Nov 21, 2008

More Advice to the Downwardly Mobile: Recession Preparations

The grim financial news this week should be enough to convince even the optimistic people that we are headed into a significant period of economic retraction. Moreover, an increasing number of analysts are projecting that the decline might spiral into a financial cataclysm on the order of the Great Depression.

Or worse.

Prudent folks keep at least one eye open to such possibilities, and this post is another in a series of articles on financial advice for the downwardly mobile geared toward those who wish to avoid serious financial pain in the next few years. Taking steps now to prepare for the worst might make the difference between survival and ruin as we look ahead to what portends to be a bleak 2009.

1. Conserve your cash. You need to build the largest possible hoard of cash to get through unforeseen circumstances, up to and including extended periods of unemployment. Just because you feel secure in your job does not mean that your cash-strapped employer would keep you on during a financial collapse. Assume that you might face a year or two of unemployment, and save like it is your full-time job. Now.

2. Clip coupons and watch for deals on groceries and necessities. Fortunately for consumers, the grocers are feeling the pinch, and there has been an increase in loss-leading marketing. Do not spend even a nickel more than you must for basic commodities, and get your children involved in cutting coupons for you (my wife has long exploited the labor of our children for this chore).

3. When possible, repair rather than replace. Yes, some appliance and auto repair specialists can be expensive, but consider that the cost of repairing a big-ticket item might extend its lifespan to the point where the repair cost pays for itself several times.

4. Barter for services. In your network of friends and relatives there are quite a few talented people in a wide variety of fields. Perhaps you could babysit for the auto mechanic who puts a water pump in your car, or you might tutor a friend's child in exchange for haircuts for the family. Get creative, and start looking around now for people with whom you can negotiate mutually beneficial exchanges.

5. Start planning a garden for 2009. If you are new to growing your own food, keep it simple: a half-dozen tomato plants, some lettuce, a dozen pepper plants, and some low maintenance herbs. While gardens can be labor-intensive, the initial investment in seeds and sprouts can yield produce many times its value. Besides, a fresh-picked tomato simply tastes better than anything you purchase in a supermarket.

6. Get health and dental checkups now. Yes, your crappy HMO is about as useful as a snooze button on a smoke alarm, but ANY coverage is better than none. If you lose your job, your insurance will run out, and those teeth cleanings and annual physicals can be quite expensive.

7. Make sensible insurance decisions. If your car is paid off, get rid of collision insurance. Go with the highest deductibles you can stomach, which will lower your premiums, and get rid of extras like roadside assistance, rental car coverage, and towing. Decide on liability limits that fit your income and wealth scenario: a person making $25K a year has no business with a policy offering $1 million in protection, while someone making $100K a year would be poorly protected with an auto policy providing only state minimums.

8. Cut frivolous expenses. Do you really NEED to spend $100 per month on pilates, diet pills,
and jazzercise? Does that health club membership provide you any more exercise than you could get in your own backyard? Does Junior actually like tae kwan do, and shouldn't you be cutting your own grass instead of using a service? If you look closely at your budget, you can probably find $100-$200 per month in unnecessary expenditures, which is money that could be going into the bank.


dr-exmedic said...

and get rid of extras like roadside assistance, rental car coverage, and towing.
While you should probably consider this, you need to look at your policy. My roadside assistance is only $5 per 6 months, and the last lockout I had to pay for was $75--which means I'd need to use roadside assistance less than once every 7 years for this to work out. This is particularly critical for the sort of person who doesn't know how to change their own tires.

Similarly, the rental car coverage. I forget how much mine is, but the last time I had a car getting collision damage fixed, it was out of service for a month. If you can do without for a month, great (and I happened to have a spare car at the time). But even renting Budget's cheapest car ($160 weekly rate, x4 weeks=$640) for a month could break the bank if you aren't prepared.

steve said...

I sort of saw this whole thing coming when oil spiked the first time after 9/11 and I read about the peak oil concept, so the only adjustment I figured that I could make considering I have no savings or investments, other than my house, was to begin training for a high demand career. So I started at Owens in the nursing program back in 2005. I'm now at mercy and have just another year or 2 to go. It's a job that I could walk into any city and get hired, after passing whichever state competency exam of course. I'm still optimistic, I think we have an extremely interventionist government, something that was lacking during the Hoover administration - He just sort of let the economy wilt and die a prolonged death. I think the Obama admin will try just about anything. I guess that's the difference between then and now - interventionist government and a more closely knit world.

Randy said...

To chime in on car insurance--A few months ago, I tried shopping around for a lower premium. One agent quoted me a figure that was about what I am paying now for my (higher than the minimum limits) coverage. I asked him about the premium for lower limits of coverage, and he told me it would be higher. The agent was confused by this, too, and speculated that the underwriters must think that people with lower coverage just don't care, and are therefore more apt to be in an accident.

I don't know if this is a universal practice, but you shouldn't assume that lower coverage will automatically mean a lower premium.

On collision coverage--I wouldn't drop it completely, since this could (depending on your state) be the only way to get coverage for glass. Glass repairs are expensive, and it isn't hard to be in a position where you need them. I can drive with a couple of dents, but I don't like driving with a cracked windshield. Raise the deductible sky-high, but think twice before you drop collision coverage.

Mad Jack said...

On amassing cash:
Don't eat out. Brown bag your lunch and stay away from the vending machine.
Do not spend money on entertainment items.
Buy used items when ever possible. Visit garage sales, auctions and estate sales. I actually furnished my entire living room for less than $50 by purchasing all my furniture at an estate sale.

And the number one rule for amassing case: Eliminate credit card debt.

microdot said...

I am the king of CHEEP...
well honed reflexes trained by a lifetime of miserliness.
It's amazing how much food you can put into a big freezer if you organize it.
We make our own yoghurt, preserves and dog food.
I buy croquets, but the mainstay is cheap broken rice and veggie scraps and meat "on sale" in the markets.
There are entire phases of personal electronic technology that have entirely passed me by.
I still think that cd's are "new
I have been secretly turning my American dollars into Euros now that the exchange rate has come way down.
I know this is temporary..,so I am taking advantage of it.