When the economy is growing and consumer confidence is high, it is common not to think twice about saving money and reducing expenses. If you are saving money every paycheck, investing in a 401(k) or other accounts for retirement, and spending less than you are earning there isn’t much motivation to reduce your expenses further.

I have experienced this first hand. As my personal economy improved through earning more money than I was accustomed to, I allowed my expenses to increase. For example, I moved into a more comfortable (and more expensive) apartment.

It’s hard to find a news story today that doesn’t comment on the current economic decline in the United States. Companies across all industries are not profiting. Many are declaring bankruptcy or laying off employees. With unemployment rising and the country in recession, there is less available spending money in the hands of consumers. Less spending leads to lower profitability again, and the cycle is complete.

Those who have lost jobs in this economy have found it tough to find new jobs at their old salary levels, and many have not found new jobs at all. I would hope that while the economy was prosperous, many families worked to form an emergency fund, but I recognize that many other families did not. For some, the loss of income will thrust a family into an emergency mode in which debt will escalate or savings will be depleted.

In this emergency mode, families and individuals should consider some tactics which may have seemed unnecessary, and in some people’s opinions, cheap, during happier economic times. Reality strikes hard, and desperate circumstances call for desperate measures.

Here are some tips for scrimping and saving through a recession.

1. Keep track of your spending. There is little you can do to cut back your spending if you are not sure how much money is going out the door. When you know that you’re spending less than you earn, you may feel the urge to not worry about every single dollar that escapes your wallet. I use Intuit Quicken but there are other options for tracking your money. Once you know how much you are spending, you can make intelligent decisions about where you can cut back.

2. Reduce your ECRD factor. You may have heard of the Latte Factor™. This infamous concept suggests you stop spending $5.50 on gourmet coffee every morning and replace this expense with a $1.50 basic cup. Saving $4 each workday translates to a savings of $1,000 per year. I’ve written this concept off in the past as a way to focus on small change while ignoring the bigger picture, like making sound decisions about buying real estate, cars, and education.

But your Expensive Coffee-Related Drink (ECRD) is not meant to be taken literally; it may not be a latte for you. The ECRD factor is any recurring expense that can be reduced. Yes, look at your morning drink habit, but also look at your smoking habit, your cable bill, your tendency to dine out, and your choices in the grocery store. Generic brands and store brands for certain products can be good substitutions.

Without much effort, I saved $360 a year by optimizing my cell phone plan and have the same service.

3. Revisit your budget. For those who don’t have a budget, this suggestion should be “Visit your budget.” When your spending is naturally well below your income and you’ve been saving comfortably, budgets are less important. I’ve never been a fan of budgets in the first place, but I’ve used them at certain times in my life when my financial situation warranted. In an economic recession, a budget will help you stay on track. This is something you can control, and managing what is within your control is more worthwhile than worrying about things you can’t control, such as the financial health of the large corporation that employs you.

If you’ve tracked your spending, and cut back on a few reducible expenses, consider formalizing your budget by writing down what you expect to spend each month in certain categories. Here are my thoughts about budgeting and an example budget I established for 2008.

As you budget, consider some of the tenets of frugal living. Use filtered tap water rather than buying water bottles. Use vinegar mixtures for house cleaning rather than buying chemicals. Cook your own food rather than dining out. Don’t drive a car as often as you do. Want to go farther? Eliminate an extra telephone plan. Downsize your car or truck. Downsize your house.

Prevent the need for panic next time

“An ounce of prevention is worth a pound of cure,” according to Benjamin Franklin. Alternatively, “The best defense is a good offense.” Whatever your adage, take advantage of the more fruitful economic times. When you are fully employed and have excess income, this is an opportunity to shore up your emergency fund, pay off debt faster, and invest for the future. Historically, economies tend to operate in cycles, oscillating between periods of exuberance and recession. Level out the volatility by planning for the downs during the ups and refraining from getting carried away in bubbles.

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