Are we in a recession? Headed for a depression? Well, if you listen to all the financial gurus, the answer seems to be yes and yes. But before you panic and hide under the bed, remember that its not so much the actual economic downturn that frightens you - its how that downturn will affect you personally.

So, what to do?

Here’s five ways to help you recession-proof your life and keep going even when the going gets tough:

Build (or Grow) Your Emergency Fund
If you haven’t already established an emergency fund, do it now. If you have, add to it as often as you can. As the economy spirals downward, we’re going to see more layoffs and higher prices until the Feds finally decide that “yep, we’re in a recession” and slow down inflation. Until then, things could get tight (okay, tighter) so you need to know you’ve got something to fall back on in case of an emergency. And that’s just what an emergency fund does.

Generally speaking, a solid emergency fund should have at least 6 months of salary (in a high-interest savings account of course) - 12 months if you can manage it, but by all means don’t stop there. Save as much as you can while the money is still flowing in and then don’t touch it unless you absolutely have to.

Eliminate Debt
This probably goes without saying but the more you can reduce your debt, the better off you’re going to be when you need to tighten your money belt. Paying even just $10 extra dollars a month to that credit card bill can start to make a big difference in the amount of interest you’ll pay over time and should you suffer some financial difficulties in the future, your balances won’t be quite as difficult to deal with.

Diversify
I wrote about this concept once before but I’m mentioning it again here because its just so darn important. Putting all your financial eggs into one basket is nothing less than shooting yourself in the foot. If that basket goes belly up, you’re in big trouble and you certainly don’t want to be job-hunting during a recession, now do you?

The solution? Diversify. Figure out how you can make some extra cash doing different things in different industries. Maybe you can sell some stuff on eBay, open a CafePress shop and set up a blog and earn income off of affiliate programs and adsense. Sell Pampered Chef or Tupperware, e-books online and moonlight through freelance services such as Elance and Guru.

The point is, if one industry or income stream runs dry, you’ve always got several others that can pick up the slack. You’ll also discover that this kind of diversification allows you to expand your skillset - something you’ll be glad you did if you’re suddenly forced to look elsewhere for work.

Cut Your Expenses
Don’t wait for the bottom to fall out before you start cutting back on expenses. Its simply too much stress to deal with at one time. Instead, start cutting back now, finding more frugal ways to live. You’ll find that the adjustments you make are easier to deal with when you do them gradually.

What can you cut? Eating out, gym memberships, magazines, movies and the like. Make a list before you go the grocery store and stick to it religiously. Buy generic brands when you can (they’re often cheaper than name-brand counterparts) and buy non-perishable items such as toilet paper and paper towels in bulk.

Don’t Panic
It may seem like the world is just crashing around you but you will bounce back. Seriously… you will. So don’t panic. You can’t stop a recession from coming but you can choose how you will respond. Dig in your heels and remind yourself that everything comes in cycles. Just as things are getting bad, they’ll also begin to get good again.

And a bonus tip:

Hold On to Your Retirement
Don’t cash in your 401(k) as a short-term fix - you’ll end up paying almost a 3rd in taxes and penalties to our beloved government and then what will you do? That nice little retirement fund will be gone and you’ll be starting from scratch.

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