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.
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.