Frugal Kick

Five Frugal Tips for Surviving a Recession

It's pretty clear we're in a recession that's going to drag on longer than any of us originally expected, as I wrote about here and here. There's no time like the present to assess your current financial situation and prepare for the long, drawn out recession ahead. I don't think it'll get as bad as the Great Depression because of the safety nets put in place after that economic catastrophe, but the fact that our economic woes are spreading to other countries like a flu in winter is a sign that we're a long way from the road to recovery.

1. Cash is king. Strive to be cash-based and avoid using credit cards, taking out loans, or financing anything other than income-generating expenses like a college education or necessary and sound investments like a home that you will live in.
2. If you have no savings, make it a priority to start saving. The general rule of thumb is three months worth of expenses. But, honestly, if you're living paycheck to paycheck (or recently unemployed), winning the lottery seems more likely. So do what you can. Starting a savings plan is like starting an exercise regiment. It's painful at first, but becomes easier and even enjoyable once you develop the habit.
3. Scale back your expenses in meaningful ways. There are lots of frugal tips out there calculating how much you can save in a year by not getting your coffee at Starbucks, going to the library instead of buying books or magazines, and bringing lunch to work once a week. But when you're first getting started on being frugal, a meaningful cutback that results in noticeably more money in your pocket at the end of the month can be more motivating than an extra $100 bucks because you gave up your daily Starbucks. Plus one sizeable cut is less irritating than a small cut every single day.
4. Don't panic. Now is not the time to liquidate your investments or move your 401(k) money to cash and bonds. As long as you're not within a few years of retiring your portfolio should recover eventually (certainly well before you retire). You should also continue contributing to your 401(k) because with stock prices as low as they are right now, each dollar you contribute is going a lot further than it used to. It's always a good idea to evaluate your personal risk tolerance and investment goals and make sure your investments are in sync with your needs.
5. Keep spending modestly on the things you really need. In order for the economy to claw back to normalcy, we must keep the economy going by spending as needed. So while it's admirable and oh so frugal to grow your own vegetables in your yard, sensible spending is what our economy needs and what will enable all of us to survive the recession.

This list is just a start. How are you surviving this recession? Post a comment and I'll include your tip on the next list.

Your Bill for the $700 Billion Bailout

Some simple math for a complicated issue:

U.S. population is 300,000,000. The cost of the bailout is $700,000,000,000. Divide. Carry the one. Ta da! Your bill is $2,333, or $9,332 for every family of four.

I’m neither an economist nor politician, and don’t pretend to understand this $700 billion bailout. But that $700 billion has to come from somewhere to fund this plan.

Now that’s NOT frugal!

Are We Headed for Depression 2009?

Warren Buffett said in April that the recession will be "longer and deeper" than most people are expecting. With all the commotion on Wall Street last week, the forthcoming financial institution rescue plan, and little good news to speak of, it looks like he's right.

If my family and circle of friends and acquaintances are any indication, the economic troubles that started on Wall Street are careening down Main Street and crashing through front doors. My company is regularly laying off people, a close friend who is a dentist is seeing less patients, my husband is closing fewer sales and has fewer prospects, and an acquaintance who is a pastor is collecting fewer donations each week.

But are we headed for another Great Depression? At that time, unemployment levels were at 25% and being frugal was a way of life, not an option.

Know Where Your Money Goes

I've always vaguely known where our family wastes money. Up until a few weeks ago, we were eating out or ordering take-out five to seven days a week. For both lunch and dinner. This added up to a hefty bill each month, which I only fully realized when I started using Quicken Online.

I setup Quicken Online to automatically download all of our bank account and credit card transactions. At a single glance, I can see what we have spent our money on as of today for the past 30 or 60 days. I also setup budget goals that I track every other day or so. Quicken Online displays these goals in progress bar format and I print this out each week and post it on our refrigerator as a reminder of how we are doing.

Quicken Online is not a substitute for the full functionality of Quicken, but it really works for our family as a budgeting and daily money management tool.