During a good economy, we tend to be better off financially. We have a little extra money to spend; we aren’t so tight that we have to decide what to pay first. But because we are doing well, we just don’t think about the future.
We are all guilty of this at one time or another. We make purchase we don’t need; we spend a little more going out to dinner, movies, etc.
But since all is okay, we can deal with it. One thing we don’t do is save a little more.
We seem to forget that everything changes and never think about the economy going in a slump. Well it has and now we are struggling too much. Every time you see a news article or a news report, it’s talking about how the economy is not doing well. There are layoffs everywhere, and the United States is not the only country suffering. Due to the economy, prices have gone sky high instead of going lower.
Grocery bills, gas, clothing, new car purchases, all of these are more expensive. Getting a loan is virtually impossible and even if the rates are decent. Instead of curbing our spending habits we start dipping into our savings. This is not a good idea. What happens when that runs out? Instead of dipping into those funds, why not spend less, be more frugal?
We all know someone that we criticize one time or another about how cheap they truly are but right now, they are probably better off than you. They have money saved, bills up to date and can afford the normal necessities, food, gas, medicine, etc.
We must learn how to avoid spiraling deeper into the money pit. Here are a few ways to stop this downfall and pick ourselves back up again.HOME EQUITY
Sometimes we feel this is our only option, to be able to get some money to pay off some bills and have some peace of mind. But during the bad economy it is not feasible thing to do. The value of your home will not be as much as you paid for it originally. The equity at this point and time will be 20% less. Just think about this, if it’s hard to pay your bills now, how much more difficult will it be later on due to this loan. It’s a risk not worth taking. It’s best to either sell your home (also difficult to do during this bad economy) or find better ways to control your spending.
CREDIT CARDS
We have found ourselves in such a bind that we are using the credit cards to pay regular house hold bills. We are paying for our electric, water, cable, phone and grocery bills. Those that have lost their jobs do this to survive until the next job but are frugal, only pay or purchase necessary items. Others, who have lost their jobs, pay their bills but don’t cut out unnecessary purchases. They feel a soon they will find another job and it will be okay. Well, that is not the case. There are people that have been searching for employment for over a year and have had no success.
If you have to use that credit card due to unemployment, make sure you have enough to make your payments. Also, cut back on spending. Obviously if you are using a credit card to pay your household bills then you don’t have money for certain luxuries. Cut out unnecessary costs, such as dinners, lunches, movie nights, luxury items, etc. Use it only on essential items and bills. This way, you won’t sink completely; you can survive until your next job.
NEST EGGS
Hopefully we all have taken advantage of investing in either an IRA and/or 401K. Since many of us have fallen on hard times, we are considering dipping into these funds. Before doing this, see if it really is beneficial to you, withdrawing money from your IRA will have penalties. You are looking at a taxes of at least 10% and penalties of up to 25% for those that are under the age of 59 ½.
You can also get a loan from your 401k, at times there are no penalties if payments are withdrawn from your paycheck. However, each company handles these differently. Before doing this, think about it, if you end up leaving your job, voluntarily or not, this will become a withdrawal and tax penalties will be applied.
COLLEGE
For those that have children going to college, that is another expense that you just can’t avoid. You want to make sure your child gets the education they need to survive later on in life. There are ways to help with this expense, send in applications for Federal Student Aid or start using a 529 saving plan. This will help greatly in the cost. Another thought, if they are not yet in college but will be, try to start saving as much as you can right now for their college tuition, room and board. Many teens work during the school year. How about getting them to save a ¼ of their earnings into a special savings account that both of you are in control of, and then you add into that account double or triple what they saved. This way of thinking can definitely save the whole family a lot of heart aches later on and their futures is secured.
Right now, we are anxious and waiting to see when the economy will truly get better and things function as they use to. Well first you have to remember one thing, since we were willing to pay the high cost of living we are paying right now, it may stay more or less the same. It might go down a little but not much. Another thing to remember, when the economy is back at full speed, this does not mean to go back to old habits.
During a bad economy we all struggle but it’s our opportunity to learn to curb our spending and find ways to save more. If right now you can do without certain luxuries (dinner night, clubbing, expensive ticket items, etc.) then you can continue living without them when the economy is better. All that money, you can save it towards your future. This is the time for us to shape up and prepare ourselves for any future problems. Don’t think that this is the last time it will happen. As history as shown us, it will happen again and hopefully the next time around we are a little bit more prepared for what will come.