Words like “recession,” “crisis” and “collapse” are running rampant through the news. But by my own financial forecast, things are looking up.
In addition to providing a much-needed wake-up call — hello, overspent Americans! — the bumpy economy is leading many of us to develop financial muscles we didn’t know we had.
Take Jennifer Vos, who says the economy, along with her decision to join the Women in Red a year ago, has helped her and her husband to make the tough choices necessary to get their financial lives in balance.
They run a home-building company in Oregon and saw the effect of the real-estate implosion firsthand, Vos says. With the numbers on the wall, she and her husband decided it was time to scale way back.
“Basically, we just downsized,” she says, describing how they sold a truck, a trailer and a piece of investment property and used the money to shed $102,000 worth of debt.
Not only that, but they have managed to save about $22,000 in personal and retirement accounts this past year, Vos says.
“The economy may be worse than it was in 2007, but I feel very confident that we are living smarter and happier than a year ago,” she says.
A life you can afford
Other people are scaling back by looking to the past. One member of the Women in Red says she finds herself taking the attitudes of older generations that didn’t grow up with our easy access to credit and expectations of instant gratification.
“I think those folks might’ve had it right,” poster “CapnG30″ wrote on the Women in Red message board. “Today, people are really evaluating whether we need all this ‘stuff.’”
Suzanna De Baca, the president of Private Capital Solutions Group, a financial advisory firm in Des Moines, Iowa, is seeing it, too. De Baca, whose clients range from middle-class to downright rich, says she is finding people “at all levels taking stock of their budgets.”
Part of that process is adjusting expectations.
“Before, when people had money, they spent it, and they didn’t really know where it went. But look what’s happening to Starbucks,” De Baca says, referring to the wave of nationwide store closings. “People are taking steps to cut out the frivolities.
“The fact that Wal-Mart had record earnings tells me that people are pre-emptively changing their habits.”
Our grandparents would roll their eyes at the idea that living within your means might require people to make radical lifestyle changes. Maybe we’re lucky: We’re getting a little fear in our hearts and changing our ways without having to face a real depression.
I’ve noticed that even people who don’t need to worry are cutting back. A close friend, who is financially prudent and makes a six-figure salary, admitted she is hand-washing rather than dry-cleaning as often, cooking more of her meals and scaling back on treats like pedicures. She even wondered aloud to me whether she should be saving more than she is.
It’s interesting. On paper, my friend is saving plenty and doesn’t need to be economizing. But the current climate has made her realize that a life of little luxuries may not be smart, especially when her good fortune would allow her to save more and still have splurges.
No dishwasher? No problem
The financial anxiety in the air has me hunkering down, too.
In May, I joined the Women in Red Racers, the group of women “racing” online to vanquish their debt once and for all. My debt was about $6,400 then, and now it’s down to a sweet $3,400 — light at the end of the tunnel.
But my reason for joining the Racers wasn’t just to get out of debt. It was to free a monthly chunk of cash so my husband and I could nail a bigger goal: total financial security.
With the economy in a swivet, reaching that stability has become paramount for both of us. Like many of the Women in Red, I’ve been worried about layoffs and job changes.
It has taken me more than a year to save close to a month’s worth of living expenses in my emergency fund — about $5,000 — and once our debt is gone, we plan to triple that amount in the next 12 months.
And, I find, I’m no longer willing to mortgage the future just to keep up appearances, or even conveniences, in the present. I’m turning to good, old-fashioned cash, which means (gasp) a little bit of sacrifice.
In the past couple of months, our dishwasher died, and our oven stopped working, and now the refrigerator is on its last legs. Just a year or two ago, it would have seemed unthinkable to live without basic appliances for a week, let alone for months.
But this is the new normal: We’re doing dishes by hand and living without an oven until we get the cash to buy what we need. And by using cash, we plan to bargain like heck for whatever we buy.
Yes, it has been a tad embarrassing to host visitors, who this summer loaded our broken dishwasher or suggested baking cookies. But once we explained our situation, people just went with the flow.
Financial honesty may be the best way to combat these anxious times. I almost feel that my husband and I are doing a public service by explaining, to almost anyone who passes through our kitchen, that we’ll upgrade our appliances when we have the actual money to do so.
Been there, borrowed that
I know not everyone is at that point.
The news has been peppered with stories of people tapping their 401(k) plans for desperately needed cash. According to Merrill Lynch, such “hardship” withdrawals are up 23% over the past year in the plans it oversees.
Worse, I know families that can’t pay their bills, are overextended or are wading through the swamp of unemployment. Yet they buy a new patio set or throw a big birthday party for their kids — all of it on credit.
I think it’s time to say: Been there, borrowed that, time for a smarter strategy.
My advice to anyone feeling desperate or in denial:
Open up. Plenty of people are hurting right now, and I have had some of the most bank-statement-baring conversations of my life these past few months. Vent to friends, swap advice, and don’t hesitate to spell out where you’re at or ask a direct question: “Our home-equity line of credit is this much. How do you manage your line of credit?”
If you feel that most people you know wouldn’t be simpatico to your financial woes, join the Women in Red message board. We love to talk about money. We’re your friends.
Keep up the basics. Glancing at your 401(k) statement might give you vertigo (did it really drop that much?), but keep your retirement contributions steady.
“One of the potential upsides I’m seeing is that the allocations in my 401(k) are going further,” says Women in Red member Melissa Dawson, an executive assistant at a medical-technology company in Lowell, Mass. “I can buy more per dollar than I could a year ago, and when the market turns around — as it historically always has — I will be in a much better position.”
There are similar gains to be had if you stick to your debt-repayment plan and pad your emergency account. When the economy turns around, you’ll be soooo glad you didn’t let yourself fall behind.
Turn angst into action. Constant uncertainty over the cost of living might make you feel powerless over your money. Turn panic to your advantage.
This is the time to get your house in order: Do you have enough life insurance? Did the bank stop charging mortgage insurance when it was supposed to? Look for ways to trim your spending.
If you’re truly drowning, see “Where to turn when you’re desperate.”
A silver lining or 2
Above all, remember that financial sanity is a gift that keeps on giving. Don’t underestimate the emotional gains it brings, says Women in Red member Lauren Gray.
“I’ve seen the impact that struggling financially has had on the rest of my life,” she says. “It has caused me to struggle physically, mentally and emotionally. It has affected my relationships with my boyfriend, my friends, my parents.”
Gray says that despite job changes, two moves and assorted other financial chaos that she and her boyfriend have faced in this economy, they are enjoying a silver lining or two.
They forced themselves to get serious about debt and pay off $6,000 this year. “In that time I have learned more about money, personal finances and my relationships with others than I could have ever imagined,” she says.
Me, I’m going to stop fretting about interest rates and oil prices. Life is good when you realize that even a down economy has its upside.
Article by MP Dunleavey, MSN Money, Original article here