Recession-Proof Living: Seven Steps to Protect Your Future
By Ellie Kay
Summer 2008
My husband Bob and I were walking our mini-schnauzers one morning when our high-maintenance neighbor (who reminds me of Elphaba, the lead in the play, Wicked) came out of her house to get in her car. The dogs barked at her, she spilled her java and proceeded to inform us that if our dogs barked at her again, she would sue us. She added in a scary, wicked-witch voice, “and your little dogs, too!”
But fate has a way of intervening in the lives of people and puppies. The rumblings of a possible recession made short work of the green lady dressed in black. Her adjustable rate mortgage skyrocketed and she had to move. Unfortunately, she isn't the only one – homes are being foreclosed in unprecedented numbers across the country.
Consumer confidence is on a downward spiral, wage gains are failing to keep pace with inflation, and the stock market looks wobbly. All this has some economic forecasters predicting the dreaded “R” word: recession.
If most military families aren't concerned about losing their home in a recession, they should be concerned about rising costs, the ability to put their kids through college or even the freedom to go on vacation. But there are answers for those who are willing to do something about it. Here are seven smart tips to help you beware and prepare:
1. Be diligent: Strengthen your credit. Now is the time to improve your FICO, the credit score that can determine your auto insurance premiums, whether you will get the job or promotion you want (employers often check FICO scores) and whether you will pay a security deposit for utilities. If you downsize a home or vehicle in a recession, you will need to maintain an excellent FICO to get the best rates. Three ways to help improve your FICO score: pay your bills a day early (rather than a day late) by setting up your payments online; pay down your debt more quickly by paying more than the minimum balance each month; and make sure you don’t charge more than 50 percent of your available credit on any one card (for example, $3,000 charged on a card with a $6,000 limit).
2. Be smart: Save money. I get loads of e-mails every week from military families cutting hundreds of dollars from their budget by saving on everything from insurance to groceries. Implement these savings now to pay down debt, build short-term savings and create the discipline you need to prepare for a recession.
3. Be a cheapskate, at least for a while. Do what many businesses do when a recession hits: Circle the wagons and cut costs. Spend only on essentials. Cut the gym membership you don’t need, the video-rental club and the daily grande iced white chocolate mocha with whipped cream.
4. Be cautious about refinancing to pay debt. As things begin to get tight, you might be tempted to get a home equity line of credit or refinance in order to pay consumer debt. It’s a bad idea because it will deteriorate the equity in your home, and chances are you will return to that boatload of debt by this time next year. The better option is to cut costs, maintain a budget and go to your base financial counselor.
5. Be a “B”-word person. If you don't have the “B” word – budgeting – as part of your lifestyle, then yesterday was the day to start. Set up a budget with online budgeting tools such as those found at http://moneycentral.msn.com or http://crown.org.
6. Be flexible: Recalculate your GPS (gross personal savings). When my husband takes a wrong turn, our GPS (whom we've named Bitty) says “recalculating, recalculating.” You need to build your savings and pay down debt, but you should also recalculate your budget to accommodate the act of writing a check to pay debt or to fund your savings account.
7. Be a planner with a purpose. Whenever a “theory” is tested, it must stand up to a “proof” in order to be established as true. You can set up your well-intentioned plan, but if you are carrying consumer debt and nevertheless slap down the credit card to pay for a 40-percent-off Marc Jacobs suit or use a re-enlistment bonus to buy a fancy new car – which will instantly depreciate at least $5,000 when you drive it off the lot – then your plan is only a theory.
In the midst of change and challenges, it is important to remember to follow the sound advice you find in places such as Military Money to move ahead of your high-maintenance neighbors. Once you hold to the plan, you will find that the proof is in your new purpose to live without worries about a possible recession.
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Ellie Kay is an author, radio/TV commentator and motivational speaker at military events. Her newest book is “A Tip a Day with Ellie Kay: Twelve Months’ Worth of Money Savings Ideas” (Moody Press, 2008). She is the wife of an Air Force pilot and mother of seven children. To receive Ellie’s free newsletter, browse money-saving tips or invite her to speak at your military base, visit www.elliekay.com.
