should the money go? Forget CDs: You need to be able to withdraw the money quickly without penalty in an emergency. A money-market account or fund will do. --George Mannes
NEXT: A weakening dollar