by Gene Walden

With the economy slipping into a recession, many Americans have suddenly seen their earnings decline due to slower sales, salary cuts or layoffs. With less money coming in, you could face some tough choices on how to spend the money you have available. But what exactly should you cut out of your budget, and what should you continue to pay for with those shrinking dollars?

If you are still working but fear that you may lose your job or face a salary cut in the near future, then you should take some steps right now. The first step, if possible, is to set up a home equity line of credit. With a line of credit, you do not pay any points, and you won’t owe any interest if you don’t borrow from the account. However, if you lose your job, you’ll have a line of credit to fall back on if your savings start to dwindle. You might also want to get an extra credit card as an emergency financial backup.

What should you cut? Obviously, you should put off big-ticket purchases, such as a new car, big-screen TV, appliances and clothing. If you were planning a family vacation, you should probably cancel that, if possible, and perhaps schedule a trip closer to home or visit a relative where you can stay with them and try to avoid the normal expenses of a typical vacation.

If you have kids in college, you might see if they can qualify for a better student loan package or borrow more money at a favorable rate, so that you will have less to pay now to keep them in school.

However, there are certain expenses you need to continue to cover even with dwindling resources. Continue to pay your basic bills, such as mortgage, utilities and car payments. Moreover, you certainly need to continue to put food on the table, but you should probably cut back on dining out, particularly at expensive restaurants.

While you may be tempted to discontinue paying your health and life insurance, that is something you should avoid if possible. A serious medical problem that lands you or a family member in the hospital could put you thousands of dollars in debt if you have no insurance to cover the costs. Life insurance is also essential if you are the primary breadwinner of the family. You do not want to leave your loved ones behind with insufficient resources to cover their bills.

If you use up your savings and other resources while you are finding a new job, you may be tempted to tap into your IRA, but that should be a last resort. That money is earmarked for your retirement, and you may have to pay income taxes on the taxable portion of your withdrawal as well as a 10 percent penalty — unless you’re over 59½ or meet requirements for one of several other exceptions to the penalty.

Finally, don’t go it alone. Talk to your financial advisor to tap into any ideas or resources they may have to help you make it through this difficult time.