Surviving the Economy Thursday, January 31, 2008 posted by News10 Staff at 3:39 PM Last September, I was driving through the newer neighborhoods in the northern section of Stockton, looking for people who were facing foreclosure. It was one of many stories about the rampant number of foreclosures in the Sacramento area. My strategy was to knock on the doors of homes that had "For Sale" signs posted out front. Surely, I thought, many who would be selling their homes in what was then a climate of depreciating home values must be selling out of financial necessity, possibly to avoid foreclosure. We must have knocked on 50 doors. The overwhelming majority of the doors were unanswered. It wasn't because the owners weren't home, but because the owners would never be home. The houses were vacant. People had plain given up, abandoned their homes. It was less than a month later that I did a similar story in the North Natomas community of Sacramento. Again, the same result. That said to me we are in for huge economic trouble that would go beyond the real estate and banking industries. By October, the first serious and persistent talk of a recession started circulating on the web and other media. Economists were reluctant to predict a recession. Looking around my neighborhood, talking with friends, it appeared to me if we weren't already in a recession, we were at least headed for a tumultuous financial period. Gas prices edged up to $3.50 a gallon. A loaf of bread could easily cost $3.50, if not $4.00. A dozen eggs hit $3.00 and a half gallon of milk, as much as that gallon of gas. So after hearing much casual discussion about the difficulty in meeting day-to-day expenses mixed with questions of "What's going to happen?", I called up UC Davis economist Dr. Brad Barber. Barber responded as candidly as a responsible and reasonable economist could. He said "predicting recession is always a dicey business, but I think it's safe to say there will be quite a bit of turmoil." The descriptive 'turmoil' was enough to catch my attention. How do you prepare for turmoil? I looked at my own finances and came to the conclusion that I really had no idea. I wanted to show them to a personal finance advisor, but knew I wasn't about to divulge my financial indulgences to the public. They are simply too boring. So, I contacted an old friend, Jacob Cullers, to see if he would volunteer. Jacob provided me with his monthly household expenses, which I shared with a financial advisor Chase Armer. Within 15 minutes, Armer identified a plan where Cullers and his wife could easily save $150 per month. With a bit more painful trimming, they could save $300 a month. Armer said if the Cullers, or most households for that matter, could save that $300 over the next six months, it might be just the cushion they need to survive any recession or 'turmoil.' $1,000 to $1,500 can handle a few months of car payments, fuel bills, or credit cards- enough to keep from going 30 days late or affecting your credit. The ideas seem simple: Eliminate or downgrade cable/satellite TV, subscription movie and radio services. Shop for lower priced, but quality car and home insurance. Cut dining out by 50%. Cut food budget by 20%. Put off purchases of TV's, electronics, clothing. In fact, Armer looked at the Cullers budget and found where they could save $700 a month, if they were determined. They truly appreciated the advice and put to use many of the recommendations. As for cutting back $700 a month from their budget, the Cullers said $300 is good! For many Californians, finding a $300-a-month cushion won't keep them from falling behind. Their mortgage payments have escalated by a $1,000 or more. Credit cards are used regularly to supplement cash flow. Increasingly, consumer credit counselors along with bankruptcy attorneys are seeing cases where credit card balances have soared will above $50,000. The only choice for many is to file bankruptcy. When I contacted the assistant U.S. Trustee of Sacramento's bankruptcy court, I was surprised to hear how deeply the profile of bankruptcy debtors has changed over a few short years. The assistant trustee ushered me into the hearing room to observe cases as they were discharged. It was a stark, eye opening experience. Case after case, it wasn't people crashing back to earth after flying 'high on the hog'. Instead, these were hard-working people, often with jobs, who tried in earnest to stave off the inevitable by paying with credit cards what they normally would have included in their monthly budgets had new mortgage payments, higher fuel, food, utility and health costs not eaten those budgets alive. No one in court seemed to have a trace of smugness nor complacency. Tears flowed and anguish exploded from many a face as the debtors answered the simple yes or no responses to the administrator's basic questions. I left feeling unexpected sympathy for the filers. I also wondered how I would handle the situation should it happen to me. Just like these economic times we are in, I concluded it would be painful, but survivable.