How to Cope in a Recession

Written By Patricia Rouzer

Gasoline, grocery, clothing, health insurance and utility costs escalate. Layoffs increase as the number of available jobs decline. Adjustable rate mortgages go one way: up. Stock market averages lurch crazily. And economic experts who rarely agree on anything, sing a consistent chorus of financial gloom.

To be sure, 2008 has been replete with economic uncertainty and fiscal challenge. And as 2009 looms, another year of bumpy budgets seems inevitable. Although many politicians and economists seem reluctant to use the “R(cession)” word, a rose by any other nameÉ

Carroll’s current economic profile presents a spotty picture, and given current economic uncertainties, it seems destined to remain so for an indeterminate period.

For example: The county workforce grew from 95,016 in January to 97,719 in July – the latest information available at press time from the Maryland Department of Labor, Licensing and Regulation. And the agency reported that Carroll’s unemployment rate was 3.9 percent in July, significantly better than the 4.9 percent in Baltimore County; 4.5 percent in Harford County and 7.3 percent in Baltimore City or the Statewide unemployment rate of 4.9 percent reported for the same period.

But that relatively rosy picture is muted by the fact that as the workforce grew Carroll’s unemployment rate rose a full point by July from this year’s low in April of 2.9 percent. In human terms, 2,731 countians were unemployed in April; by July that number had risen to 3,845.

During previous years of relatively low inflation, the median income for Carroll households rose steadily from $64,450 in 2000 to $78,200 in 2007, according to Maryland Department of Planning estimates.

According to those estimates, among regional peers, Carroll wage earners made less than their counterparts in Howard (median income, $96,900) and Anne Arundel ($83,350) but did substantially better than wage earners in Baltimore City (median income, $38,400) and Baltimore County ($64,200). At an estimated annual median income of $77,800 Harford countians were almost on par with Carroll, the State reported.

But regardless of that respectable showing, in the face of what Federal Reserve Chief Ben Bernanke termed our national “financial storm,” many Carroll families have found their financial resources stretched.

Clearly, Carroll Countians need to gird their financial loins and brace for an uncertain fiscal future.

What to do? Where to start? According to the experts, financial control and the ability to weather economic blows must begin with a budget.

“Most people don’t have one,” said Roger S. Desai, a financial advisor who teaches courses on investing and managing financial resources in retirement at Carroll Community College. “They think a budget has to be a complex document on a spreadsheet. It does not. I tell my students to draw a T on a sheet of paper and list all their income on one side and all their monthly expenses on the other. There’s your budget.”

But after tracking income and spending comes the hard part; developing real financial self-discipline. You must, said Desai, be brutally honest in identifying real needs versus what you want, even if you want it desperately. Then start slashing.

Start small. Don’t buy lunch, take it. Desert pricey designer java for home-brewed joe. It all adds up and saving starts to feel good. Take a deep breath and move on to more substantial changes.

“Do you need a $60 hair cut? Do you really need $120 worth of cable television?” Desai asked. He acknowledged that the choices are hard and personal. In an affluent society, we are accustomed to consuming far beyond our fundamental needs. But difficult times require difficult choices. And financial security requires a nest egg to meet rising expenditures for essentials rise and protect your family if health, employment or other unforeseeable disasters strike.

“Eliminating relatively small expenses consistently helps build savings surprisingly rapidly, but you must commit to saving what you cut back on nonessentials. Americans are notoriously bad at saving,” said Desai. “Take other cost-cutting actions. Clip coupons. Buy nonessentials only when they are on sale. It all adds up.”
Take off those rose-colored consumer glasses and take a creative approach to savings. Plant a summer vegetable garden or buy local fruits and vegetables to can or freeze for later use. Shop consignment stores, the Good Will or the Westminster Mission store for low-priced, “nearly new” home goods, clothing and other items. Make holiday gifts and birthday presents. It’s the thought that counts, right?

And, by the way, PUT AWAY THOSE CREDIT CARDS AND PAY OFF YOUR BALANCES!

“Credit cards are so easy,” said Desai. “We see something. We want it. We pull out a credit card. The rates go up and we blame our financial problems on the card companies. No one forced us to buy on credit. We need to take responsibility for our actions and think before we buy.”

But if you have already fallen into a credit card abyss, help is available. Credit counseling services are a good place to start. But be careful when selecting one. Ask up front about fees. If they seem excessive, call another service. Find out if the service is certified by the Association of Independent Consumer Credit Counseling Agencies, a member-supported national association representing nonprofit credit counseling companies. Call the Better Business Bureau of Greater Maryland to check for complaints.

The Consumer Credit Counseling Service (CCCS) of Maryland and Delaware, Inc., a nonprofit organization, is one of the legitimate groups that exist to help people manage and get out of debt.

The first step that CCCS takes to help customers get credit card payments under control is to analyze their monthly income and expenses; in other words, developing a budget.

“We offer counseling free over the phone,” said Tim Lupinek, a CCCS customer service representative. For a modest monthly fee – $8 per credit card or a maximum of $30 per month – CCCS will evaluate a customer’s unsecured debt, propose a repayment plan to the customer’s credit card companies, negotiate interest rates, get card companies to waive late fees and help put that payback plan into practice.

By developing an affordable monthly payback plan that the credit card company accepts, CCCS customers not only gain control of their finances, they stop the barrage of collection calls that comes with failure to make timely payments.

“In most cases credit card companies will waive late fees and lower interest rates,” Lupinek said. “They want to be repaid and they are willing to help the customer who is really committed to paying their debt.”

Lupinek said people should consider seeking credit counseling service if they are constantly late with payments, put off one monthly payment to pay another, are at their credit limit or make only the minimum monthly payment, most of which goes toward interest. Making only the minimum monthly payment may keep credit card companies at bay, but will ultimately cost the card holder hundreds, often thousands of dollars, and take years to pay off the balance.

In addition, CCCS can help customers secure legal help if bankruptcy seems inevitable.

“It certainly isn’t something we encourage, but sometimes it is the only logical step,” Lupinek said.
CCCS will not negotiate to resolve medical expenses or automobile loans, but it offers mortgage counseling for struggling homeowners.

Adjustable rate mortgages change regularly, and in this economy those adjustments mean higher monthly mortgage payments. If you are unable to meet your mortgage obligation for any reason, do not, under any circumstance, ignore the situation. It – and your lender – will not go away.

“Call your bank immediately. They will work with you. They don’t want to be put in position of foreclosing, selling your house and maybe taking a substantial loss on it,” said Desai.

Financial institutions have a number of choices available to help homeowners, including reducing an interest rate or altering a payment schedule.

Chris Yingling, Manager of Ferris Baker, Watts’ Westminster Branch, agreed.

“If it is a short term problem there may be something you can do, like borrowing against your IRA or your 401(K), although that is not something we routinely encourage,” he said, noting that an account owner has 60 days to pay back what they borrowed without penalty or tax obligation.

“But even if you can’t pay the money back (to yourself), it is better to use your money and save your house,” he said.

Yingling noted that in the face of a roller coaster stock market, many of his clients have become increasingly conservative in their investments and in their life styles.

“With higher prices at the pump and in the grocery store, people are feeling the pinch,” he said. Many have cut back on luxury expenditures like vacations and new car purchases. “They’re looking at things and asking themselves ÔDo I really need that? Is it a luxury or a necessity?’”

Despite their current unease, however, Yingling’s clients are not abandoning the stocks in their portfolios.
“We went through a similar type of thing earlier in the decade, so they’ve been through it before,” he said. “They understand that the market is cyclical. It comes back.”

But many people are keeping more cash on hand that in happier financial times they would have invested.
“Now is a great time to buy, but many people are reluctant because they see a possibility that what they buy today might be worth less tomorrow,” Yingling said. “They feel that one or two percent return in a money market or reserve fund is better than the uncertainty in the stock market right now.”

Desia and Yingling agree that uncertainty is a condition the stock market doesn’t tolerate.

“We’ve got a war, we’ve got an election coming up, we’ve got worries about oil and the real estate market,” Yingling said. “The market just doesn’t like uncertainty.”

Desai said he tries to educate people about the long-term aspects of the market.

“You shouldn’t be investing today with the idea that you’ll get a big return next week,” he said. “You should be investing long term for a secure future.”

“And with companies eliminating pension plans and health benefits and the future of Social Security in doubt, people have to learn to look out for themselves. We can’t depend on the government or the company we work for to look out for us,” Desia said.

“That is going to become more important as time goes by. We all need to know where we stand financially today and learn to save and invest wisely for a secure future. No one is going to do it for us. We have to do it ourselves.”