I’ve Paid For This Twice Already…

Archive for the ‘down economy’ Category

Every day it seems there is some headline telling me that the economic world is coming to an end.  I am no economist, so I honestly have no idea what the signs are for a true economic crisis.  But I do know that I feel unsettled and nervous about what is going on.  Although some prices seem to keep rising (like items at the grocery store) others seem to now be falling (like gasoline) and I’m not really sure what that means.  Milk seems at least a nickel more expensive every week I shop, while gasoline was over $4.00 a gallon only a few months ago here and now is coming ever closer to dipping to the $2.00 a gallon price point.

So I’m not sure what to think.  The stock market fluctuates wildly,  the words “recession” and “depression” are everywhere, and although our specific and personal economic position continues to improve due to paying down debt, I’m increasingly unsettled about what the state of the nation might do to our position.  We haven’t been personally affected by the credit crunch, just rising prices, and our exposure to the stock market is limited to our retirement funds which I try to ignore right now as much as possible.   But I know there is a distinct possibility we’ll feel real effects of a recession or depression or whatever this is.  I’m just not sure when or how.

I’ve started to have a noticeable reaction to the economic news.  The long and the short of it is that I’ve gone back to my packrat mentality and have started stockpiling items in case they get much more expensive in the near future.   I’m doing it smarter now than in the past, for I’ve put more time and effort into educating myself about what a good price is, how to match coupons and sales and get good deals, and the cyclical nature of sales at the grocery store.  So I’ve been able to stockpile items at rock-bottom prices and I don’t feel like I’ve gone crazy spending money to save money.  But I am stockpiling, and that in itself is starting to make me a little edgy.  Why is it so important to me to have two more boxes of Raisin Bran in the cupboard just in case?  Why do I get all excited when I can get toothpaste free?

This is apparently my reaction to the idea of a recession.  I hoard stuff so that if prices skyrocket, I am already covered.  But my extreme personality has taken that to an extreme as well.  I think it is time for me to start living off what I have and stop stockpiling so much stuff.  I think I might need to stockpile some money instead.

Are you reacting to the idea of a recession?  Has your financial behavior changed?

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Here in the US, things aren’t necessarily looking so hot.  I don’t know if recession is the word, or if the powers that be actually acknowledge that things, economy wise, aren’t doing so great, but in my little corner of the world, it is basically a given.  Ask a friend, ask a neighbor, and most likely they’ll say that things cost more and their dollar doesn’t go as far as it used to.  I haven’t collected quantitative evidence but it sure feels like the economy is in a downturn from here.

How things are now are giving me flashbacks to another economic downturn that directly affected my family - the so-called “dot com bust”.  Around that time, the company my spouse then worked for went through a huge downturn and ended up laying off almost all of its employees.  My spouse was one of them.  It didn’t come without warning, his losing his job, but we were naive and didn’t read the signs.  We were completely unprepared for my spouse to be out of work, and that period of time put us in an economic tailspin of our own that took a long time to recover from.  So now, I’m starting to become mentally and financially prepared for the worst, so to speak.  There aren’t any signs of my spouse losing his job - in fact he’s in a much better position now with more seniority and job security than he’s ever been in - but you never know what might happen.

So I’ve started to seriously consider what our bare bones budget is, what we absolutely have to pay for, what we want to keep but isn’t essential for survival, and what we would like to keep but can go if need be.  I’m doing this to determine the very lowest bottom line that we can get by on if we had to.  This isn’t an exercise on how to reduce our fixed expenses (although that is a future step to consider) but just to understand what those fixed expenses and necessary variable expenses add up to.  It is easy to say “sell your car” or “sell your house”, but when disaster in the form of a job loss or other large financial change occurs, it isn’t always possible to lower those fixed expenses immediately.   Especially in a down economy.  Understanding what your current bottom line bare bones budget is is the start to preparing to avoid a financial disaster.

I split up our expenses into three categories - essential, needed, and wanted.  Essential are things we can’t go without, such as shelter and food.  Of course, we could do things to reduce those expenses, but that’s for another post.  Needed are things like our newly purchased disability insurance.  We need these things, but if it is choice between that and eating, eating wins.  And then come the wants.  For example, my kids are starting a session of tumbling in September.  They can live without it, but I want them to have the experience.  But if our situation drastically changed, they wouldn’t be tumbling.  Here is what I came up with for my essentials list (per month) :

• Housing:  $950
• Groceries:  $300
• Gasoline:  $100
• Utilities:  $200 (gas, water, and electric)
• Diapers:  $30
• Medicine:  $30
• Car insurance:  $80
• Phone:  $10
• Minimum debt payments:  $610.40

Kind of depressing that the second biggest thing is minimum debt payments, but, we are working hard to correct that.  But that’s where it stands now.  So I came up with our bare bones budget as $2310.40.  Which seemed higher than I expected, given our actual monthly budget (before extra debt payments) is only slightly above $3000, but I guess we don’t budget a lot for extras after all.  There are many other things I consider important that I didn’t list here - this is the very bare bones that for the short term, we could get by on.  And of course, there are always the inevitable emergencies.  This is the short term, first line of defense preparedness concept.

After our non-mortgage debt is paid off, that drops down to $1700 a month, which I like better. 

So now, I know where we stand.  If we can’t bring in at least $2310 - we need to have some kind of fallback plan.  Which leads us to the emergency fund…

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