Personal Finance

Building the Right Habits

After the almost 400-point market drop on Friday and a 5.5% unemployment announcement, does anyone still think that we’ll be out of this economic trough by the end of the year? I know I don’t.

The expectations (or hopes and dreams) of Wall Street and some economists see us digging out in time for Christmas. Call me a Negative Nancy (I say, Realistic Rita) but I don’t think we’ve seen the end of the bad-debt aftershocks. Add to that gas, groceries and just plain everything costing so much these days, and where-oh-where will the money come from if not more plastic? Certainly not shrinking wages and unemployment.

Getting real about what’s in front of our face isn’t depressing or a call to panic—it’s useful. Positive forecasts are one thing, but seeing half the homes on your street for sale—for months—or paying almost $500 a month for gas, is another. Let that immediate, anecdotal, reality serve as a pair of gravity boots. While some are banking on a booming-again market, you can stay grounded and concentrate on a mindset that protects what you have, teaches you lessons from what’s happening, and makes sure that you’re that much less likely to get pulled down by the next bubble-bust.

Times like these can be full of opportunity: The opportunity to set us up for the best financial habits ever, for the rest of our lives. What seem like survival moves—you’ve rebalanced your household budget so you have more room to pay off debt, cut down spending on nonessentials, or have made a drastic change like downsizing your home to get your monthly housing expenses (rent or mortgage plus taxes, insurance and maintenance) to no more than 30% of your take-home pay—are also money moves that set you up to thrive so you’ll have room to breathe and money to lean on in the next downturn. And the one after that. And the one after that.

Since this recession thing might be around for a while, what adaptations have you made, and plan to keep, beyond these demanding days?

Spend less than you make. Save money and pay yourself first. Have debt on items that increase in value - not things that decrease in value like autos and clothes.  --Bob, NC

Posted on: 10 Jun 2008 12:09 P.M.

My husband and I learned our lessons from the dot-com disaster of 2000. Our motto is: never again! Never again debt. Debt is the real killer.

We downsized our home in 2001 from 9 rooms to a 4 room custom built modular home for cash. No mortgage. That was rule number one! We then got rid of all credit card debt and car loans. No debt is rule number two. We then became self-employed, only work 2-3 days a week, earn around $50k a year and live within those means. That was rule number three. We pay cash for everything. We have only the basics (like TV and phone service). There are no frills. We save up for everything. Three years ago we went to Paris for a week. One year ago we went to Italy for 2 weeks. Life can be done well without credit.

Despite the falling economy right now, we feel no pain. We drive 2 fuel efficient vehicles (We learned that from Paris) prepare our own delicious, gourmet meals (we learned that from Italy) and we live within our means. We learned that from all of Europe. We are as self-sufficient as possible.

My heart goes out to people suffering today. Perhaps they will learn their lessons. We did.

Carrying any form of debt is the culprit. Living within your means will set you free and enable you to meet all of the worlds challenges. Good luck.  --Cinzea, NY

Posted on: 10 Jun 2008 10:22 A.M.

What am I doing to cope? Living the way I always have. I've always lived in positive cash flow. Never bought new cars. Pay off the CC every month (yes CC is singular not plural).

Debt is slavery. Other ways I am coping:
Fleeing dollar-denominated everything. Shorting U.S. banks.  --Stonewall, VA

Posted on: 10 Jun 2008 6:45 A.M.

For me, recession gives investment opportunities. Buy low during recession, sell high when everything is fine, keep the cash for myself and wait for the next recession. It takes time, but hey, you get paid for waiting right? :)  --Sheikh, Malaysia

Posted on: 09 Jun 2008 10:46 P.M.

My father taught me the priorities in life that are getting me through this just fine:
1. Put a roof over your head.
2. Food on the table.
3. Clothes on your back.
4. Get reliable transportation to work.
5. Tithe to yourself.
6. Don't ever pay interest (except for a car and house).

You, too, will be fine.  --Dee Dee, AZ

Posted on: 09 Jun 2008 6:48 P.M.