Preparing for the Coming Economic Storm

Could we be facing another economic downturn?

I trust my instincts. There is an uneasiness about me right now. I read, I listen to the news, I read my local newspaper and the Des Moines Register and when you read and listen; you get a sinking feeling that your instincts may be spot on. The economy is on the edge. 

The economy is stalling out. We are entwined in the global economy and what goes on in other countries can and does affect us. Look to Europe and you see countries in financial trouble that are linked to other countries. What will happen to Greece and Spain? And then there is China and the slowdown of its economy. Oh and wait - don’t forget the debt ceiling crisis that we will re-visit this summer. 

Ben Bernanke speaks before Congress this week. What will he say? Will there be more stimulus action? And what about Wall Street and how will all of the above affect the stock market. Oh yeah and then there is Jamie Dimon and JP Morgan’s loss and what about Barclay’s admitting to falsifying Libor Reports to the Fed? Have these companies not learned from past mistakes? Oh yeah, there is something called Greed. Hmmm. 

The unemployment figure is hovering at 8% and then there is the weather we need to throw into the mix. Drought is affecting crops, livestock and will hurt small businesses and many farmers. Food prices will be rising, although beef will be cheaper to begin with as farmers/ranchers have sold off some of their herd because they can’t afford to feed the livestock. 

January 1, 2013 is an ominous date. As was reported recently on NPR (National Public Radio) “If Washington doesn't act by that day, tax rates will shoot up for everyone. Huge, indiscriminate cuts in military and domestic programs will take place. And, shortly after that, the nation will again hit the debt ceiling, putting into doubt whether the government can pay its bills.” 

And in the middle of all of this mess is Congress. Members of Congress seem to run from ever compromising on anything. Both parties are guilty of this. It is as if they are involved in a sporting game and each party must be right and win all the time, except we are the losers. 

I feel that there is a storm brewing and it could end up being just as bad as 2008 or come close to it. If you look to the years after the stock market crash of 1929, you will note the ups and downs of our economy as we worked our way through hard times. 

In recent months I feel that consumers have been lulled into the belief that we won’t ever have to experience another 2008. Last Christmas the news reported about how much spending was up versus the previous 2 or 3 Christmases. I’ll never forget one interview in which a few people acknowledged that they were just tired of cutting back and not being able to give more at Christmas and they were going to buy what they wanted even if they had to put it on a credit card. 

Okay – so what can I do about all of this. Plenty. And that is the good news. Instead of sticking my head in the sand, I am being proactive. Look back to 2008 and think about what you would have done to be better prepared for what was to come if you had realized it before hand. Well, we could be facing the same thing so what are you going to do? 

The first thing is not to panic but to realize that we have the resources to handle another impending financial crisis if we take action now. Let’s just say that we have 6 months to a year before another financial crisis hits the U.S. Knowing this, what can we do? 

1. Cease unnecessary spending and grow your savings. However, if you don’t have a freezer, you should put this as a priority/necessity purchase. See Number 4. 

2. Cut expenses as much as reasonably possible. 

3. Pay off debt. We accumulated some consumer debt about 6 months ago when we needed some bunk beds and a new refrigerator. Time to get down to business and get it paid off. 

4. Stock your freezer and pantry with sale items and if you haven’t ever done this before, do it now. 

5. Grow your income. 

I recently took a part time job working at our Public Library. The job is definitely part time as it requires my working just 3 Saturdays a month for about 4 to 5 hours each day. However I will be working more hours in August to cover for vacations and will continue to do so as needed. I won’t be getting rich, but it will be some extra money each month to put in savings. 

Think about doing the same. Is there some way that you could earn some additional income for your family? Sit down and make a list of the possibilities. If you are not presently working outside the home, consider a part time job.  Remember that you don’t want this part time job to take extra expenses away from your income. Do as much as possible to find something that won’t cost you more in expenses than the income you will be bringing in. 

Remember that this job doesn’t have to be a lifetime commitment. It can be temporary but it could be a god send if you run into financial trouble. For me, I love my job at the library and hope to keep it for many years to come.

Perhaps you have little ones and earning extra income is not possible at this time, but you may find an opportunity every now and then to earn a little cash by babysitting. Instead of taking that extra cash and spending it, put it in the bank. Maybe you will come across a little part time job like mine and your spouse can watch the kids the Saturday afternoon that you work. Or maybe it would be easier to cut back and not buy a lot of clothes for the entire family and wear what you already own for the next year.

5. For one year do the above and see what happens to your finances. If after one year everything is fine, then you will have less debt and more money in the bank. But if the worse happens and a job loss comes your way, you at least have some money in the bank and a plan. 

Join me in my own austerity plan to grow my income, put money into savings and pay down debt. Sticking our head in the sand is not an option. Hoping and praying that bad economic times don’t come our way is not a plan. Be proactive and create a plan so that if we experience another financial crisis, you will be better able to work your way through it.  Don't look back one year from now and wish you would have done something.