I came across a Reuter's article today that explains what deflation is and why people fear it. Like most popular journalism, it's a little scant on some of the details (there's no single agreed-upon definition or indicator of deflation), and it beefs up the FUD.

The discussion about deflation is important, because I think that how you look at deflation may well be key to surviving financially over the next few years. There are basically two ways to look at it.

1. As a horrendous, spiraling disaster that leads to massive unemployment and decline in gross domestic product (this is how the above article positions it), or
2. As an opportunity to take advantage of lower prices on goods and services that otherwise would be rather expensive.

Don't worry; be smart

If you have a stable job with a steady income and spend less than you earn, deflation is probably a great economic environment for you for a few reasons.

1. Cheaper prices means that you will be saving even more than you already do. There will likely be more sales, higher-value coupons and overall better deals available. But you have to watch out for them – just like inflation takes many forms (smaller containers for the same price, fewer sales, etc.), it might not be easy to spot deflated prices quite so easy. You might also be able to find better prices on services like insurance, etc.

2. Easier to pay debt down because you have more money (i.e., are spending less on things you normally buy). This is counterintuitive to what is mentioned in the article above, which says that debt is more expensive – in aggregate. On an individual basis, however, as long as you are not incurring new debt and are able to save by spending less on purchases, then you have more money to put toward paying off your loans and credit cards. On the other hand, if you don't have loans and credit cards, then now certainly is not the time to get them.

3. Stronger emergency fund gives you the ability to weather bad times with less stress. Since prices are going down, you will automatically have more buying power in your emergency fund than you did before. This makes having an emergency fund even more valuable than during an inflationary period.

4. Career development is never more important, and potentially more profitable, than when your company may be looking to cut back on costs. If you are an indispensable member of the team, make it known now. Don't worry about job descriptions or even bonuses and merit increases – that can come later, when your company is on better financial footing. Be content knowing that a lot of people are losing their jobs now, but that yours is safe so long as you put some effort into it. Managers will be less likely to fire someone who is clearly adding value to the company, rather than someone who whines about doing things that they weren't hired to do or someone who gripes about not getting a raise when almost nobody is getting a raise these days.

There are probably other potential benefits. Of course, there are risks to deflationary times as well – like the potential for 25% unemployment, or the chance that your company will be one of few that goes bankrupt, and no matter how good an employee you are, you'll find yourself out of a job. But why worry about those things when you can't really control them? Focus on the things you can control – like spending, saving and job performance – so that when the storm is over you're ready to bloom.