In the days before the nation’s current economic slowdown, Daniel Island resident Maria Wright didn’t have much need for clipping coupons. Now a "20 percent off" enticement from a local store has her breaking out the scissors.
|Daniel Island resident Maria Wright thumbs through a wallet-sized folder stocked with coupons.
"We haven’t changed as much as we’re going to," said Maria of the family’s new and improved spending plan. "I know more changes are coming."
While the Wright family has always tried to live within their means, they, along with many others in our area, are paying much closer attention to how and where they spend their money.
"I think the one thing that has definitely changed for me is I tend to think of what I want," added Maria, from the Center Park home she shares with her husband, Michael, and their two children. "Some wants are big, and other wants are little. The wants that are big, that I probably thought were attainable, and possible…are on the back burner now."
Terry and Mike Petska, residents of St. Thomas Point off Clements Ferry Road, are also tightening their financial reins.
"We’re scaling back a bit," said Terry. "We’re trying to carpool when we can!"
Loy Ballam, a retiree who lives in the Beresford Hall subdivision, considers herself "one of the lucky ones." She and her husband, who own multiple townhomes in the area, were recently able to sell their primary residence in today’s less than desirable housing market. Still, the couple is keeping a close eye on expenditures.
"We do eat out less," said Loy. "We have to an extent cut back. So far, we’ve been able to keep our townhomes rented, but that’s our nest egg. So that gets scary."
But should the nation’s troubling economic situation be cause for alarm? According to Britt Gilbert, president of the Daniel Island-based Commonwealth Financial Group, not having a plan for your finances is even more frightening.
"You have to figure out where that fear comes from," said Britt. "Yes, we’ve got clients who are losing money, but the fear and panic comes from the debt side of things. It doesn’t come from the fact that accounts are down lower. We all acknowledge that, because if you’re in the market, you know that it goes up and it goes down…It’s more than just navigating through. It needs to be addressing living beyond your means. If this does last, if this does stick around, if the economy does take a year to recover, if all of these things are true, what’s your plan?"
|Being careful to live within your means, avoiding wasteful spending, is one of the first steps towards controlling debt.
A whopping 41 percent of people between the ages of 27 and 42 years old have more than $25,000 in debt (excluding mortgages), according to information provided by Commonwealth. With personal savings at an all-time low, financial experts describe a "perfect storm" scenario for potential problems.
"I think we’ve been in a lull for maybe six of seven years, thinking we don’t really have to worry about where we’re spending our money," added Barbara Ristow, CFP, director of financial planning for Commonwealth. "…We’re saving a little bit towards retirement, our house keeps appreciating, the stock market is doing well. And now there is this sense that if we go back to where the stock market stays flat, we don’t really have growth in our investments, what’s that going to do? And how do we counteract that?"
In addition to analyzing spending habits and readjusting debt, Ristow suggested putting aside 15 to 20 percent of your income for a "comfortable retirement".
"If you want a more enhanced life, you’re barely scratching the surface," she said. "People always hear 10 percent and think ‘oh, I’m good,’ but that’s not going to get you very far anymore."
"There’s not a right or a wrong," added Britt. "There’s not a rule of thumb. I don’t think you go at it and say ‘what’s the right investment.’ I work from a position that they’re all good. As long as we know where we’re going. Our goal as planners is to create some congruency between what you say is important, what you say you want…and what you’re actually doing."
|Maria Wright, a savvy shopper and saver, keeps a close eye on expenses.
Commonwealth would likely give the Wright family high scores for making smart choices when it comes to spending and saving. The couple will soon pay off their second car and put the extra money into college savings accounts for their daughters. Michael is also taking advantage of today’s lower stock prices to bank a few good deals.
"Right now, with it being very low, I’m buying as much as I possibly can," said Michael, manager of software development for Blackbaud. "I’m also putting the maximum into my 401K, because eventually the market will turn around. As I get older and closer to retirement, I’m going to have to rethink that and start moving funds around to be a bit more balanced."
Maria, a civil engineer by trade, is considering going back to work part-time after the holidays, just to generate a bit more income. They also plan to stay closer to home instead of going on potentially expensive vacations.
"One thing that helps us is that we’re really on the same page," added Maria. "We both were raised that if you can’t afford it, you don’t buy it."
It is a simple philosophy that many seem to have forgotten in today’s "gotta have it now" world.
"It’s just getting back to the basics," added Ristow. "We have to get responsible again."
Recession: Are you ready?
By Terry Savage
mericans will soon face a recession that few are prepared to endure. In fact, if you’re under age 45, you haven’t seen a severe recession in your entire working life.
While there was a moderate recession in 1990-’91, the last truly deep and lasting recession occurred in 1981-’82, when most of today’s workers were still in school.
As a reminder, back then we had double-digit unemployment in the industrial heartland of America. The slowdown was triggered when the Fed pushed the prime rate to 21 percent to curb inflation. The savings rate doubled as people got the message that the situation was dire, and they’d better prepare for a long period of economic weakness.
Now we’re starting to see announcements of layoffs that precede another deep recession. But this time, we enter into recession with a negative savings rate, and consumers buried in debt.
There is now nearly $1 trillion of consumer debt revolving on credit cards -- not the amount charged each month and paid off at the end of the month. Nearly half of those cardholders are making only minimum monthly payments.
Those interest charges can really pile up. At www.LowCards.com, its index reveals the average rate charged by more than 1,000 card issuers is 12.03 percent for new purchases. It is an astounding 20.70 percent on cash advances. And if you’re behind on your payments, the default rate could be as high as 29.99 percent!
A recent report by Innovest predicts credit card charge-offs will reach $18.6 billion in the first quarter of 2009, and more than $96 billion by the end of next year! Those charge-offs typically happen when consumers file for bankruptcy. Credit-card debt is the next bubble to burst, and it will be another hit for the banks.
What can you do? Start talking about your money, now! In America, we talk politics and sex without thinking it’s too personal. But we never talk about money issues. It’s the first step toward facing the truth.
If your mom runs out of money, or is buried in credit-card debt, she’ll turn to you for help. Same thing with that college grad who never took a course in money management but who did receive a credit card in the mail. They might even wind up living in your guest room! So make money talk a family priority.
Here are the questions to ask -- and answer:
How much debt do I really have? Make a list of current balances, minimum, monthly payments and the interest rate. Then prioritize the highest rate cards, while still making minimum payments on the others.
How can I earn more? This is the most positive step you can take -- far easier than cutting back (which is the next challenge). But if you could work a weekend or evening job for the next few months, or if a stay-at-home mom could baby-sit for her working neighbor, you could bring in extra cash to apply to those bills
Where can I cut back? Find at least one thing to give up -- before you’re forced to do it. Maybe it’s a cell phone or your cable TV, or an evening out at the movies. If you’ve done those, maybe it’s changing another habit, such as doing more coupon clipping at the grocery store, or buying bargain food even if your kids hate Brussels sprouts! Every little bit will help.
Speaking of kids, they’re not too young to understand that times are tough. Don’t try to put on a brave front. If they understand, they’ll gladly join in the sacrifices that will be made this holiday season.
Don’t wait until Turkey Day to bring up the subject. Start now, so you won’t be jumping up from Thanksgiving dinner to camp out at the mall, seeking bargains. They’re only a good deal if you can afford to pay for them now, not after all the interest charges pile up. And that’s the Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at www.terrysavage.com. Her new book, "The Savage Number: How Much Money Do You Make?" has just been published. COPYRIGHT 2008 TERRY SAVAGE PRODUCTIONS. DISTRIBUTED BY CREATORS SYNDICATE, INC.