Should We Be Preparing for a Recession?
Should we be preparing for a recession? Based on recent posts, we know the answer. Last time we made some very basic suggestions for preparation that should apply to all of us. Just remember that these are basic not exhaustive. Each of us likely has individual considerations to take into account.
For example, if you've got a kids in school and are paying tuition, what's your back-up plan for paying tuition if you lose your job in a recession? In the last recession, unemployment peaked at 10% on October of 2009. That's a fairly large number, especially the way unemployment is counted in today's government statistics. We won't get into that whole controversy here, but suffice it to say the numbers are jury-rigged to some extent. Other sources put the actual number in the high teens, even low 20s. The main point here is that lots of people lost their jobs. If your Emergency Reserves are sufficient you've got little to worry about. But do sit down and calculate whether they are.
Do you support or are you responsible for helping others outside your immediate family? Maybe you're one of those parents who help their young adult children who've moved out, or - on the opposite end of the spectrum - assist an aging parent who's having trouble making ends meet. Again, put some thought into how you'll handle your commitments if your own source of income dries up suddenly. You might even consider having a talk with those towards whom you've been charitable, just so they're aware of your prudent consideration of possibilities. It couldn't hurt.
A few of us may have out of pocket medical expenses - for example needed drug prescriptions - that aren't covered or fully covered by insurance. If you or a loved one relies on medication, you should have a back-up plan here too. How will you obtain the necessary drugs if your income disappears? A simple online search yields a number of recommendations: talk to your doctor; shop around; ask for a discount; check with the manufacturer; Google "prescription discount cards." (In fact, why not do that now, and possibly save money right away!) There's also a site called NeedyMeds.org that might steer you in the right direction.
One exercise that I've found helpful and have recommended to others is to divide your expenses into at least two categories: Necessary and Discretionary. You're basically trying to distinguish between needs and wants. In fact, I suggest you do this whether or not you're concerned with a recession. It's simply good stewardship to know what you need vs. what you want.
Quick Examples:
Needs or Necessary Expenses: mortgage or rent, taxes, food (basic, healthy stuff, not Foie Gras or Flilet Mignon.), etc.
Wants or Discretionary: vacations, restaurants, new clothes, special entertainment, etc.
What goes in each category depends on your personal situation. I live pretty close to the vest: don't eat out much (I prefer home cooking 'cause it's the best for you), don't travel a lot, work out at home (hate gyms: dropped my last membership over 20 years ago). You'll find a lot of items don't slide easily into either category. In that case you've got to make decisions. I know a guy who lost his job, had very few reserves, but insisted his $20,000 country club membership was a "necessity." Go figure. (He had a rough time of it, including running up a tidy sum of debt.) On the other hand, in the last recession, a guy whose office was near mine, who lived on Park Avenue in Manhattan, told me he was wearing his dress shirts for two days so he could cut down on his dry cleaning bill!
All of these suggestions belong in the "basic" category - must do in anticipation of the coming recession. But consider them also "bonus" suggestions too: If you get cracking on them right away, they'll pay off no matter when the recession comes, how severe it might be, and how you fair. They're just simple ways to get control of your expenses. And controlling expenses is and will always be one of the fundamental pillars of good stewardship.
There's more to come, so do check in next time.
For example, if you've got a kids in school and are paying tuition, what's your back-up plan for paying tuition if you lose your job in a recession? In the last recession, unemployment peaked at 10% on October of 2009. That's a fairly large number, especially the way unemployment is counted in today's government statistics. We won't get into that whole controversy here, but suffice it to say the numbers are jury-rigged to some extent. Other sources put the actual number in the high teens, even low 20s. The main point here is that lots of people lost their jobs. If your Emergency Reserves are sufficient you've got little to worry about. But do sit down and calculate whether they are.
Do you support or are you responsible for helping others outside your immediate family? Maybe you're one of those parents who help their young adult children who've moved out, or - on the opposite end of the spectrum - assist an aging parent who's having trouble making ends meet. Again, put some thought into how you'll handle your commitments if your own source of income dries up suddenly. You might even consider having a talk with those towards whom you've been charitable, just so they're aware of your prudent consideration of possibilities. It couldn't hurt.
A few of us may have out of pocket medical expenses - for example needed drug prescriptions - that aren't covered or fully covered by insurance. If you or a loved one relies on medication, you should have a back-up plan here too. How will you obtain the necessary drugs if your income disappears? A simple online search yields a number of recommendations: talk to your doctor; shop around; ask for a discount; check with the manufacturer; Google "prescription discount cards." (In fact, why not do that now, and possibly save money right away!) There's also a site called NeedyMeds.org that might steer you in the right direction.
One exercise that I've found helpful and have recommended to others is to divide your expenses into at least two categories: Necessary and Discretionary. You're basically trying to distinguish between needs and wants. In fact, I suggest you do this whether or not you're concerned with a recession. It's simply good stewardship to know what you need vs. what you want.
Quick Examples:
Needs or Necessary Expenses: mortgage or rent, taxes, food (basic, healthy stuff, not Foie Gras or Flilet Mignon.), etc.
Wants or Discretionary: vacations, restaurants, new clothes, special entertainment, etc.
What goes in each category depends on your personal situation. I live pretty close to the vest: don't eat out much (I prefer home cooking 'cause it's the best for you), don't travel a lot, work out at home (hate gyms: dropped my last membership over 20 years ago). You'll find a lot of items don't slide easily into either category. In that case you've got to make decisions. I know a guy who lost his job, had very few reserves, but insisted his $20,000 country club membership was a "necessity." Go figure. (He had a rough time of it, including running up a tidy sum of debt.) On the other hand, in the last recession, a guy whose office was near mine, who lived on Park Avenue in Manhattan, told me he was wearing his dress shirts for two days so he could cut down on his dry cleaning bill!
All of these suggestions belong in the "basic" category - must do in anticipation of the coming recession. But consider them also "bonus" suggestions too: If you get cracking on them right away, they'll pay off no matter when the recession comes, how severe it might be, and how you fair. They're just simple ways to get control of your expenses. And controlling expenses is and will always be one of the fundamental pillars of good stewardship.
There's more to come, so do check in next time.
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