Wednesday, June 30, 2010

11 Ways to Prepare for Double Dip Recession

Reposted from US News:

The insurance company Aflac didn't lose money during the recession, and it managed to pare costs without any layoffs. But it did institute a hiring freeze, which could stay in effect until the economy looks a lot stronger than it does right now. Many of Aflac's customers are small businesses like construction firms and car dealerships, and until they see a big pickup in business and start hiring themselves, Aflac's own sales won't increase enough to justify more hiring. "For us to see a pickup in new sales, somebody else needs to start it first," says Aflac CEO Dan Amos. "Jobs are going to be very slow in coming back."

In the aftermath of the Great Recession, that seems to be the whole problem: Everybody's waiting for somebody else to kick-start a robust recovery. Consumers typically get the ball rolling as they boost spending on homes, cars, appliances, and other purchases that they put off during the downturn. But millions of consumers remain out of work or dogged by too much debt. Companies would start hiring again if they felt economic activity was heating up, but CEOs like Amos have their doubts. The weak hiring then creates a circular effect, reinforcing consumers' reluctance to spend.
If consumers and businesses don't get traction soon, there could even be another recession. The dreaded "double-dip" scenario seems unlikely: Moody's, for example, says there's just a 23 percent chance that the U.S. economy will be in a recession six months from now. But other forecasts are gloomier, and there's plenty of economic trouble to worry about. Europe seems much more prone to a double-dip, thanks to debt problems in Greece, Spain, Italy, and other countries, and any pain there could hurt here, too. In the United States, meanwhile, the housing bust refuses to end, government stimulus spending will soon peter out, and a mushrooming federal debt is spooking investors. If the American economy is ready to stand on its own, it's sure taking its time getting up off the floor.

It would probably take a major financial shock—like a debt default in one or more European countries—to trigger a double-dip, which would be characterized by a pullback in bank lending (again), fresh corporate layoffs, panicky stock markets, and plunging consumer confidence. There's not much ordinary consumers can do to prevent that, but they can take steps to safeguard their finances and improve their options if the economy gets worse instead of better. Here are 11 ways to prepare for a double-dip:
Save more. It might sound obvious, yet Americans aren't doing it. During the worst days of the recession, Americans boosted their savings to about 5 percent of their disposable income, as they built (or rebuilt) nest eggs and rainy-day funds. But the savings rate has now fallen to 3.4 percent, and that's not high enough. Economists believe the savings rate needs to be somewhere between 6 and 10 percent, for several years, for the nation to rebuild all the wealth lost in the housing and stock market busts. That might sound high, but the historical average after World War II was about 12 percent. Few households today can match that.

Make backup plans. Yeah, it's tiresome to keep asking what could go wrong. But don't assume that just because the recession is technically over, you're out of the woods. Employers still might be inclined to cut pay, reduce hours, and trim their staffs, and some companies remain at risk of going belly up. So make contingency plans for what you would do if you lost 20 percent of your income, or 50 percent. What would you give up? How would you cut expenses? Are there any drastic changes you'd be able to make to get by on a lot less?

Stay liquid. Your rainy-day fund won't do much good if you can't tap into it, or if you'll lose money by being forced to sell stocks or other investments. With interest rates on the safest investments extremely low, it's tempting to invest cash someplace where it will earn a higher return. But make sure you retain a cushion in case something goes wrong.

Get smarter. Once employers do start to hire again, they're going to be extremely selective since they've got a huge pool to choose from. The best way to distinguish yourself is through education and training that's superior to those you're competing against for jobs. Additional degrees, courses, and training certificates are one obvious differentiator, but you don't need to spend a fortune to gain an edge. Employers will also be impressed if you can grasp technology that befuddles others or show deep knowledge of the issues facing your industry. Just showing up and asking for a job won't cut it any more, especially if the economy takes another downward turn.

Start something on the side. You might prefer to relax in front of the TV at night, but that's not much of a backup plan. Instead, you might do freelance or consulting work, start an eBay business, or build a Web site showcasing your skills and accomplishments. That way, if you unexpectedly lose your day job, you'll have a little something to fall back on. You might even earn some extra income or make connections that open new doors. By the way, insisting that you're not the entrepreneurial type is no longer an excuse: A huge range of services on the Web, many of them free, make it easier than ever to set up shop on your own.

Wait. You might be dying to replace your aging car or upgrade to a more comfortable home. But put it off a little longer if you can. Money spent on a home or car is hard to tap into if you suddenly need it, and higher monthly payments could become a noose on your finances if money gets tight. This might require unusual discipline since it's a great time to buy a home, car, or other big-ticket item. Interest rates on loans are near historic lows, and with buyers scarce, prices are down. The good news is that a weak economy will probably depress prices for a while. Interest rates are harder to predict, but many economists now expect the Federal Reserve to wait until mid-2011 to raise its own short-term rates, which often reflect the rates on consumer loans. So there's a good chance it will still be a buyer's market a year from now—when the outlook for the economy might be clearer.

Resist the lure of cheap energy. Oil prices have been falling lately, along with the price of gasoline, heating fuel, and other types of energy. But don't get used to it. Energy prices are depressed largely because the global economy is weak, but there's a good chance they'll go back up whenever the economy strengthens and demand for energy increases. So if you do buy a new car, home, or anything else that consumes energy, factor in fuel prices closer to 2008 levels—when gas hit $4 a gallon—than today's prices.

Postpone retirement. You might be able to retire on schedule, but if you're banking on the current value of your home or investment portfolio, run the numbers and ask if you could still afford retirement if the value of your assets fell by 20 percent or so. That probably won't happen, but working another few years and adding to your nest egg can't hurt. Take consolation in the fact that many of your fellow Americans will end up doing the same thing—partly because they can't afford to retire, and partly because official retirement ages are likely to go up.

Downsize. If you're planning any big changes, think small. If you have to move for a job, for instance, you might be able to move into a new home with one less bedroom or a smaller kitchen than you're used to, while lowering your mortgage payment and energy usage. Buy a four-cylinder car instead of a six-cylinder; your 0-to-60 time doesn't matter as much as it used to. If you run your own business, ask your landlord for a rent reduction, look for cheaper space, or see if it's possible to set up your office in the basement of your home. Space is cheap for the moment. Take advantage of it.

Stop speculating. If you guessed right and put money into the stock market during the low points of 2009, congratulations: You caught an epic wave that led stocks up by more than 80 percent between March 2009 and April 2010. But that rocket ride was based on the expectation that a recovery was coming and that stocks had been heavily oversold, assumptions that are suspect today. It's impossible to predict whether stocks will go up or down, but it does seem clear that the conditions that produced a bull market a year ago no longer exist. And those nagging debt problems in Europe could trigger a panic with little warning. So if you're playing the market today, be prepared to lose what you gamble.

Don't count on the government. Washington rode to the rescue in 2008 and 2009, with bailouts, stimulus spending, and vast economic subsidies that kept the recession from being a lot worse. But there's a limit to the levers Washington can pull, especially as the federal debt mushrooms and legislators get nervous about deficit spending. And many strapped state and local governments are now being forced to cut services and raise taxes. That means there will be a lot less help from the government to jolt a weak economy in the future, which could affect anybody who's gotten tax breaks, extended unemployment insurance, a stimulus-supported job, or other government aid. Sooner or later, the U.S. economy needs to function without a government crutch, and that moment could arrive sooner than we want it to. So get used to it: You're on your own.

Saturday, April 24, 2010

Reduce Paper Products!

Paper products are not only bad for the environment but are also costly. We started reducing our use of paper items and I was SHOCKED at how much money we saved. So here are a few suggestions for getting started:
  • Don't use paper towels to dry dishes, hands, counters etc. Buy a few dish towels and dish rags. I have found that investing in quality ones makes all the difference. Williams-Sonoma makes the best and they last FOREVER. They are highly absorbent and wash up well.
  • Use real plates instead of paper plates. While you're at it use real silverware and cups too.
  • Use cloth napkins instead of paper ones. They have the added bonus of looking prettier too.
  • Bring a ceramic mug to work and rinse it out rather than using paper cups for coffee or tea.
  • If you bring a reusable coffee cup to Starbucks they subtract ten cents from your bill (of course you save a bundle making your own coffee at home).
  • Use old t-shirts not suitible for donating to make rags. I use these to clean the bathroom, scrub the floors, wash windows etc. I wash them and reuse them until they fall apart.
  • Get a microfiber duster that you can use and then wash. We have a Oxo Good Grips Double Duster and I love it. Old socks work well too.
  • Use flannel fabric to make hankies instead of buying Kleenexes. They are easier on your nose. 
  • Use cloth diapers instead of disposable diapers. The average baby will use 3,796 diapers (source: National Geographic's "Human Footprint.") That's a lot of diapers taking up space in a landfill. Using a wet washcloths instead of wipes when possible also helps reduce waste.
I haven't completely eliminated paper products from our home. I'm not quite ready to get rid of toilet paper! I also keep a roll of paper towels in the kitchen to clean up Daisy's occasional messes. But cutting back has really saved us a lot of money and has reduced our trash production significantly. Putting the occasional dish towel in with our laundry costs us nothing extra but really makes a difference over time.

Thursday, April 15, 2010

Refrigerator Maintenance Can Save You Money!

Refrigerators are certainly not the most exciting things to write about but they are one of the appliances that use the most energy in our homes.  In 2001, U.S. households on average consumed 1,462 kWh for refrigeration (source). A small amount of maintenance can payoff big time!

One the most important things you can do to help your refrigerator run more efficiently is to vacuum the coils. They are usually located either on the bottom front of your machine or on older models on the back. The coils are like magnets for pet hair and dust. The debris makes your refrigerator work harder to keep your food cool. This costs you more money on your electric bill and wastes fossil fuels thus hurting the environment. I use the hose on my vacuum to suck up the hairy mess. My Dyson vacuum makes this an oddly satisfying task since I can see all of the gross debris in the cylinder! It's also neat to see how much colder your fridge is ten minutes after you clean the coils. I had to turn the temperature up on ours after I cleaned it the first time because all of our produce froze!

Another thing you can do is make sure that you keep your temperatures set correctly. The refrigerator should be set between 38 and 41 degrees F and the freezer should be set between 0 and 5 degrees. You should also try to keep your freezer full since the frozen food will keep things cooler. If you don't have an over packed freezer like I do you can fill bottles with tap water and keep them in the freezer. The frozen water will keep your freezer cooler.

Using an incandescent light bulb in your freezer is also a bad idea. A lot of people switch their regular bulbs in their homes to compact fluorescent or LEDs and forget about the refrigerator. Incandescent bulbs generate light through heat which will heat your refrigerator and make it work harder to cool after having it open. You can switch to an LED or just not use a bulb at all in your refrigerator. Personally, we just never bothered to replace ours when it went out and truth be told we don't miss it at all!

Finally, avoid using the top of your refrigerator as storage ( I'm still working on this). The stuff on top of your refrigerator will block airflow especially if you have a cabinet over it and air flow is necessary to make your compressor efficient.

Wednesday, April 14, 2010

The Frugal Bible

Anyone who is new to frugal living and doesn't know where to start needs to pick up a copy of The Complete Tightwad Gazette by Amy Dacyczyn. It is FULL of great ideas, recipes, and tips. Amy's writing style is lighthearted and her title of the "frugal zealot" is well-deserved. Although some of her ideas are a little extreme, it is easy to pick out the ideas that appeal to you. I love the way she makes use of things that might otherwise be thrown away thus saving money and helping you be "green." This is a must read for anyone looking to live a more frugal lifestyle.


Welcome to my blog! I will discuss ways to live frugally while still enjoying a simple and green lifestyle. I look forward to helping others find joy in simple living and frugality.