So if you're like most of us in America, you're feeling a little it like . . . a Christian Scientist with appendicitis. Whether your job seems particularly threatened, the declines in the stock market and the housing market, and the collapse of consumer demand, make it feel like we might be in for a long bad spell. The economists can scream about aggregate demand all they want, but we're looking for ways to do less.
Like Tyler, I'm not sure this is bad. I think the government should palliate the consumption collapse--make sure that the supportive services and unemployment benefits are there for people whose consumption falls below acceptable levels. But we've been living on borrowed money for a long time. Eventually, we're going to have to spend less to get our balance sheet back in balance.
So here's an open thread: what are you doing to cut back? My partial list:
1) Considering giving up my apartment for a shared house
2) Street parking my car
3) Eating and drinking at home instead of U Street's many fine dining estalishments
4) Buying cheaper food in bulk. Luckily, I really like PB&J and ramen
5) Cancelling my gym membership. The Wii Fit turns out to be surprisingly effective. At least if, like me, you're in terrible shape and hate excercise.
6) No new clothes this year.
7) Getting serious about freelance income.
Yes, this is a list that screams "middle class single professional". I'm sorry. I can't help what I am. I was born this way.
And no, I'm not worried about my job, for those of you who are worried (or hopeful). Really. But the downpayment I wanted to put down on a house just got eaten by the stock market crash, which means that if I ever want to experience the many joys of homeownership, (like . . . er . . . 20% price declines) I need to tighten my belt something fierce.
What about you? What are you worried about? And what are you doing to make yourself financially more secure?
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Honestly, I'm sort of hoping for a deflationary spiral to complement my depression-proof salary and boost my real income.
Nothing. My income has not been cut. I have no reason to think that my job is at risk. I wasn't planning on tapping into my investments for the next 20 years or so. Why would I belt-tighten?
I might invest in stocks more than I otherwise would've, depending on how cheap they get.
3,4,6, and 7 stand out (middle-class, married, single-income professional).
#8 Also doing more repairs and home projects myself on the weekends.
Just put in a woodstove, which, running the numbers, will save us money unless energy prices really crash.
#9 Cut back on travel.
#10 Cut back on commuting by taking subsidized public transportation and by telecommuting.
I'm waiting for Portland housing prices to get clobbered all the way back to the historical average. Then I'll swoop in like a vulture and snag a half-acre in the close-in suburbs.
Other than that, nothing. We save more than 20% of my salary already, and my wife is at home with the baby.
A true boglehead wouldn't have had her down payment money anywhere near the stock market.
don't stop drinking on U St. the bars and restaurants there are entirely owned by small business owners who need support from the neighborhood. Not to mention it's always good to have you at the tavern.
My first recommendation to anyone cutting back is to start tracking what you spend. Most people are horrified once they add up a months worth of spending to find that they spend $1500 per month eating out. Or $200 on coffee.
Step two is to set limits and then do your best to stick to them. If you use all your coffee money by the 20th, then no coffee for 10 days.
I feel like Suze Orman, but these are the basics. Vague commitments like "Don't go out as much" (Sorry, Megan) rarely actually result in changes if you don't measure them and document them. A small investment in Quicken or MS Money (get last year's version on eBay for $30 or so) can help a lot as most transactions download automatically for you to categorize.
A true boglehead wouldn't have had her down payment money anywhere near the stock market.
Yeah, what's up with that? Yglesias basically said the same thing recently (his annoying IKEA/Dean Baker post). Who keeps their short-term (1-3 year) cash in the market as opposed to the bank or a money market account?
The university takes about 60% of my stipend (tuition) off the top, so my meager salary and job security aren't really an issue.
I've been an ebay/craigslist buyer for some time now and that's treated me well. I'm largely insulated from this mess, by not having any (non-retirement) assets to begin with.
I have this remarkable financial plan. I spend less than I take home on a monthly after-tax basis.
It's stunning, I know.
If you have a good job not threatened by the recession, and you weren't already leveraged beyond the acceptable ways (mortgage, car loans, student loans), I don't see any particular reason to cut back.
If you are overly leveraged, i.e. credit card debt, erase that crap and start living like a sane person.
Most people are horrified once they add up a months worth of spending to find that they spend $1500 per month eating out.
I think you'd notice that. That's fifty bucks every day or $375 a weekend. No way that's just walking around money.
For the past few years, my wife and I have been busting our hind ends to pay off debt. Every now and again (anniversary, birthday, stuff like that) we go a little nuts at the store and spend a couple hundred bucks on ourselves... but, for the most part, that's enough to tide us over for six months or so.
We have paid off the car, paid off our credit cards and do our best to now use them as short-term loans only (that is to say, we pay them off entirely when we get the bill), and only have a 2nd Mortgage (which was a refinancing of our student loans) as any non-mortgage debt on our part.
And it's pissing us off because we spent the fertile years being all frugal and now that we're getting close to paying off everything, we're going to have seven years of famine ahead of us and our live probably won't change that much.
I'm with eigenperson; husband and I are on the lookout for good travel deals, especially in Europe or Canada, where exchange rates have discounted everything 20% versus last quarter.
We invested a few thousand just because equities prices were so low (and have made a few hundred on it already), but we already both max out our Roth 401(k) and Roth IRA, so I'm not rushing to invest more. Dollar-cost averaging beats my timing, anyway.
Mint.com is similar to Quicken/Money but is also free and online, which is convenient.
And of course, we are grateful to be so fortunate.
Nothing. My income has not been cut. I have no reason to think that my job is at risk. I wasn't planning on tapping into my investments for the next 20 years or so. Why would I belt-tighten?
I might invest in stocks more than I otherwise would've, depending on how cheap they get.
x2
A true boglehead wouldn't have had her down payment money anywhere near the stock market.
x3
Keeping the thermostat set to 64°F (in Minnesota).
We went on autumn vacation by train rather than flying. Cost us about $200 round trip for the whole family to take the sleeper to a beach resort in Quang Binh, rather than the $650 or so it would've been to fly to someplace like Hoi An. Plus the kids loved it. And I felt all low-carbon-footprint.
Unfortunately I don't think the train is that cheap in the US.
I'm also delaying my purchase of a new laptop by freeing up space on the hard drive, but with the new MacBooks out I'm not sure how long I can hold out on that one.
we're going to have seven years of famine ahead of us
I guess it's nice to be reminded that there was a time when "recession" meant "starve to death," and when instead of linking old blog posts to argue over who predicted what when, we had people interpreting dreams.
Also, that was a time when people knew what the $^&# a "kine" was.
This is how your blog is reading to me today:
"Sure there is a wealth effect, but thats small and trivial and Dean Baker is dumb for thinking its a big deal. The REAL problem is the credit crunch, now let me post myriad ways I am cutting back consumption because of this trivial wealth effect caused by the decline in stock and housing prices I just scoffed at earlier today."
I think it was just a matter of interpretation of Dean's phrasing. Was he saying that the credit crisis didn't happen and played no role whatsoever? I don't think he was saying that as much as he was saying that in the long run the consumption collapse would be the source of the actual GDP decline and this in turn would cause a significant economic slowdown through a negative feedback loop of consumption cuts -> declining output/income -> more consumption cuts.
Basically, right now we have the TED spread, LIBOR, etc. all heading in the right direction and it seems like the credit crunch is easing, but this does not mean the looming recession will be preventing if credit markets completely normalize. The negative feedback look of consumption collapse seems to be starting.
Everyone is agreeing that housing price declines does lead to a fall in consumption. So let me pose this question:
Is the credit crisis a result of falling housing prices? or the other way around?
If falling housing prices caused both the decline in consumption AND the credit crisis, although there is then a correlation between the crisis and consumption, it may not be a causal relationship, but rather two effects from a common source.
Unfortunately I don't think the train is that cheap in the US.
I keep trying to take Amtrak, but I just can't ever justify it when JetBlue is almost 50% cheaper...
After years of paying for junker cars and then paying to fix them only to junk them within a year, I decided to try going car-less for awhile. Besides the money saved on the vehicle, insurance, gas and repairs there are the psychological benefits of not constantly worrying about breaking down & having to pay for repairs.
It isn't all glorious–Madison has a decent bus system & good bike paths, but work is ten miles away, so it's an hour+ on the bus, or an hour on the bike. For errand trips, etc. I have friends in school who rarely use their cars and have been able to work some arrangements for using their cars for the day (& they get to avoid inevitable parking tickets!).
Plus there's the feeling of smug superiority as I walk by everyone waiting for traffic lights.
Friends are also doing more "get together and cook dinner" parties and fewer "go out on the credit-card" type entertainments.
because I'm not some moron who spends above his means and actually saved money, nothing. But feel free, all, to talk about how hard it is not to eat out 6 nights a week.
cry me a freakin' river, princesses.
Dean Baker and I are arguing whether the major effect is people cutting back because their house is worth less, or people cutting back because credit is contracting due to bank failures/near-failures, which will cause a severe recesion. I vote for #2. And I increasingly think that the housing bubble was simply a symptom of the Asian savings glut; Europe is equally (or more) screwed on emerging market loans.
It wasn't pleasant to see the declines in my 401K, but as I'm still a number of years away from retirement I'm not going to fret over the declines. What has had a much more direct effect on my finances is the big rise in food prices. While these may moderate along with fuel prices, for the time being I'm doing more shopping at a rather downscale but inexpensive local supermarket chain, and going to the full-price regional chain less often.
I now use my golf balls for two holes instead of one.
And I don't buy chips at the turn, just the hot dog.
Not changing anything. I am as frugal as it gets.
Less eating out and drinking. I distract myself with new hobbies; sailing, more biking, and mountain biking. I'm eating less in general. I figure this is a good time to increase my contribution to my retirement account.
I pretty much cut out eating out last year. I think this was due to higher fuel and costs all around.
And, yeah, having a home downpayment in the stock market isn't very smart.
However, I would argue against purchasing a home. I own one and have come to the realization that life would actually be more stable financially if I had remained a renter.
(Despite raises, I still saved less money this year than last. Actually, I ended up with more debt this year.)
Put off thinking about getting a bigger house. The current house is big enough for us with just one kid, and we won't have another for a little while at least.
I'm a cheapskate even during a good economy, so I chuckle whenever I see a list of how to save money nowadays.
That said, I have sold my car. I've been taking the train to work since I moved in June and only used the thing on weekends. Now I split use with my gf. No more insurance or parking fees, and I got to take a bite out of my student loans.
Question: what adds greater liquidity to the system, paying a loan back ahead of schedule or putting money in savings? I pay my loans back directly to the Dept of Education, and my savings account is with a bank not at risk of going under. The difference in interest rates is trivial for the amount of money involved -- about half a point.
It seems to me that if you haven't been living beyond your means and you're not worried about your job, then your tightening your belt will not only not help the "us" that has to learn to start doing that but will actively harm the economy. Or am I missing something?
wow, there are some incredibly smug people on this thread.
at my house, we are a 1-income fam while my husband is finishing school full-time. 1 year to go & the job market is looking bleak. so here is our list for at least the next year:
1. shop more at WinCo, no shopping at New Seasons (local Whole Foods-ish)
2. No Christmas this year except for a tree
3. No birthday presents this year (my husband's is 12/28, mine is 1/8) - going out for $3 burritos instead
4. Taking a year off my wonderful but costly water sport of dragonboating
5. Stop buying the organic pet food, start buying the cheaper stuff
6. eating out only on the weekends & if it's under $10
7. clothes shopping, when necessary, at Goodwill or Ross
We are holding onto a few "luxuries" that make home entertainment much easier. Keeping Netflixx, Tivo & Sirius, which in total add up to $40/month. But they keep us happy at home without the need to go out, so we figure it's worth it.
I second J. Blocher's recommendation to track your spending for a month. If you use a debit or credit card for all your purchases, this isn't hard at all: just go over your statement at month's end, classifying each line item as "eating out", "coffee", "entertainment", etc. Look at the total for each category and decide if it's really where you want it to be.
And yes, Klug, plenty of people don't notice spending of that magnitude. It was only when I did this a few years ago that I realized I had been spending $800-$1000 a month eating out.
Actually if you get serious about #7, that can take care of #3 and #5. Interesting second job stake the place of many hobbies and diversions.
Sarah, you left off "Going to New Seasons every weekend and eating their samples for lunch"
Really, it's free food and entertainment for my preschooler. Whenever he misbehaves we threaten him: "No New Seasons for you unless you stop it!"
Taking MARC/Metro to work instead of the commuter bus or by car. (That's saved over $100 a month alone, though we now have to get up at 5:30).
Cut beer out of the budget entirely.
Not going to visit the relatives at Thanksgiving or Christmas this year.
Last two "vacations" were spent at home or on day trips rather than travelling anywhere.
Yearlong ban on getting sick or injured.
Food prices have been tough to get a handle on. We're somewhat limited in what we can get, since my wife was recently diagnosed as gluten intolerant.
"Dean Baker and I are arguing whether the major effect is people cutting back because their house is worth less, or people cutting back because credit is contracting due to bank failures/near-failures, which will cause a severe recesion."
For me, neither. Whether my house is worth more or less has no bearance on my consumption. I don't have any home equity loans and don't intend to take any out. (Didn't those used to be called "double mortgages?") I'm cutting back on spending because if I don't, I won't be able to pay all the bills. And I really don't like it when people start hassling me for not paying bills.
Rob, my New Seasons (Arbor Lodge) does not seem to have the bounty of samples that you refer to. If I were going sample hunting, I would hit up Market of Choice and Trader Joes, but maybe I'm going at the wrong time.
Skills for the 'W. Economy':
Grow greens.
Raise rabbit.
Intercept/decode satellite TV transmissions.
Sell in the black market.
Distill alcohol.
I agree with Sarah
Lots of smugness.
I am already out of work and having to go through vocational rehab since I am partially disabled. Fun stuff. My spouse may lose her job at walgreens, where she is a senior beauty adviser (corporate already cut the regional beauty managers...)
This year? No presents, except for our son.
Not sure what else we can cut, since we are already on food stamps (Having to get public assistance was NOT on my list of things to do in this lifetime...), and we cut the cell phones two years ago.
Trickle down economics hasn't been a real big hit in North Carolina. I have been a life long Republican, but this year I voted for change. Interesting how desperation can change your priorities.
I once had an excellent free half-meal of various kinds of weird organic nut butters (hempseed butter, flax butter, almond butter) at the Arbor Lodge New Seasons.
Really, every weekend they put out a pile of stuff, it's well worth a trip. I've never bought anything at their prices except baby food on sale, but we go almost every weekend to eat. Way better than the crap they serve at Costco, where we actually spend our money.
Oh how I envy all you smart planners who saved for the rainy day. My rainy day has come, as I knew it would, and the homebuilder I worked for included me in the RIF that took place last week.
So what am I doing about it? Um, well considering my expenses are only going up and my household income has just declined significantly, cry. We've had to liquidate our short-term savings and now the debt that we so assiduously eliminated 2 years ago is creeping back up.
Here are the lessons I've learned: don't be persuaded by your husband to make any purchases that give you a bad feeling. Don't get pregnant again 6 months after having a baby unless you have the income to let you stay home or pay for two babies in daycare. Finish your degree when you are young and childless.
Since I failed to do those things, I'm royally screwed. But I hear Obama will start paying my mortgage soon, so I guess it's not all bad, right? ;-)
I would second the Quicken purchase (though the Mac version is absolutely terrible), but instead you could probable use mint.com to accomplish most of your needs.
I use both, as I have more history in Quicken, but I can't auto-download from Chase without a $10/mo charge.
My suggestion: Stop spending so much time in the comments section of blogs. A luxury at best, more often a total waste of time.
Use the time to get a certification, train for a new job, network, update the resume, look for another job, take a part-time job.
Remember, one of the reasons many of the early colonies went under was that the residents were unwilling to adjust to the new paradigm (gentlemen working?!? Absurd!) until adjustment was forced upon them by their starving bellies.
And with that, I am going to stop reading political and economics-based blogs for the next two months. blog.makezine.com, yes. Megan, Instapundit, The Corner, TalkLeft, no. Cracked.com, maybe.
Due to my family historically going to different priorities where it's been a 'we've got a lot of money; we don't have any money' reality, my attitude has always been to be the rabbit (Haas) that runs as fast as he has to to outrun the fox of financial obligations. That'll keep up until I run into the clear or the fox catches me.
1. Work as an aerobics instructor. Free gym membership, they pay me for something I would do anyways.
2. Stuff extra income under my mattress and pray for deflation.
I cut back on voting for Democrats......all the good that's done me.......then again, I've never voted for a Democrat.
I think that for now cash is king. I had a friend who scrimped and saved to accumulate $100,000 so he could put 20% down on his house. He was also putting all his money into paying down his mortgage. Now, with the prices down 20%+ if he gets laid off he could loose everything.
He would have been much better off to save that money rather than paying off debt. Right now, yes pay off the 30% credit cards, but I would be keeping as much in FDIC insured cash as I could. No need to prepay those 2% student loans, 5% car loan, or the 5.5% mortgage.
I send my kids to public school, drive a 12 year-old car, have not take a vacation in more than 5 years that involves a travel expense more than driving 100 miles does, and we buy bulk food items at Costco. However, I fully expect my township to implement the "reassessment" of property values (based on 2006 property values of course)in 2009 which will wipe out any savings I've been able gain through cutting back elsewhere.
I agree with Yancey. I wish I hadn't bought my house. I put down 60% of the value in 2002, and have watched the equity round trip. I also have had a front row seat to the comic opera that is NJ politics. I'd have been better off staying in my rented 2-bedroom apt in Brooklyn.
I like PB&J and ramen too, but I've heard that neither one is that great on nutritional value per dollar.
I also find it funny that one of the reasons so many friends were buying real estate was to take advantage of the leverege. Put 10% down and if the price rises 10% you double your money.
Only problem with leverege is if the price falls by 10% you can lose everything.
I also think that while some people used there homes as piggy banks, others used them as savings banks. The people who put 20% down and took out a 15 year mortgage... But with the market so weak, some of those people, if they get laid off, could loose everything.
For me it has nothing to do with income, mine is safe and going up. It has everything to do with the markets finally being at reasonable prices to buy and with consumables being ridiculously expensive.
I guess I probably haven't actually been eating less, since I haven't lost much weight. I have been able to tighten my belt a bit though.
Megan, shop at Aldi's. Make friends with rich people. Sell your nice jeans on Craigslist. And good ideas, everyone. We may have to all think about living communally and installing wood stoves once the liberal illuminati stimulates the economy with a good dose of Socialism.
Selling extra drums and cymbals that I don't use enough to justify keeping them. Also, moved from good beer to Rainier in a can.
Ivy League BA, MBA, big-name magazine job, mid thirties, and you're thinking of cutting the gym membership and getting a roommate?
Here I am, working a union job in Texas, making an income not particularly far off the national family median, and I have a big place with a garage in a good neighborhood, I eat whatever I like, and I'm thinking of buying a new motorcycle or two.
Either you're doing something wrong, or I'm doing something right.
I've held off making my yearly IRA contribution for a couple of months waiting for the market to calm down. That's about it.
Wii Fit's actually pretty bad for working out. Dance Dance Revolution is much better.
Amazing. That is exactly the same as MY list.
I'm going to invent an engine that runs on self-important smartassery!
Sarah, sorry you find no humor in the thread. I for one don't take Megan's list too seriously. No new clothes THIS year? 2009 is only weeks away... Hope she can get by that long.
However I will NOT apologize for being raised to live below my means and to "save money for a rainy day."
And given that, I'm going back to buying chips at the turn, and maybe (can't promise) an occasional brownie. (please note, I tip well and that will not change, trickle down and all that you know)
Might reconsider the one ball/two hole rule but I'm trying to stretch my supply a bit so I won't have to put my 2009 custom imprints into play until Jan 1.
God bless America!
1) Seriously restraining my food spending. I'm making my own lunch for work, steering friends to cheaper restaurants when we go out, sticking to a list when I go to the grocery store and not letting my groceries go bad in the refridgerator.
2) Not traveling to the East Coast for the holidays. My mother will forgive me, someday.
3) Getting new books to read from the library instead of buying magazines from the bookstore near work or books from Amazon.
4) No longer toying with the idea of moving into my own place in the East Bay. Rent would be higher than what I pay now sharing a place, and transportation costs would go way up because I would have to commute to San Francisco.
5) Contemplating asking my roommates if I can stop paying for our cable TV package, since I never watch it.
I'm going to invent an engine that runs on self-important smartassery!
FYI, the USPTO will require you to submit a working model as part of a patent application for a perpetual motion machine.
Am no changing anything. I have always lived within belt tightening. So, none of this worries me, one bit.
We did our belt-tightening back when the money was rolling in. Now we're buying stuff that other people are selling cheap.
@Secret Asian Man
Megan works in the fame economy. It doesn't pay that well, but lots of people know your name.
Just thought of one-
Will sell 15 gallons to Joel every week.
Wow the smug and snark is heavy among these commenters! Surprise, surprise that I don't find real poor people with real problems at The Atlantic Web site!
I already live pretty frugally, thanks to an inborn horror of being in debt. (I don't fear for my job, either. I'm one of those "tenured parasites" that people outside academia love to hate). I have credit cards but I pay them off in full each month. I only buy what I can afford at the moment. So I don't need to tighten the belt.
However: if the rumored "credit card debt" bailout comes to pass, I am going ballistic about my spending. No new clothes. No new shoes. No books. No movie tickets. No movie rentals. No money spent beyond the things required to keep me alive and keep me and my house clean.
(I already own somewhere around 10,000 books so the no-book-buying shouldn't be a hardship. And for videos and such, there's the library).
Why? It's my own little protest. My pullout of my money from the consumer system. If I want "different stuff," I will either barter for it, go to yard sales, or go to places like Goodwill. I will not be a party to the system that encourages people to spend irresponsibly - and then hits up the American taxpayer, including responsible folks like myself - to "fix things."
Instead, I will find the best and safest investment I can, and chunk all my unspent money there.
It disgusts me that I, as someone who's lived responsibly all her life - not taken lavish vacations, not bought expensive clothes - may now be asked to foot the bill for people who did just that and realized they couldn't afford it.
Emilie,
I am sure a lot of us have been definitionally poor at one time in our lives. Some were raised in it, and some lived it early in their adulthood.
Yancey,
I would maintain that there's a big psychological difference between temporary poverty as a student, and being in poverty for which there is no foreseeable exit.
I spent time in grad school trying to live on $10k a year in NJ (bare bones poverty). The thing is that it wasn't that bad. First, I knew that my income would be high when I actually got a job. Second, I lived among students... who while also financially poor, were generally socially middle to upper middle class. One of the worst things about being poor is having to live with other (socially) poor people.
Luckily, business has been good this year (about 15% ahead for the YTD), so no cut in income - in fact, could come in a little ahead of last year. However, not having a crystal ball to see into the future, we are cutting back so we can save more than we already do and have some cush if we need it in case of a possible income reduction next year.
The Starbucks closest to me closed last month and other locations are a little out of the way, so I've already started knocking $2 to $4 a day off my spending. We also have already told the kids that Christmas this year won't be the usual extravganza (like $500 worth of crap rather than the usual $1,000 or so) and that an exotic Spring Break vacation is off the table. If we go to the beach at all, it will be driving to Florida. We've also cut dinners out from twice a week to only once. How much will it all add up to? Who knows, but I take the attitude that every little bit will help.
The only other changes anticipated are tax planning. We'll increase contributions to Simple IRA and SEP IRA plans in an effort to reduce taxable income and try to avoid the Obama tax increases.
I'm already cut a huge chunk out of my monthly shopping by swapping out Grey Goose for Trader Joe's vodka.
My initial hope was that, at least, nature could get a break. But how should she with distorted prices? Digging our hole deeper and deeper...
"One of the worst things about being poor is having to live with other (socially) poor people."
Living with folks who snivel about how much it costs to fuel their SUVs and not being able to shop at Whole Foods to is no picnic.
themightypuck,
Try Costco vodka. It's the same, just a lot cheaper.
It's a mighty big bottle, though. I only see the positive in that.
On a related note... also from the NY Times:
I fear that global meat-consumption has more than doubled over the past half-century but that is not the point. This short article addresses the problem nicely and also gives an honest, real, answer at the end. Enough of the so called Green Revolution. It is comparable to planning to go bankrupt.
Sorry, Bogleheads, it's not so clear that you should avoid stocks when you anticipate making a downpayment. If you have the flexibility to defer the house purchase, then you have more room to follow the broader rule to invest more in stocks when you're young.
Think of your wealth as having two parts--your financial investments and your human capital, i.e. your future salary. The future salary is like a bond, and could easily be 95% of your total wealth. So, even if all your savings are in the stock market you are effectively only 5% stocks and 95% fixed income.
John, counting your future income as a bond is well and good if you're a doctor or some other professional with a near recession proof income. Unfortunately most of us in the lower four quintiles can't replace savings faster than the market can drop.
Homeowners to be: keep your down payments in a low risk investment. Volatility is the enemy.
KM, well I AM a humorless liberal after all. What did you expect? (although I do enjoy Megan's bit of upper-middle-class-self-deprecation)
I see layaway is making a comeback for folks who refuse to go back into debt. www.elayaway.com. I guess the 70's are coming back, after all.
I had a friend who scrimped and saved to accumulate $100,000 so he could put 20% down on his house[...]He would have been much better off to save that money rather than paying off debt.
Exactly, and he could have done this much easier if he had just bought a cheaper house to begin with. A $250k house with $50k down would have left him $50k in savings. Even subtracting 20% from the savings to account for the decline in the stock market still leaves 40k to fall back on.
Nelson,
A $250,000 house would mean either 2+ hours a day in the car or private school for the kids.
Currently, my industry (power systems) is maintaining momentum, and probably will throughout FY09 because Congress extended the renewable energy tax credit. I already live a short distance from work and drive a compact car, so no forseeable changes in habits there.
The only noteworthy change of late is a greater effort to do more advanced meal planning at home -- although that wasn't really economic, it had more to do with watching my weight fluctuate by a few pounds the past couple months on account of a lapse in good eating habits and a project crunch at work that left me with less time to exercise.
I just bought a foreclosed house, which I am furnishing almost entirely through craigslist.
We've been saving 31% on everything at Starbucks, by combining a Costco deal with a Starbucks gold card (1% cash back on the Costco Amex; buying $100 in Starbucks cards for $79.99 at Costco; transferring the credit from those cards to a Starbucks gold card that gives a 10% discount). Been doing something similar with McCormick & Schmick's ($100 in gift cards -- and a free cookbook -- from Costco for $79.99; then we use it with their happy hour special menu that features appetizers for $1.95-$4.95).
I'm actually on track to break 100K this year (though that won't be repeated next year), my best year ever. My job is fairly secure-- we're even expanding the department after the holidays, and it's been hinted that I may have an "expanded role" with some new business.
Still, I had to relocate from S Florida to Baltimore this year and I can't say I'm impressed with the place so far.
One big problem: my partner is still jobless here, even in a state that is supposedly still doing OK job-wise. And he's resisting the idea of taking a part-time service industry job (though he has recent experuence) so this is putting some stress on the relationship.
I have to say I haven't cut back at all, but that's mainly because I've always been frugal-- clip coupons, peruse sale circulars, bargain hunt. I am riding my bike to work mostly, not so much because of gas prices (it's only two miles) but because parking is exorbitant, the traffic is nasty and I could use the exercize.
Also, I eat out only very occasionally, and my drinking is mainly limited to a couple beers during the half-price hour Friday night.
Very little. Including the employer's retirement match, we were already putting 30% of our income into savings.
If anything, we'll belt tighten by doing whatever we can to reduce our AGI (e.g. donate more to our preferred charities), if only because the idea of paying taxes to pay foreclosure welfare makes us sick to our stomachs.
Just run the vodka though your brita a few times.
Marta,
You do know that when you're older the compounded value of that 30% will be taken by the government to pay all those who lived well now? You might as well live it up.
Tony Comstock:
I thought only Chinese people knew that trick. I wait until the 20's of a month when people start having rent and credit card bills piling up and I snag their stuff for pennies on the dollar.
Then, of course, it goes up on eBay. Time preference arbitrage, anyone?
Sadly, when I sell anything on craigslist around those times, my mailbox is full of people of similar skin tone as me, also with similarly monosyllabic last names, asking me what my absolute lowest price is, and offering me pennies on the dollar.
I was pretty frugal aready... But I am doing some things differently, because I am already planning on leaving my job next year, and am aware that another one might take longer to find, under the cicumstances.
I'm traveling more locally - I'm thinking about a long bicycle trip in the US next summer, rather than flying to Europe or Asia, as I'd originally thought.
Eating out less, cooking at home more. Spending money at restaurants gives me ulcers anyway.
Commuting by bike more than I already did.
Getting started on Xmas shopping very early, so I can think of thoughtful, inexpensive gifts instead of something fancy/expensive at the last minute (ever noticed that last-minute gifts are often more expensive, since you're hedging against the lack of thought that went into them?)
Am I the only one who finds that making dinner at home costs about as much going out and I end up eating more?
I see people compare a three course dinner out with a bowl of cereal at home, and I can see how that saves you money. But, if you make a decent three course meal at home and include booze it cost almost as much as going out.
My Recession Survival Websites:
Free/Discount Salon Services: www.salonapprentice.com (this site only works if you are in or around NYC & Chicago--but I got a free haircut which looks great. I may go back for free highlights!)
Free Anything: www.freecycle.org (just got skis and golf clubs for FREE!)
Free Books: www.paperbackswap.com and www.swaptree.com (you have to pay shipping on anything you mail out but that is only a few bucks)
Deeply Discounted Restaurants: www.restaurant.com
Enjoy!
No wine, and all beer labels must contain "Pabst" and "Ribbon". Plus I don't need much plasma.
But on the other hand: I was virtuous (at least by quasi-Calvinist lights). I put in the max for my retirement, paid my credit card bills in full on time, saved a high percentage in low-risk stocks. And I still lost like half of it. Which is why I'm buying plane tickets in the other browser window - if there's anything we in our mid-20s are learning, arguments for "let it be bad now and be good later" only offer guarantees when the sun is shining.
Well I stopped leaving the house.
jmo, what are you buying?
Bag of 12 chicken breasts at Costco - 12 bucks. Bag of potatoes - 5 bucks. Bag of fresh green beans - 5 bucks. Box of bread crumbs - 4 bucks, cheese - 6 bucks, ham - 6 bucks, butter 4 bucks.
You just made yourself 12 meals of chicken cordon bleu with various side dishes for 46. With left over potatoes, breadcrumbs, and butter for another 12 meals.
I wasn't aware you could find a restaurant selling a plate of food for 2.95 (assuming you spread the cost of the potatoes, butter, and breadcrumbs to another 12 meals... if you throw away the leftovers your meal cost went up to 3.83). A lousy meal at McDonalds often costs 5+ a person.
Change that meal to a nice pasta dish and your cost went down to about $1.5 tops.
Maybe you've overestimated the cost of cooking at home, or maybe you could shop a little better.
Re: But, if you make a decent three course meal at home and include booze it cost almost as much as going out.
Not true, unless you go for all top shelf stuff maybe. The markup on alcohol alone is over 100% at bars and resturants. And our Thanksgivibng dinner for two will come in at under $20 (no tipping required). Try that at a resturant.
I'm looking into how spermbanks payout.
A $250,000 house would mean either 2+ hours a day in the car or private school for the kids.
jmo, You're the one who said he could lose everything. In life, and in finances, everyone has to make compromises. A 2 hour drive is bad. Losing everything is bad. Which is worse?
For myself I took the cheaper house with a 2 hour drive. Sometimes I regret it, but it means I have more time to recover if I lose my job. It also means that if I keep my job I can pay off the mortgage ahead of schedule without destroying my savings.
jmo: It does depend on what you're eating, but it also sounds like you may want to think about buying food strategically instead of tactically.
If you buy just enough food for that night's dinner, it often winds up costing a lot, especially if you don't have staples in the house (oil, stock, spices, etc.) and need to buy them, too. The supermarkets really mark up small packages. However, if you buy in larger quantities and pro-rate the food out, it's much cheaper. When we find a good deal on something that can be stored or frozen, we will buy several pounds at once.
In addition to warehouse clubs, specialty butchers and ethnic markets are good places to look for bargains. We have a local butcher who will give you a spectacular deal on (excellent) pork loin if you'll take the whole primal at once, and grain and bean staples and produce are astonishingly cheap at the Asian market we shop at. Our co-op is also good for inexpensive bulk products, although they also carry superb $20-a-pound cheese, so we don't actually save any money there. :)
I'll also second the nod to Goodwill for clothing. The mens' clothing selection is not great, but I frequently find attractive womens' "better sportswear"-type stuff, in good condition and still in fashion, for $3 a pop. I think women may be more likely to donate perfectly good clothes that they just don't wear, or that doesn't fit anymore.
One thing we don't economize on: Beer. We're beer enthusiasts, and if I have to choose between Harpoon 100-barrel Rauchfetzen and PBR, there's just no question. I'll find the extra $5 in the budget.
"A $250,000 house would mean either 2+ hours a day in the car or private school for the kids."
2+hours a day on the train for me. It costs much, much less than the car. And I get the chance to write my novel.
Re: But, if you make a decent three course meal at home and include booze it cost almost as much as going out.
I could certainly spend nearly as much at a restaurant versus staying at home, if you leave out the booze. With booze there's no way, since the markup on alcohol is so high. That $15 bottle in the store is $60 at a restaurant, and you have to tip on top of that. 100% markup is low, it's more around a %300-%400 markup. Even with just food, it's roughly equal until you throw in tax and tip. At least in California, food you buy at a grocery store isn't subject to sales tax.
Instead of growing more food than I can use and giving the extra away, I'm going to grow much more and try to sell a meaningful amount. Otherwise, long-term (I'm kind of a financial screw-up), my retirement age just went from 68 to death.
Dicty, JonF & Sam,
For your plans to work you need to be someone whos eating isn't influenced by the quantity and availability of food.
For example, I have a very thin co-worker who keeps his desk full of snacks and candy. I could never do that, I'd eat it all. In fact the only way I'm able to keep my weight under control is to keep all my food at the supermarket.
When I get home and I'm hungry, I have to walk the 1/2 mile to the store and lug back and cook up all my purchases. That's silly you say, you should just plan your meals and only make one trip. But I can't be in a house with food, if I know there is a left over chicken breast in the fridge, I'll eat it.
People say they eat at home to keep the portions under control. For me, I eat and drink far more when I'm home than when I'm out. I admit I have a problem - but the only solution I've found is to eat out and keep all my food at the supermarket.
If everyone stops spending you'll put the rest of us out of a job and then we'll stop spending and put the rest of YOU out of work.
I have never driven much (I walk to to work), don't eat out much (no sacrifice: local restaurants are crap) and brown bag lunch, no gym membership, wear clothes till they're ragged, no cable, no cell phone, no DSL, no Kindle, I-pod or other expensive toys.
Smug? Not really. I'm suspecting gov't bailouts will result in inflation that will nibble away at the money I've saved over the years.
Maybe the gov't will save me.
"In addition to warehouse clubs, specialty butchers and ethnic markets are good places to look for bargains."
Another idea is the ethnic or "Spanish" aisle at your local grocery store, if you have a large Latino population nearby. Goya is the Latino Kraft, except cheaper, e.g., in a pinch, you could get Goya Mac&Cheese for 40% less (though it tastes a little off). One thing in the 'Spanish' aisle that is pretty high quality is the Bustelo coffee. We usually get whole beans from Trader Joe's to grind for our French press, but if you make drip coffee at home, Bustelo gives you a good bang for your buck.
I split a vegetable co-op membership with a friend for $650 (May-Nov) and it breaks down to about $12 a week for fresh, organic, locally grown vegetables. Costs FAR less than I would have spent at the grocery store and the quality is outstanding.
Stock up on staples of sundries and toiletries - soap, toilet paper, deodorant, dish soap, contact lens solution, toothpaste, et als at costco/sams club. I havent gone to a drug store to buy any staples in three months...the occasional item, yes - but not the stuff I use every day. Its amazing how much money you can spend on stuff like that.
Call your cable company and lock in your current rate, if possible. I bundled internet and cable for $95 a month - which I split with my roommate. We also put our cellphones on a family talk plan and it took the bill down nearly 40%.
I too am a wino and trust me, you don't have to sacrifice wine for cost. There are plenty of great wines for under $10 -- my favest are Lindenmans' Cabernet Sauvignon (all their wines are outstanding), Monte De Luz Tannat, Veramonte (Sauv. blanc), La Veille Ferme, Collosi Chianti, and Testa Montepulciano are all under $10 a bottle. (N.B.: I work for a wine shop!)
Giving up my smack habit in favor of huffing paint.
What about:
8) Get married.
It would have the side benefit of getting your folks off your back (if they're anything like mine...)
I'm with Jesse Blocher above...you must keep track of what you spend, even if only for a month or two to get a snapshot of where it all goes. I record everything in a slim little notebook I carry in my backpocket. Cash transactions especially, since those aren't tracked by your bank. I then transfer all the info to Quicken. The results can sometimes be painful to look at...
In terms of cutting back, I recently scaled down most of my monthly extras: went for a cheaper cell phone plan, fewer cable channels, a much cheaper gym membership etc. I was able to save several hundred dollars a month almost immediately.
I work in the entertainment industry...which is supposed to be "recession proof," but I don't have much faith. The last economic downturn after 9-11 was brutal. If car & pharmaceutical companies are struggling & start going under, who's going to buy all that lovely ad time on TV?
I plan to live within my means- just like last year, the year before, and the year prior and so back. No reductions in expeditures.
Yes, if you really must buy a house soon, you should save for the down payment with safe fixed income investments.
But, there’s a cost to the inflexibility of this short term goal: You avoid the stock market when you’re young and otherwise have a very long time horizon.
And, why should young people invest so much in stocks? Because they can take the risk and enjoy the higher expected returns. Even a big loss in the market has a small impact on the resources available for their life of spending. The vast majority is paid from future earnings and savings.
That future income is like a big bond because, first, it’s an asset that will be used to fund lifetime spending, and second, it’s largely uncorrelated with the stock market. It dampens the market risk like a bond.
To respond to VJJ, this has little to do with whether your earnings are high or low. Are high incomes less correlated with the market? I doubt it. Also, you suggest you should only invest in the stock market if you have a high income and can replace savings as fast as the market drops. Under this standard, a retiree would never buy stocks, since they have no income to replace their losses. In fact, the response to a market loss is to lower your spending some and recoup the loss over your lifetime.
jmo: I'm sympathetic, since I'm a stress eater myself.
Does having the food in a not-ready-for-consumption form help? It takes about as long to defrost a pork chop as it does to walk to the store to get it, and if you're careful to cook only what you can eat personally, that might help. That, or cook for friends a lot, and have them do the same for you--most evenings, you won't have leftovers at all.
"I distract myself with new hobbies; sailing, more biking, and mountain biking. "
Sailing? Are you kidding me? That's supposed to be a cheap alternative to going to a cheap pub and getting a bizz from $2 pints? I don't think so.
"I distract myself with new hobbies; sailing, more biking, and mountain biking. "
Sailing? Are you kidding me? That's supposed to be a cheap alternative to going to a pub and getting a buzz from $2 pints? I don't think so. I'd say if you sail, you're not feeling this pinch too much. Am I wrong?
Sailing: Very cheap if you do it on other people's boats.
Rent a sailboat in DC at Washington Sailing Marina for $10 an hour for an Aqua Fin that holds 2 / $19 for the Flying Scot that holds 5. Cheaper than the movies.
I would hope that you would not cut out all of your out-of-house entertainment, especially when it comes to dining out. Being a chef and knowing how boring it can be dining/entertaining at home, one should not give up entirely on dining/entertaining out and about. I am not saying dine out every night, just once in awhile. Your dishwasher might like a break and you know you can't cook like that at home! You may get close, but it isn't the same!
Oh, I just figure I'll work until I'm 70, if my job still exists for that long. That's only eight years off. We were following the rules, putting the max into our 401(k), keeping about 50% of it in stock in case we live to be 95. Both of our employers did away with pension plans four years ago, so no pension. Raised kids and sent them to college, so not much savings outside the sadly reduced 401(k). A few months ago it looked like retirement would be possible in 3 years. Remember (I do) when the stock market didn't go up for about 17 years from the mid-1960's to the early 1980's? This could be that bad or worse. I feel sorry for all of us in our 50's and 60's who don't have a government pension.
"I too am a wino and trust me, you don't have to sacrifice wine for cost."
Jen,
Another idea for you, if you like sparklers: Marquis de Monistrol makes a $7.50 cava that got 85 points from the Wine Spectator.
cristallino Cava is my fave. $8.99 a bottle!
Also try GRUET sparkling from of all places Alberquerque NM. Two frenchmen run it - the soil concentration is the same as in Champagne. They moved their vineyard to NM ten years ago and their product is outstanding. $13 a bottle or so.
Sailing is cheap, if you don't own a boat. Skippers always want new people.