Wall Street has its financial rescue plan in place. Do you have a plan for unloading your toxic debt?
With or without all the bailout blather, many consumers have felt crunched for months. We all need to build a bailout, especially since economists say the fallout from the financial crisis is expected to drive a U.S. recession well into 2009.
After another week of weak economic indicators and stock declines, the aftershocks will continue.
“Don't expect much of an improvement for two or three months,” said Brian Bethune, chief U.S. economist at consulting firm Global Insight in Lexington, Mass.
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So logically, we'd all be better served by engineering our own rescue plan. Some strategies:
Build up your cash.
Banks continue to be reluctant to offer basic loans to companies – and may be reluctant for awhile. As credit remains tight, some businesses could continue to have trouble borrowing and thus have no choice but to cut workers, said Mark Zandi, co-founder of Moody's Economy.com.
Some economists say they expect the Federal Reserve will need to lower short-term rates soon. Bethune sees the U.S. unemployment rate hitting 6.7 percent by the end of 2009 – up from 6.1 percent for September. To compare: the U.S. jobless rate averaged 4.9 percent during the first quarter of 2008.
Do what you can to have at least three to six months of cash to cover bills, in case of a job loss.
“Nothing you do financially will help you sleep better at night than knowing you have money tucked away for a rainy day,” said Greg McBride, senior financial analyst at Bankrate.com.
Some so-called safe havens have run into trouble, including the failure in September of the oldest U.S. money market fund. The U.S. Treasury then stepped in temporarily to guarantee returns of shareholders of money market mutual funds. See www.finra.org for details.
One bailout benefit: the FDIC insurance limit to protect bank – and credit union – accounts went up to $250,000, from the current $100,000.
Go for a credit freeze.
“In a bad economy, the answer really is not to find more credit to use. It's to make sure you're able to make your payments and find ways to cut back and live within your means,” said Eve Pidgeon, a spokeswoman for GreenPath Inc. in Farmington Hills, Mich.
The idea, she said, is to live literally according to your wage.
Yet you may not want to close all your credit cards. As credit could be harder to get, some experts say you might want to keep accounts open for true emergencies.
Do a round of layoffs.
Gail Perry-Mason, a Detroit financial author, said people need to lay off premium cable channels, extra services on cell phones, the latest video games or rounds of golf.
“Our household is a for-profit business, not a nonprofit,” said Perry-Mason, a Detroit broker and co-author of “Girl, Make Your Money Grow!” ($12.95, Broadway paperback).
Track every dollar .
Gerri Detweiler, credit adviser for Credit.com in San Francisco, said the best thing that consumers can do now is to track their spending for 30 days.
“This will give you a clear idea of where your money is going and put you ahead if you need to seek help from a credit or mortgage counselor, or even a bankruptcy attorney,” Detweiler said.
Do not wait for your monthly credit-card statements. Call your card companies to monitor your charges and see how close you are to the limit, as well. Credit.com has information on improving a credit score, shopping for a credit card and paying down debt.
Look for value but pay attention to risk.
Jim Cramer, host of “Mad Money” on CNBC, said that investors should search for stocks that have now come down so much in price that their dividend yield is 4 to 5 percent. Examples include Duke Energy Corp. and Consolidated Edison, he said. But he warned to make sure those companies do not have so much debt that they can't pay the dividends.
Also look for companies that have little economic sensitivity and that have a strong pro-shareholder background, such as General Mills Inc. or Procter & Gamble Co.
He also said triple tax-free government obligation municipal bonds are a spot for tremendous returns, but should not be used in a tax-deferred retirement account, such as an IRA.
Times might be tough, but we all have something that we can count on to bring us joy.
Really funny friends, a great handbag bought when times were better, warm hugs, a leftover birthday gift card, two consecutive green lights, the best dog on the block.
Some of these things can matter more than ever now. Take inventory.