A Girl’s Guide to Recessions (Part 2)

March 3, 2008 - 10:30 am By ccandysuzie

24286843.jpgA few days ago, I began my research into the often frightening and very often misunderstood word known as recession. In this episode, we continue to unlock the fiscal mystery that seems to have our country in a headlock…

Why is everyone talking about taxes?

Taxes are a way that the government can inject money back into the economy.

A way of reversing the chain—you buy something at a store= store owner buys something at another store= etc.

President Bush and Senator McCain believe that continuing the current economic trajectory with regards to taxes is the proper response. They feel that this is all merely an economic downturn, — not the R-word.

Both Senators Obama and Clinton call for tax reform in the form of restructuring the system – placing the burden of taxes upon the upper echelon of people and giving more breaks to the middle and lower classes.

While the politicians continue their debate over tax cuts/ breaks/ rebates/ and whether the term recession should be employed, you and I are daily facing the economic reality—whatever you choose to call it.

Recessions really hurt us twenty-somethings: that part-time job you were going to get to cover your car loans suddenly disappears because the store that was going to hire you decided to stick with it’s current staff; a creative project which you, a freelance artist, were going to contract suddenly gets indefinitely postponed as the company realizes it really doesn’t need a 20 ft mural in its entryway… etc.

So, while dealing with tax reform and providing economic stimulus packages will potentially help the situation, it is important for us to take measures to protect ourselves against this economic downturn.

How can I protect myself?

I’m glad you asked!

1. Cut up your credit cards!

No seriously—this could save your butt for two reasons:

→ First of all, as I mentioned in the first part of this article through the text-book buy back example, in a recession, the economic slow-down means that the money you thought you were guaranteed suddenly is not there—for example, you may have expected to work 40 hrs a week and planned your finances around that inevitability but now, thanks to job cuts, you’re only working 35 hrs/ week. Therefore, in a recession don’t spend money you don’t currently have no matter how certain you are that you’ll have it by the time the bill rolls around.

→ Second, credit rates tend to increase during a recession, especially if you are late paying a bill. This means that if you miss a payment, you may end up owing far more than you thought you did.

2. Cut back on your spending

Wait! Before you tune out—this doesn’t mean eating just rice or shopping at thrift stores! Here are some basic ideas:

→ Try walking to the corner store rather than driving or taking public transportation. Even if it’s only a dollar or so you save, multiplied out over a month, you’ll find you save a fairly significant amount.

→ Go shopping in your closet. You’ll be surprised how many shirts and sweaters you forgot you owned. Try making new outfits using the old stuff with some of your newer stuff for a totally different look. Take your well-worn shoes to your local shoemaker—for a comparably small sum they can dye, re-sole, and renovate until you won’t even realize they’re the same pair you wore all last fall (meaning your co-workers won’t either).

→ Instead of ordering a pizza, buy a frozen one and heat it up. Seriously—and I speak from personal experience now, you’ll be amazed at the price comparison.

3. Start your own business

Diversify your income:

Check out the gigs section at craigslist– from writing to housekeeping, from modeling to printing up 250 labels– there are people willing to pay you to do jobs they don’t have time to do themselves

Mary Kay Cosmetics offers a great chance to bring in a few spare bucks

Like pets? Have a few hours to spare in between classes? Become a dog-walker!

Become a professional babysitter– seriously– Check out babysitting opportunities in your area.

So, to sum up:

Bad News: We are in a recession/economic downturn which sucks and may hurt you financially.

Good News: Now you know what you’re talking about and, in addition to meeting hot economists (let me know if you find one– they’re an endangered species) you can take steps to protect yourself.

Good Luck!!

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3 Comments on "A Girl’s Guide to Recessions (Part 2)"

  1. Clay says:
    Tue, 25th Mar 200810:17 am 

    I appreciate your series of articles on the economy, but I fear that you have oversimplified the current econ. situation. I also fear that you have gone to extremes in some cases. For example, suggesting cutting up all credit cards seems smart on the surface, but is detrimental in the long run to young people trying to build credit history. The key to having credit cards is to only use them to make purchases that you could pay cash for. Then, set aside that money in a budget and don’t touch it until the credit bill comes. Pay off your credit cards every month. This type of activity allows a college student or recent grad to build a strong credit history which is crucial in getting the best interest rates when purchasing cars, homes, etc. as well as outstanding interest rates when consolidating student loans.

    Secondly, I will try my best to not make this political, but the “upper echelon” or “rich” in Obama and/or Clinton’s “tax reform” means any families making more than $75K will face higher taxes. For example, in most states, a married couple where both are teachers would qualify as “rich”. The problem with their plan is that they never publicly get into the specifics of exactly who is “rich”. Most of us out in the world hardly feel “rich”. I’m 30 & an engineer & make decent money. However, I have a wife & two kids to support and I have very little left over at the end of the month after a mortgage, a car payment, student loan payments, utilities, food, insurance, etc. In the long run, tax reductions help everyone, not just the wealthy. An extra $50 a month means that much more I can invest in retirement (i.e. stocks, mutual funds, etc.) That investment by me (& millions like me) gives corporations capital for research, job creation, expansion, etc. Or, that $50 a month can go to a nice date a month with my wife & it is more money to a restaraunt to help them pay part time college students. Be careful of anyone proposing placing more of the tax burden on the “rich”. The top 5% of earners already pay over half of the income tax in America anyway. It is the truly wealthy’s desire for more income that drives the creation of companies, expanded corporations, innovations, and so on which creates the opportunities for employment and growth of our economy. The more of the money they earn that they get to keep, the more they will have to invest. That is a good thing for our economy.

    Sorry for the terribly long post, but I felt it was important information and maybe a slightly different perspective from someone who has been in the working world for a few years but still isn’t terribly old.

  2. Suzie - George Washington says:
    Tue, 25th Mar 200812:30 pm 

    Clay, I appreciate your views so much that I feel the need to clarify my approach.

    Building up one’s credit is very important. Keep in mind, however, us 18-24 year olds often are very susceptible to sudden downturns in that we often work in the retail world– retail jobs quickly cut hours and lay off employees when their demand decreases. (see the two comments on the first part of this article). Also, and I am sorry to say this, we don’t have the best track record of money management (I speak from experience here). In the long term your suggestions are excellent. In the short term however, if you know that you are living on a very tight budget, it is smart to only spend the money that you have right now (if someone has the self-discipline to follow your advice and set the money aside, more power to them.)

    Secondly, my parents face the same issues you are discussing and have a very different take on the economy than I do. My concern is always with the lower echelons of society. Those for whom an extra $50 a month would allow them to buy a warm coat for their children, food for their table, perhaps even a few school supplies. A nice date with their spouse is a pipe-dream in that scenario. Poverty is a major problem for our economy. It is the kiss of death for many promising children. Their hopes and dreams are often quickly battered to death by the harsh reality of their situation.

    I live in DC… trust me– this is not simply an idealistic Lib talking. This is reality from where I sit.

    Once again, thanks very much for your perspective. All of your points are very valid and I appreciate your comments.

  3. Suzie McCarthy says:
    Wed, 26th Mar 20084:51 pm 

    Clay, I appreciate your views so much that I feel the need to clarify my approach.

    Building up one’s credit is very important. Keep in mind, however, us 18-24 year olds often are very susceptible to sudden downturns in that we often work in the retail world– retail jobs quickly cut hours and lay off employees when their demand decreases. (see the two comments on the first part of this article). Also, and I am sorry to say this, we don’t have the best track record of money management (I speak from experience here). In the long term your suggestions are excellent. In the short term however, if you know that you are living on a very tight budget, it is smart to only spend the money that you have right now (if someone has the self-discipline to follow your advice and set the money aside, more power to them.)

    Secondly, my parents face the same issues you are discussing and have a very different take on the economy than I do. My concern is always with the lower echelons of society. Those for whom an extra $50 a month would allow them to buy a warm coat for their children, food for their table, perhaps even a few school supplies. A nice date with their spouse is a pipe-dream in that scenario. Poverty is a major problem for our economy. It is the kiss of death for many promising children. Their hopes and dreams are often quickly battered to death by the harsh reality of their situation.

    I live in DC… trust me– this is not simply an idealistic Lib talking. This is reality from where I sit.

    Once again, thanks very much for your perspective. All of your points are very valid and I appreciate your comments.

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