Fiscal Cliff 2013: 5 Ways You Can Prepare for the Worst

If you're like me, you'd like nothing more than to never hear the term "fiscal cliff" again. It's been beaten to death in the media, and that's unlikely to change before the end of the year. Will Congress reach a deal? Will we as a country take the plunge? The answers to those questions may become clearer in the coming weeks. But until then, there are steps you can take to personally prepare for a pending disaster.

1. Get on a Budget

If we go over the fiscal cliff, significant tax hikes will result; the average American can look forward to an additional $2,000 in taxes, according to the Tax Policy Center. To mitigate the effect, get yourself on a budget asap. Use an online tool like Mint to streamline the process, but be thorough in itemizing your income and all of your spending in order to know where you stand and where you can cut back.

2. Pay Down Credit Card Debt

The average American carries roughly $7,000 in credit card debt. But paying down that debt is only half the battle. The other half is changing your behavior in order not to rack up additional debt. Before you make any purchase, ask yourself if you can afford to pay it off by the end of the month. If not, don't make the purchase. Complement this approach with your own austerity measures for a few months or a year - reduce your TV package, reduce electricity and water use, and look for ways to save on all other monthly bills. Then, redirect the surplus toward your debt.

3. Reduce Personal Expenses

Every time you reach for your wallet or purse, ask yourself one basic question - do I really need this? Small purchases, such as coffee or a snack, add up quickly and may set you back hundreds or upwards of a thousand dollars on an annual basis. This habit will serve you well if penny-pinching becomes an even greater necessity going forward.

4. Create an Emergency Fund

An emergency fund creates a cushion so you can better bear the brunt of financial blows, such as job loss, an extended illness, or a major car repair. Aim to save at least six months' worth of living expenses - more if you live in a single-earner household or have a fluctuating income. If we go over the cliff, the unemployment rate is likely to increase as well.

Final Thoughts

Currently bandied about in Washington is the idea that the Bush-era tax cuts will remain in place for the middle-class, but not for the wealthy. While this may ease some woes, it also may not be sufficient to entirely avert the disaster. Plus, when it comes down to it, you can't rely on the federal government to take care of your personal finances. In other words, avert your own financial disaster by implementing these and other tips to bullet-proof your finances.

Do you think the country will go over the fiscal cliff? What steps can you suggest to minimize the impact?

David Bakke is a financial contributor for Money Crashers, an online resource that shares tips and insights related to money management, economy policy, and investing topics.