Wednesday, January 23, 2008

Don't Panic...Yet

So everyone is panicked about a recession, or so it seems.  People are talking about pulling their money out of the stock market, cutting costs, and worrying about their jobs.

On some level, I'm relieved to see people cutting back.  Our current consumer economy is unsustainable from both an environmental and economic perspective.  As many have said before me, we were once citizens, we are now consumers.  Consumers, to me, sounds unpleasant in the way a swarm of locusts is unpleasant.  Whereas citizens - engaged, upright and thoughtful - is a term I can get behind.

But (you knew there was a but here, didn't you?) economic downturns have a negative impact on everyone, even the frugal wash-out-your-baggies types.  And while market corrections have their place, the fallout can be very personal.  It's hard to get behind an economic downturn as part of a necessary cycle when you are the one in the unemployment line.

And that very personal perspective is the one that I think are the most important.  Still, it's not time to panic just yet.  We are by no means in the Great Depression II yet.  We still have some positive opportunities financially, all of us.  

The first positive opportunity is in your IRAs and 401ks, and any other investments.  Prices are down, so you can buy more.  That means that if you get more shares now, when the prices go up, you do better.  That said, this is a good time to go to and check your portfolio.  If it needs a few changes, make them.  Then sit it out, especially if you have a lot of time before retirement.  

The second positive opportunity is that there is going to be much less pressure to spend.  Chances are, if you feel a pressure to decorate your house, or get a flat screen TV, whether that pressure is internal or external, you now have the perfect excuse not to buy.  Ride out the economic uncertainty by putting off non-necessary spending for a bit.  I promise you'll live, and you might even be happier.

The third positive opportunity is to pay down your debt.  Especially if you are one of the ones without job security.  Chip away at it, don't add to it.  The smaller your debts, the less you have to fear.  So if you are afraid for your job, save some, yes - I hope you've been saving all along, but really focus on owing as little as you can to as few people or institutions as you can.  It will be a huge relief if the axe falls on your career for a bit to know you can stay afloat on unemployment.

The fourth positive opportunity is that mortgage rates are down.  That means if you want to buy a house, it's a really good time for you.  And if rates are a percentage point or more less than when you bought, consider refinancing.  Even with the fees, it may be worth your while.  Crunch some numbers and see.

The fifth and final opportunity I see is to take some time to find inexpensive or free things to do with your time.  Maybe that's taking walks on the weekends with your spouse, or cuddling up in front of the TV for the evening instead of the movies.   Maybe it's training for a 5k, or simply finishing that quilt you started eleventy-seven years ago.  Do all those things that you talked about doing, the ones that don't involve being first in line for a first run movie.  

Sure, the economy is not doing well.  And yes, you may have some things to worry about.  But see the opportunities through the negative press, and not only will you possibly be wealthier, but happier as well.  

Now, aren't you thrilled Apple stock is more affordable?  



Amanda said...

But in times of recession, cash is always king. Some might argue that now is not the time to pay down stable debt at fixed rates - for example, a student loan, car note or mortgage.

Another reason to maybe not necessarily pay down low interest debt is inflation. If inflation is at 5%, why would one want to pay down a debt that is at 2.9%?

Ms.Moneypenny said...

I think the smaller your outgo on a monthly basis, the lower your risk. So if your car is paid off, and you lose your job, it isn't getting repossessed.

If you owe nothing on the credit cards, you don't have to make a choice between paying the monthly minimum and say, filling your car with gas.

And so on.

I don't think there's a valid argument for 'good debt'. There isn't any. There's just 'less bad debt'.

Ms.Moneypenny said...

Oh,and as to inflation.....again, if you need extra money to pay for the basics, why have some of that money out on things you've already bought?

Inflation is unavoidable. It's a constant.

But it really comes down to this, in my opinion: If you are at risk of a job loss, you want to lower your overhead. Even stable, fixed debt is still a risk.

The less you pay out, the more cash you have.

Now there are good risks: going back to school to increase your eventual income, etc.

But it is looking as though we are heading into a Black Swan-type recession, the kind that lasts longer and hits harder than most would prefer. And for that type of prolonged economic downturn, I think that little debt, lower overhead is a good approach.

You also want to save, as you say, but those two things are not incompatible, it doesn't have to be one or the other.

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