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Tuesday, September 30, 2008

Frugal economy. . . .

The more I read about our collapsing economy (I'm an internet news addict, these days), the more I thank my lucky stars that I began paying off debt and saving money almost 12 months ago. One of my bank accounts (no longer used for anything other than ATM withdrawals) is at Washington Mutual, which, as I'm sure you've heard, 'failed', was taken over by the government, and is subsequently being sold to J.P. Morgan Chase. Incidentally, I heard this news late last week; by today, my ING Account showed not 'WAMU' as a linked account, but in fact 'J.P. Morgan'! They certainly didn't waste any time!

Last week (or, geez, was it only a few days ago?), I wrote about my upcoming lump sum payment for a retroactive pay increase. I intend to send this money to my credit card, paying off about $1,000 in debt in one fell swoop! I also contemplated using some of my emergency fund (of which I have $1,600) to pay off the rest of my credit balance. Several commenters thought I should keep the emergency fund as it is, 'just in case'.

I'm definitely leaning in that direction, folks, not only because of the points my commenters brought up, but also because of this financial article, reminding readers what to do in an economy like ours. Basically, the author suggests that we should act as if we were preparing to lose our jobs! In short, this means:

  • Decreasing contributions to a 401(k) or 403(b). I already did this last spring, when I became determined to pad my emergency fund (something the author recommends) and pay down my credit when a labor strike seemed imminent.
  • Eliminate unnecessary payroll deductions. The author uses charitable donations as an example, which seems sad. However, I suppose in the long run a strategy like this would work better for charities anyway; keeping oneself healthy financially in the short term would allow one to increase donations in the future.
  • Reduce income tax withholdings. Or, put another way, decrease the money that you'll receive as a refund later and increase take-home pay now.
  • If you're still brave enough to be investing in the stock market, diversify. Personally, I don't have the stomach to even look at my tax deferred investment account, let alone play with the contributions.
  • Pay off any 401(k) loans. Hopefully none of us have taken a loan on our retirement!
  • Research life and health insurance options, in the event of a layoff. Find out how long you're covered and for how much; if you're lucky enough to have a spouse or partner who has coverage, consider switching to their plan.
So there you have it. Luckily, I'm already doing all of these things and more, although I'm still nervous, of course. My job is secure---for now. But it's nice to have even a smallish emergency fund to back me up in the event of a financial meltdown.

In other news, Dave Ramsey's coming to town on November 1st, and I can't decide if I want to shell out the $36 it would cost to see him in person. I know it would be a great motivator and reminder---Dave's book, The Total Money Makeover, is one of the first financial books I read that catapulted me into my frugal lifestyle. I'll have to see how much money is left in my checking account after I've sent my mega-payment to the credit card company later this week!


marci357 said...

I'm ignoring the news entirely these days, and with no TV, it's pretty easy :) I don't need to be worrying over things I have absolutely no control over.

I'd vote for keeping your emergency fund also - just in case. Otherwise you'll have a clean credit card, but no cash available "just in case" and stuff will/might go back on the card.

I was surprised that one of the suggestions was to decrease contributions to the 401K... I am doing just the opposite. I don't want to lose an opportunity to add to my retirement, beef it up, and like the thought that whatever I put in there will compound interest and all that good stuff - mine's in real conservative stuff.

And I've thought about what happens if I lose my job... the biggie is losing health insurance, but I can pick up the cobra payments on that if need be, and in 5 months I'll be eligible for early PERS retirement, if needed. Actually, I think, except for the health insurance part, that I'm ok if I do lose the job - but being debt free makes one feel that way. You'll get there :)

My line of work is in recycling and also buying scrap ... so I think my job will be one of the last to go, as it tends to pick up when times get bad.

And if I run out of work, then I can just spend more time with the grandkids and the garden - and catch some of those Friday garage sales :)

About Ramsey - I understand the draw... but also think about the costs associated with getting to and from the arena, and will you be able to resist buying what he is selling - ie, books or tapes. Would you be as well off just getting more of his books/tapes out of the library? Only you can make that call :) Just cuz he talks about frugal does not mean going to see him is frugal :)

Finally Frugal said...

I, too, have been wondering if (once my credit card is paid off) I should up my 403(k) contributions even higher than the 10% of my salary I was doing, even if just temporarily. Especially now, when I may get more for my money, with all the "bargains" out there. Something to think about!

I'm going to decide about Dave Ramsey when I've paid my October bills, and I can see what I'll have left in the coffers----I won't buy anything from him at the conference, because I do LOVE my library card and use it frequently.

marci357 said...

If you do go see Ramsey - ENJOY! and take notes! :)

And about my library card ... it has more of the green color missing than on the card anymore - I am there 2-3 times a week inside, and several mornings a week in the drop off box lane :) Luckily, for me it is only a couple blocks away :) Walking distance actually!

LiveWellSimply said...

When I look at the current financial crisis, all I can say is, "I'm glad I'm young". The folks who didn't move their retirement portfolio's into FDIC insured investments are the one's to be pitied right now as their retirements melt away and many return to the workforce at 65 or 70 years of age.

Anonymous said...

UWF mike-
I dont these idea are really thought out. because the economy is suffering right now, people are going the drastic route. people need to take a step back and see what is going to be best for the future. decreasing your 401k sounds good now but when you retire you are going to regret that you didnt put as much money in there as you could.

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