October Financial Fitness Challenge--Get Ready for Recession Redux/ October 3rd, 2011
It's possible that only ice cream fans and George Costanza think a double dip is a good idea. When you hear the term lately, it refers to the possibility that we're entering—or are already in—round two of the Great Recession. And there's no question that the recovery has been less than robust. Economists define a double dip as GDP (gross domestic product) growth going negative after only a few quarters of positive growth following a recession. And it's unfortunate that even the fear of such a dreaded slide can become a self-fulfilling prophecy, as consumers and businesses rein in their spending because of their anxiety about the economy. Some observers think we're already at that stage or heading for it; so far, they are in the minority. And those of us who don't study economics that closely really don't care what the experts think. We're showing signs—in weak consumer confidence numbers and parallel slow spending—that we're playing it safe. And that of course is slowing the recovery that began, technically, in June 2009. So are we or aren't we? It doesn't much matter. What matters is how you manage your finances to help you through the next several months.
Size up your situationMany consumers have made big changes since the original recession began in December 2007. We paid off debt, saved more money, and added new debt more slowly. Examine the progress you've made. Are you better able to face a double dip, or in worse shape than before the initial recession?
- How much do you owe? What kind of debt do you have? A home loan, even a car loan or student loan is OK, as long as you're current on them and able to stay current going forward. Ideally, you have no credit card debt or significantly less than you did a few years ago.
- Are your savings in good shape? How many months' expenses could you cover from your liquid savings and, if necessary, from your credit cards and lines of credit?
If you have strong credit, healthy savings, and secure income, go ahead and stimulate the economy.Be aware that your lines of credit could shrivel at any time if lenders decide you can't support those limits anymore. A line of credit is better than nothing, but don't count on it to see you through a long rough patch.
- Are you relevant in your job? If you've kept your job so far, or found a new job after being laid off, this is no time to be a back bencher. Keep your skills sharp and be an active networker, inside and outside your organization.
Make course correctionIf you're one of the fortunate few with strong credit, healthy short- and long-term savings, and secure income, go ahead and stimulate the economy. You and others like you will end up pulling us out of these tough times...eventually. But if your financial position is not as solid as you'd like, redouble your efforts to stabilize. Again, it really doesn't matter if the economy dips or climbs in coming months. Your strategy either way is to put yourself and your family in the strongest possible position. Here are some tactics to consider:
- Refinance. If you're eligible, meaning your credit score is solid and your income can support new borrowing, talk to the people at your credit union about refinancing high-interest home or auto loans. This can reduce your debt and increase your cash flow at the same time.
- Swap high-interest credit cards for a better credit union card. If you don't already have a credit union credit card, you might be pleasantly surprised to learn that credit unions offer cards at an average two to two and a half percentage point advantage over other issuers.
Don't pay too much attention to financial news. You can't change it, and tracking it can make you ill with worry.
- Trim expenses. OK, I can hear you protesting: "I already cut my spending as much as I can!" Congratulations. Now take another sharp look and see if there still are things you can cut out or cut back. Remember—the goal is to enjoy as much flexibility as possible in your budget. You always can choose to spend more once you achieve the kind of financial freedom that flexibility provides.
- Postpone big purchases. Unless your car is costing more than it's worth in frequent repairs, keep driving it. If the washer and dryer do their jobs, keep using them. If you already have an iPad, do you really have to have the newest release?
- Save more. The longstanding advice to have a minimum of three to six months of expenses expanded in recent years; many advisers recommend you shoot for keeping eight months' worth of expenses in an accessible account. This will take time to accumulate so don't get too freaked about the size of the goal.
Financial Fitness ChallengeYou already have the perfect partner for achieving financial success. The people at your credit union are serious about helping you achieve and maintain financial health. They bring you this website and other tools to help you make the most of your financial resources. The Financial Fitness Challenge continues to look at ways you can make better financial habits no matter what condition the economy is in. Each month we randomly select five winners to receive $50 Visa gift cards; we choose each month's winners only from that month's entries, so enter often. Remember to register for the Financial Fitness Challenge. ST
Susan Tiffany, CCUFC