Clampdown
Last week was an interesting time to be on vacation. Right before I left, the US financial system was on its knees. Since then, things haven't really improved.
I don't have a lot of confidence in this bailout idea. I don't know who came up with the $700 billion price tag attached to it, but I don't think anyone has any the faintest idea how much it's actually going to cost or how that money will actually be spent. While I'm all in favor of clapping heavy executive salary caps on the leaders of companies that need to be bailed out, the securitized assets that have powered Wall Street in recent years are so complex that very few people understand what they are or how to unwind them, and that makes it extremely difficult to establish underlying value. That's extremely disconcerting because underlying asset value is the core behind the bailout plan. In addition, the fact that the Federal Government is now taking an outright ownership stake in public companies is mind-boggling. (Does anyone want to privatize Social Security now?)
So, what does that mean for regular people?
My own personal action plan can be summed up under the general heading of don't do anything rash. Breaking it down a little farther, here's what it looks like:
Job
As long as I still have a job, this isn't the time to be making any major changes. On the contrary, it's increasingly important to do my job well and circle the wagons even more within my team: if we don't all look good, none of us look good. As a manager, I need to make sure my team buys into that concept lock, stock, and barrel.
This isn't the time for anyone to ask for a raise either, by the way.
Debt
This is also not the time to be in debt of any kind, so I need to make doubly sure I stay debt-free. I try not to throw out too much generalized advice at anyone who happens to be reading both because it's probably irritating, and because people's circumstances are so very different anyway. With the current structural problems in the economy and their significant impact on the job market, however, I would strongly suggest that it's in just about everyone's best interest to bring overall personal debt down.
Health
Among other things, staying debt free means staying healthy. I jacked up my back on vacation, so I have to take care of it over the next couple of weeks and let it genuinely heal instead of just carrying on as usual and potentially compounding it, which is what I did last time I hurt it like this. It also means finally getting rid of the last of the extra few pounds I'm carrying around, bringing down my cholesterol (which notched 200 for the first time a couple of weeks ago), and getting enough sleep on a regular basis.
Spending
Manage my money in a turbulent period also means postponing or eliminating discretionary expenses. I had a great time buying almonds and hair conditioner at Costco last week, along with buying a few badly needed long-sleeved shirts for work and replacing all of my manky running clothes with deeply discounted new stuff, but I'm done now. I wouldn't say I'm going into black-belt frugal overdrive just yet, but figuring out creative ways not to spend money is certainly looking increasingly worthwhile.
I have an out of town weekend coming up and I'm not going to cancel it because I've already budgeted the money, but I think that's the last one for a while. (Visiting my mom, however, is non-negotiable.)
Giving
I have been quietly donating money to a couple of different causes since I paid my mortgage off. I don't plan to stop, but I think the need to fund food pantries is becoming increasingly urgent. As a result, I'm starting to buy food for donation when I happen upon (increasingly rare) bargains.
Saving
I'm still socking away money in my 401(k) and my cash-based emergency fund, and I'm aiming to reach my target figure by the end of the year. The rest of my cash donations for this year are on hold until I get within spitting distance of my target. Hopefully, investing will look a little less murky at that point and I can redirect investment money in January. The logic I'm using behind my emergency fund is that I should assume that it takes at least one month per $10,000 of income to find a job comparable to the one I have now, so I need to be able to cover expenses for at least that many months of unemployment. I'm getting there, but it's not a done deal yet.
Despite the dire outlook for the economy and the precautions that I'm taking (along with the vast majority of middle-class Americans, I suspect), I don't think the sky is really falling. On the contrary, I think that while most of us have a tough road ahead for the next few years (and for some people, that's going to include genuine suffering), for many people this is an opportunity to walk away en masse from the spendspendspend consumeristic madness into which much of the contemporary culture has devolved.
We may not be able to do much about the three-ring circus in Washington, but we can and do all make choices in our own lives that will impact our future financial health.
What are you going to choose?
6 retorts. What say you?
$700 billion is roughly twice the current defaults on non FNM FRE mortgages. That's how I've seen it explained.
Great post, FZ. I love this blog, and totally agree with your latest post. The current financial situation is leading so many people (including myself) back to the frugal ways that should have been embraced all along. Only a short time ago, I visited Starbucks every morning on the way to work, bought clothes whenever I felt like it, ate lunch out, and got the occasional pedicure. Looking back, I'm astounded at just how frivolous I was, and how entitled I felt to have these things. I now understand that we are not entitled to anything - we are so lucky to have our basic needs met, food on the table, clothes on our backs. It was a wake-up call for me. Now I drink coffee at work for free, go home for lunch every day, an plan to ask for a few (deeply discounted) items of clothing for Christmas. I feel so much better, and genuinely grateful when my husband and I make the rare trip to Starbucks as a treat.
We turn up the A/C during the day, steam our own clothes to cut down on dry-cleaning costs, still have our old cars, computers, and cell phones (with no plans to upgrade anytime soon), live modestly in rural Florida. We will not have kids until the debt is paid off, also. We're making conscious decisions to live frugally, and feel great about it.
Right on the money, although I think the problem may be a little worse than many think. If only America did not have that humongous national debt! That in itself is causing a lack of confidence and leads to panic. On the other hand, we are entering a period where cash is king and good hard assets will be selling at deep discounts. Not an opportunity anyone should lose sight of, if you can take advantage of it.
Moom - Thank you! That helps.
catherine - Aww, that gave me the warm fuzzies. Tell me, what was your wake-up call that made you decide to change your life?
gord - You are right, the mind-blowing national debt greatly exacerbates the problem. I think we're going to see the stock market dip well below 10,000 before the end of the year. It'll be a great buying opportunity, if anyone has any money left!
In the meantime, everyone, hold onto your butts.
For me, the wake-up call was the layoffs in my area increasing in frequency, and living in a more rural, significantly less image-conscious area than before. This helped me realize what mattered, as well as what didn't matter.
Catherine - That's an inspiring and very interesting path to change; thanks for answering. Would you be interested in doing a written interview (no full names) to talk about it in more detail? My email is frugal.zeitgeist (at) blogspot (dot) com. No pressure, just if you're interested in sharing more.
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