(MONEY Magazine) – Faster than you can say $30 a barrel, Saddam Hussein's invasion of Kuwait transformed the prevailing attitude on the economy from guarded optimism to low-grade anxiety. Growth had turned feeble even before Iraqi tanks rolled into Kuwait. Now, with oil supplies squeezed and consumers showing increasing signs of a siege mentality, recession seems all but inevitable. Indeed, many forecasters assume a slump has already begun. Says A. Gary Shilling, president of the New York City economic consulting firm bearing his name: ''The invasion was the final nail in the coffin of the 1980s economic expansion.'' Recession. It can't be. We've dodged one after another since 1982, making for the longest peacetime stretch of economic growth since World War II. But get ready. The streak is probably over. No need to break out the Prozac, though. Barring a prolonged war in the Middle East, the majority view among forecasters is that the economy will contract by a moderate 1% or so before resuming sluggish growth by the middle of next year. In all, that makes for a fairly mild recession -- the average dip lasts 11 months and shaves 2.1% off the gross national product -- and it pales in comparison with the 16-month tooth rattler of 1981-82, when the GNP shrank by 3% and unemployment hit 10.7%. Still, there will be dislocation, even pain. Consider these prospects: -- The unemployment rate could reach 6.5%, or 8.1 million jobless, up from 5.6% and 7 million today. -- Inflation may peak at around 6.5%, up from its recent 5.8% annual rate. -- The recovery, when it comes, is likely to be feeble. ''We're in for a long period of weak growth with nagging inflation of 4% to 6%,'' says Allen Sinai, chief economist for the Boston Co. ''The next reassuringly good period will start in 1992, and that's being optimistic.'' Of course, statistical aggregates and economists' often changeable predictions provide little clue to the precise impact of a recession on you and your family. Whether you experience hardship or pass through it all with nothing worse than a dim awareness of distant economic rumbling will depend on where you live and work and, above all, on your financial preparedness. Remember too that the economic consensus hinges on assumptions -- in particular, about averting a shooting war in the Middle East -- that may turn out to be far too optimistic. (For a look at what to do if fighting erupts, see the box on page 78.) Still, don't try to outpsyche the Mideast crisis or the U.S. economy, moving your money with each day's headlines. Rather, take measures that will safeguard your finances, regardless of events beyond your control. In fact, if you're like nearly a third of the MONEY subscribers recently polled by the Gallup Organization (see page 79), you already have made some moves. If not, now is the time to reassess your job prospects and adjust your saving, spending and investing strategies. Here, then, are your best financial strategies for today's tougher times: Protect your career. The security of your job will depend heavily on where you live and the industry in which you work. The industrial states of New England, with their recent 6% average unemployment rate, will probably retain their unenviable ranking as the nation's worst job market; unemployment there could jump to 7% or more. But in virtually every region, workers in construction, automotive and defense companies (despite Mideast tensions) are likely to be hit hard by layoffs. The construction and auto industries, where unemployment already runs 11.1% and 7.4%, respectively, could eliminate another 200,000 jobs, or an extra 4% of the work force in those fields. And defense companies and their suppliers could lose 430,000 jobs, or 10% of the total, in 1990 and 1991, according to George F. Brown Jr., an economist and defense specialist at DRI/McGraw-Hill in Lexington, Mass. The most secure employers are expected to be food companies, consumer product manufacturers and pharmaceutical firms. Even if your job seems assured, the same may not be true of the steady annual income growth to which you may have become accustomed. A slower economy means less overtime, dwindling commissions and bonuses, and measly raises. According to an annual survey by management consultant William M. Mercer Inc., average nonunion salary increases will drop to 5.4% in 1991 from their current 5.5%. The decline may not sound like much, but it could pinch hard. According to the survey, next year could be the first since 1980 in which salary increases don't keep pace with inflation. The key to protecting your job and pay is to keep your performance high, perhaps by adding new skills. ''In the past, companies generally fired only the notoriously incompetent,'' says Alan M. Johnson, managing director of executive compensation at the New York City recruiting firm of Handy Associates. ''Now they're much more likely to take action against average employees.'' Then too, this is probably not the time to trade in a steady paycheck and start that bed and breakfast you have always dreamed of owning. Similarly, job switching loses some of its allure: you don't want to be a firm's last hired employee just as the economy sours. Build your savings. Normally, you should keep an amount equal to three months' living expenses as an emergency reserve, preferably in a money-market fund, where the cash is readily accessible. With the economy faltering, however, you should have at least twice as much, especially if your job is vulnerable or you work for commissions. Obviously, you can't build up a fund of such proportions overnight. But there are quick, if not altogether painless, ways to beef up. Begin with spending cuts that allow you to reroute cash outlays into savings. To control impulse spending, quit carrying your automated teller machine card. Instead, plan how much your family will need between paychecks and take that amount in cash on payday; then bank whatever is left over. To slam the brakes on credit- card outlays, put all but one of your cards in your safe-deposit box -- and leave the remaining card in a drawer at home. Get control of your debt. What may have been a comfortable level of debt during prosperous times could easily turn onerous during a recession. Reason: as earnings flatten and the cost of living continues to rise, essential outlays on such things as food and energy take up more of your budget, leaving less money for debt service. As a rule, your mortgage should eat up no more than 25% of your take-home pay and your total debt no more than 40%. If your salary will be at risk in a recession, however, reduce your debt as much as possible while you still have a steady income. Your priority should be to eliminate credit-card debt: with an average interest rate of 18.7%, credit cards are an outlandishly expensive way to borrow. For a quick psychological lift, target one or two cards with relatively smaller balances and pay them off in full first. If you are aren't at risk of suffering a loss of income, it may make sense to take out a home-equity loan to pay off high-interest consumer debt. Interest rates on home-equity loans are typically pegged 1.5 points or so above the prime rate, currently 10%. Also, unlike payments on consumer debt, interest on home-equity loans of up to $100,000 is fully tax deductible. But don't fall into a common trap. ''Many homeowners resume using their credit cards as soon as they become comfortable with the lower monthly payments on their home-equity loan,'' says Mary Merrill, a financial adviser in Madison, Wis. ''The result is higher overall debt.'' If you run into trouble and can't keep current on your debts, notify your creditors immediately. If you are behind on a home-equity loan, the lender may be willing to accept interest-only payments temporarily. If you need to cut a deal to reduce consumer-loan bills, turn to a nonprofit credit counseling . agency such as Consumer Credit Counseling Service (800-388-2227), which is funded by banks, finance companies and other businesses. The counselor's intercession signals the creditor that you are serious about eventually paying up.

Make the best of soft housing markets. Formerly booming markets such as San Francisco and Los Angeles have seen housing prices dip in the past year. Recession will only steepen the downward spiral. So if it makes sense to remodel rather than sell, do so. One bright side: once-overbooked remodeling contractors are likely to be available and price competitive, thanks to the slowdown in construction. Housing starts, for example, recently sank to an annualized rate of 1.14 million, the lowest since the recession of 1982. On the other hand, if you are a first-time buyer -- or if you're a trade-up buyer willing to take less to sell your old home -- you may be able to get more house for your money than at any time in nearly a decade. That's true not only because many areas are distinct buyers' markets these days, but also because adjustable-rate mortgages are likely to be particularly attractive. Reason: ARM rates are typically tied to yields on short-term securities; and during times of recession and international tension, investors often pile into these securities, holding rates steady or driving them down. Since the Gulf crisis, for example, introductory ARM rates have hovered around 8.2%, while 30-year fixed rates have jumped from 9.9% to 10.3%. One caveat: before you think about buying a house -- or any major purchase during a recession -- ask yourself these questions: Is my job secure? Do I have a six months' emergency fund? Can I afford the payments without sacrificing my long-term savings? And can I meet the payments without a raise? If you can answer yes to each, let the good times roll. Stand by your stocks and bonds. Forget apocalypse now. While the staggering economy virtually guarantees further market gyrations, this isn't the moment to liquidate your assets and pour everything into CDs and money-market funds. (Some newsletter editors disagree, however; see Wall Street on page 67.) Market timing is notoriously difficult even in placid times; now, with stocks and bonds bucking like skittish colts at every new development in the Middle East, timing is a prescription for mediocre returns and jangled nerves. A far better tactic is to arrange your investments so that every new crisis doesn't provoke a new headache. The basic strategy: diversification. Keep the money that you will need within five years where it is perfectly safe, such as in Treasury bills, CDs or money-market funds. Split longer-term dough about fifty-fifty between equities and fixed-income securities. Push the balance more toward stocks if you're young, enjoy secure employment or have a venturesome nature; beef up the fixed-income weighting if you're getting within five years of your goal or if you're just constitutionally risk-shy. As for any fresh dollars that you may have on hand for long-term investments, now is a good time to start cautiously looking for bargains. True, the looming recession may well drive the Dow 10% to 15% lower than its early September level of 2600 (see Money Forecast on page 19). But as Daniel Seiver, author of Outperforming Wall Street (Prentice-Hall, $19.95), warns, ''There's simply no way an investor can expect to catch the market bottom, so you should start buying as soon as you think stocks look cheap.'' Be selective and don't rush in all at once. Instead, invest in stages: commit equal dollar amounts every quarter, say -- but no more often than once a week or for every 50-point drop in the Dow. You might start by making sure you are diversified internationally. Jonathan Pond, editor of the Wiesenberger Mutual Funds Investment Report, recommends that 20% of the money you have earmarked for equities be invested abroad, where economic growth is expected to be brisker than here. Mutual funds offer American investors the most convenient access to foreign bourses, but Pond cautions against funds invested solely in a single country or region. His pick: well-diversified Fidelity Overseas (3% load; 800-544-8888; up 222% in the five years to Sept. 1). On the domestic front, Morton Silverman, portfolio strategist with Piper Jaffray & Hopwood in Minneapolis, suggests that stock pickers consider giant blue chips such as ConAgra (recently traded on the New York Stock Exchange at $33.25), McDonald's (NYSE, $26.75) and PepsiCo (NYSE, $24.50). ''Because these companies sell staples, all of them should be relatively insensitive to a slowing U.S. economy, and all have large or growing international businesses,'' he says. A similarly recession-resistant small growth company with expanding overseas sales is St. Jude Medical (recently traded over the counter at $30). To bolster the yield cushion in your portfolio, Silverman recommends solid utilities such as Iowa Resources (NYSE, $20.75; recently yielding 8.1%) and US West (NYSE, $34.25; 5.8%). Many economists expect that a recession would bring the yields on long-term bonds, lately around 9%, as low as 8% next year. That would give 20-year Treasuries a one-year total return of around 20%. In the short run, however, the threat of oil-price inflation could push rates up as high as 9.5%. Thus if you're not prepared to ride out a tailspin in long bonds, keep your maturities well under 10 years. Says Steven Enright, a financial planner in River Vale, N.J.: ''We don't have any clients out longer than six to eight years, and most are holding three- to five-year maturities.'' Your safest bets are Treasury notes, though if you prefer the convenience of a bond fund, Enright suggests Neuberger & Berman Limited Maturity (no load; 800-877-9700; average maturity: 2.6 years), which holds a mix of governments and high-grade corporates. If ever the temptation to hide out in money markets or CDs threatens to get the better of you in the months ahead, remember this: recessions and bear markets all end eventually, and the often dramatic rebounds usually begin when the news seems bleakest. James Stack, editor of InvesTech Market Analyst, points out that in all five economic downturns since 1960, the Dow began to recover anywhere from three to six months before the economy did. ''Investors who wait for economists to declare the official end of the recession,'' Stack warns, ''will be left in the dust by the next bull market.''