How to Handle a Recession

Are we in a recession? Considering everything that has been in the news lately, one can say with confidence we are indeed in a recession.

Not too long ago Nouriel Roubini, a financial expert, predicted that only two major banks would be left after the housing crisis and the economy returned to normal. It was a prophetic prediction.

What does this recession mean for you and me? It means we have to tighten our bootstraps (if we haven’t already) and begin planning for any eventuality.

While economists comment that the last two recessions lasted for eight months respectively, it is no comfort to learn that the housing crisis has not yet reached bottom and more and more companies are closing down leaving thousands of people unemployed.

Wages have decreased, more families are in debt than ever before, health-care costs continue to rise, and our grocery bills have eaten into our household budgets significantly.

In order to alleviate the burden of all these factors, the best advice economists can offer is to take a fiscally conservative stance on our spending habits. Here are some additional suggestions:

* Stick to a monthly budget

* Refrain from buying expensive items on credit

* Set up a fund for emergencies (at least two months' income)

* Try to add the maximum amount allowed to your pension/retirement fund

* Stay healthy with a proper diet and exercise program (This is a preventative measure that will reduce the cost of prescription drugs and other health-related costs)

* Pay down debts

* Purchase with cash

* Buy groceries in bulk utilizing coupons whenever you can

* If you have teenage children who are receiving an allowance, determine if they can apply for a part-time job after school

* Increase your deductibles on car and homeowner’s insurance

* Keep your automobile well-maintained

* Winterize your home and use energy-efficient appliances and light bulbs

* Walk whenever possible instead of driving to a local store

Anything you can do to reduce the amount of expenditures can only help you through this economic downturn. In the meantime, stay calm, focus on your budget, and save as much as you can.

What Is a Recession?

Image by publik18 via FlickrIn its simplest terms, a recession occurs when there are “two consecutive quarters” of negative growth.

While most economists have been fickle in utilizing the term, it is nonetheless clear that our economy is in the throes of a recession. More importantly, however, is the fear that the recession will subsequently turn into a depression.

How does a recession occur? Well, when there is not enough supply to meet a specific demand (as in the case of oil), prices rise and spending becomes stagnant. This, in turn, causes companies to decrease expansion. No expansion means a decline in the work force and, consequently, unemployment rises. Consumer confidence dissipates, prices of homes decline, and everyone becomes affected.

It can also be suggested that the sub-prime mortgage crisis had a direct impact on the current recession. One can use the dot.com analogy to preface the seriousness of our current crisis. Remember when the stock prices for the internet industry increased beyond anyone’s imagination? Most people were buying these stocks because they felt the return on their investment would be phenomenal. It was - for a time, until the market turned sour on internet stocks and over five trillion dollars was lost, thus inviting a recession that affected companies worldwide.

Similar to the brokerage houses that were making money hand over fist today, the only people who profited from the internet stocks were the CEOs of these companies. Shareholders and everyone else were the losers.

Recently, economists have ascertained that the market will have five negative quarters. Others have stressed the importance of having on hand at least 18 months' worth of savings. Still others, concerned about the Rescue Plan’s execution, are worried that we may be headed for a depression.

Obviously, not everyone agrees as to what will eventually occur. They do agree, however, that until the banks' lending ability is alleviated, the stock market’s volatility will continue.

This global Rescue Plan was designed to give banks enough money so that they were not tied down by these toxic mortgages that prevented them from lending to one another. This is also why it is currently very difficult for an individual to obtain a car loan, college tuition loan, or other type of loan from banks.

Unless and until this plan begins to have a significant effect on the global economy, thus thwarting a total collapse of our lending institutions, this recession will continue. In other words, we are faced with economic uncertainty and must do what we can to ensure we are prepared for any eventuality.

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Ten Tips for Budgeting Your Holiday Season

Image via WikipediaThe tree isn’t the only item that will be trimmed down this December. Here are ten tips for budgeting your holiday season to enable you to not only enjoy the time spent with your family and friends, but make it an affordable time as well.

1. If you usually give presents to sisters, brothers and their children – try and exchange presents with just your nieces and nephews. This can save quite a bit of money in the long run.

2. Shop early – very early. Begin holiday shopping during the summer months at stores that have sales every week.

3. Make your holiday list ahead of time. Decide how much you are willing to spend for each person and stick to it. Keep in mind that in January you will be getting those bills and may find it difficult to pay them off.

4. Pay off all your holiday expenses beforehand. You can accomplish this by shopping early and paying with cash. If you must use a credit card, pay it off when you receive the bill. This will decrease the amount of bills you receive after the holiday season is over. Moreover, you will feel terrific!

5. Buy ornaments, wrapping, bows, and decorations early. How early? The day after Christmas is when every card and ornament is on sale for as much as 50% to 75% off. If you can make it a point to buy these items after Christmas, you will have enough to carry you through the next two or three years.

6. Open a Christmas club account at your bank. It’s very easy and a great way to save for the holiday season. You can begin in February and put away as little as $5.00 a week. By October, you will a nice little check to use to purchase gifts.

7. Make your own decorations. This can be a wonderful experience for the entire family. Everyone can pitch in and make ornaments for the trip, wrap gifts with newspaper, or decorated bags. Make holiday cards on your computer, send out holiday cards through the internet, and make your own holiday gifts as well.

8. Buy gifts online this year. It not only saves you time standing on long lines at department stores, but you can save money as well. In fact, you are probably receiving emails from stores right now who are offering discounted merchandise. Check it out!

9. Use coupons to buy holiday gifts. There are a myriad of online coupon sites wherein you can save a bundle on specific items.

10. If you have set up a budget for gift giving, why not give gift cards. They have become very popular over the last several years. In this way, you can set a limit to the amount you wish to spend and, at the same time, the recipient will be able to buy a gift they need or want.

The holiday season is a time of reflection: thinking about all the people in our lives that we love and cherish. A present is just the icing on the cake!

6 Ways to Avoid Holiday Debt

While we all enjoy the Christmas holidays, once the bills begin to arrive we are usually brought back down to earth with a bang. If you want to avoid holiday debt, here are some tips.

1. Open up a Christmas club on January 2nd. You can contribute five or ten dollars a week to the club and by October you will either have $200 or $400 to spend on Christmas gifts.

2. Avoid using your credit card to buy gifts. This only adds to your ongoing debt and will just leave you stressed out after the holidays. Pay with cash whenever possible. If you have to buy an item with a credit card, pay the bill off as soon as you receive it.

3. A Christmas budget would be a great idea to decrease the likelihood that you will overspend on gifts. Make a list of the friends and family members you intend to give a gift to and assign a dollar amount. It is important to stick to the budget.

4. Begin Christmas shopping earlier in the year. There are always sales every week – take advantage of them. You can even buy two or more of the same item in case you have to give a gift you weren’t planning on.

5. If you like to shop online, use one credit card. There are many online coupon sites that offer great savings throughout the year. Utilize the coupons, check out the sales, and make your purchases. Remember to pay the credit card bill balance as soon as possible.

6. Perhaps Jane and little Joey want something very expensive this Christmas. If you can’t afford it, don’t buy it. With the list of gifts they will present to you, there is sure to be some items you can afford.

Holiday debt can be avoided if you start with a Christmas budget, put aside a few dollars every day, or open a Christmas club. Instead of buying a cup of coffee everyday, put that money towards Christmas.

Let’s be honest, buying items with a credit card is very easy to do these days, especially with internet shopping. But if you shop early, you can certainly pay off the debt before the holidays and start the New Year with a “bang” instead of a whimper.