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Tough Economy
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Finance

Coping with the Tough Economy

By Deborah Nayrocker
Guest Writer

CBN.comAmericans from all walks of life have experienced the effects of the recession.

Households and businesses have been hit with the realization that they took on too much debt. This debt was based on too few assets. In the past, easy access to credit led to more borrowing and higher amounts of credit. Feeling wealthier, consumers spent beyond their income. U.S. households are in far greater debt today than ever before.

Stretched like a balloon, budgets have reached their breaking points. A Money magazine poll shows that 88 percent of us will be more frugal, and 89 percent are making changes in how we manage our finances.

People are discovering that recession corrections can be painful. Although not always welcome, market corrections play a useful role eliminating unwise practices and players. Many over-leveraged banks, businesses, and families are learning the hard way that sound financial principles win out in the end.

America’s Changing Economic Habits

Millions of Americans are experiencing a rough time. The middle-class is being hit particularly hard. Accustomed to a comfortable standard of living, it has been difficult for consumers to give up things they believed to be essentials in life. Whether they are good money managers or not, they are being affected by the recession.

Many consumers have had to make lifestyle changes to survive. Desiring to improve their financial situation, they are finding ways to balance the budget.

In a forum titled “The New Frugality” on Washington Journal, Pennsylvania high school students discussed how their families are making changes. Here are their responses:

Brent – Our family carpools, and we share cars to save money.

Krystal – I’ll eat at home more often instead of eating out all the time. I’m attending college next year, so I’m looking for ways to cut back on spending.

Carlos – Our family has always talked about budgeting, saving, and fiscal responsibility. In our home, credit cards are taboo.

Peter – We limit the number of cars to two cars and we cut down on driving. I’ll take the train into Philadelphia instead of driving. Since I was a sophomore, I’ve been doing odd jobs and saving money for college.

Megan – I work in a restaurant for extra income. I’ve noticed lots of people stop by to fill out applications.

Nick – We’re eating out less often. My parents both took small pay cuts at work.

Grant – Dad got laid off from his job as realtor. Now he’s renting apartments to lower income people in Philadelphia./

When discussing their changing economic habits, this is what adults participating in the forum said:

George – I was laid off from Chrysler. They have cut bonuses there. People are having to be frugal. The government needs to be more frugal, too.

Tom – I’m 29, a full-time student, and I design websites. I have always lived carefully and responsibly. Families need to help each other.

Jerry – At 61, I’m retired but not by choice. I got laid off. I shop at Aldi’s and buy store brands. No more deep sea fishing trips and cruises for me. I also feel frustrated that I can’t give more to my church.

Finding Realistic Solutions

These tough times are testing the relationships of some couples, especially the ones accustomed to a higher standard of living. Families without a safety net for emergencies are finding it harder to make adjustments.

Couples are taking a more realistic look at their higher costs of living. Tom, employed in the housing industry, gave up the usual expensive family vacation this year. He’s also reconsidering what makes a house a home. Realizing he can no longer afford his house payments, property taxes, and upkeep on the large house, he has decided to move to a smaller home. “My business isn’t bringing in the money it used to,” he said. “We can’t continue to live as if I’m still making a lot of money.”

Joe, who is retired, moved to a smaller place he could afford. His daughter and son-in-law moved in with him. His son-in-law is laid off, and his daughter makes minimum wage.

Margaret is retired and was raised to be a good steward. She says she enjoys Starbucks coffee and won’t give it up. But she cuts costs by buying a 40 oz. bag of coffee and brewing a good cup of coffee at home.

Scott has always been frugal. He enjoys the simple pleasures of life. With less income coming in, he’s cutting back on food costs by gardening.

Roles are temporarily changing because of the recession. Husbands who have been laid off are taking care of the children and house responsibilities. Out of fulltime work, dads are taking their kids to the bus stop or to school. More wives are bringing home the regular paycheck. Couples report they are now tackling the budget and money problems as a team.

When money was “rolling in,” many families lived as if their income would always be there. Now that their income is meager, the credit line is gone, and credit card limits are lowered, families are learning to live on finite amounts of available cash.

Be Proactive and Realistic

Recent studies indicate that families don’t change their lifestyle for about six months after their income is reduced. They continue their spending as before. If consumers ignore their precarious situation without making changes, they are easily boxing themselves into a more difficult dilemma.

For example, in The Wall Street Journal (Nov. 2009) I read of Paul, a CEO of a small bank who got laid off from his job in March 2008. For more than a year and a half he and his family have been living off his large severance package of $200,000 and $100,000 in savings. Their mortgage is $2,400 a month. Their two young children are enrolled in a private school, and they continue to vacation out of state and eat out regularly.

Although Paul has received several good job offers, three for a chief financial officer, he’s turned them down. Either he didn’t like the salary, the description of duties, or the severance pay guarantee. He’s hoping to get a better job offer. Paul said that if he doesn’t find work soon, his family will run out of money in less than six months.

Assessing Our Situation

There is no doubt that these economic storms are forcing Americans to reexamine their priorities in life. They are redefining their goals when it comes to family, finances, and faith. Families are abandoning business-as-usual and downscaling, out of necessity or by choice.

Now is a good time to assess our situation and put it in perspective. As stewards of our incomes, homes, and resources, we must examine our fiscal sustainability. It may take minor corrections or a major overhaul to take back control of our lives. But it can be done.

Copyright 2009 Deborah Nayrocker. All rights reserved. Permission to reprint required.


Deborah NayrockerDeborah Nayrocker is an award-winning writer and personal finance columnist. She is the author of The Art of Debt-Free Living and a popular Bible study Living a Balanced Financial Life. Her Web site is www.artofdebt-freeliving.com.

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