Tolerating Spiders, Using Your Credit Cards, and Other Depression Survival Tacticsby
Karen De Coster I loathe spiders. My Dad always used to joke that I reacted as if they were man-eating creatures the size of tall buildings, as seen in the B movies. As a kid, I trounced through the woods at night, remarkably unaware of webs caressing my face and giant, hairy things clinging to my clothes. As an adult, they became my worst nightmare. I don’t know why – it just happened that way. Living near a big lake, my house can be a refuge for crawling things that are out to get me. I am awful when it comes to killing spiders in the house. I have broken or bent more blinds than I can remember because of all the times that I used a hiking boot to kill off a tiny green spider. Accordingly, I have been using a pest control service to spray my house exterior, garage, and porch areas for spider control. This has always helped to control those nasty devils, especially during the warm months. This year, however, with a depression looming, the spider control service came under my budget-cutting axe and got chopped. So it was the spiders versus me, alone and unarmed. I bought the most effective pest control sprays I could find and began to spray my own house, interior and exterior. I’ve had to do battle with a few killer tarantulas the size of a basketball, but thus far it’s been a success. I have even relaxed around spiders and don’t fear killing them. I don’t like it, but I no longer stare them down for twenty minutes planning my exact point of attack. When I finally set aside the hiking boot for a (very large) wad of paper towel, I knew I had successfully conquered my fear. The point is that doing my own pest control – something that is most difficult for me to do – has saved me a chunk of dollars annually. We are living in unprecedented times, and as a result, each of us needs to examine our lifestyle, budget, savings and investment plans, and needs vs. wants. The times ahead will demand a level of fiscal restraint that my generation has never before had to endure. I have spent a lot of time in the last two years counseling friends and family about cutting their budgets, eliminating the wants they can do without, and generally, helping them to clean the financial house. Accordingly, I have put together a short list of items to consider for conserving financial resources and keeping yourself prepared in case of a job loss, wage or hours cut, and other events within the depression economy that can negatively affect your personal or financial status. One thing I will not do is provide silly, impractical ideas such as turning down your thermostat (mine is comfortably on 74; I will not shiver and wear triple layers in my own home), cutting back on quality food items that are essential for good health, or riding your bike to work. Instead, I have provided some basic, libertarian-influenced ideas to think about in order to prepare for the tough times ahead. Credit, Credit, Credit Your credit score is more important than ever in these unstable times. Let’s look at some things you can do to help preserve or boost your credit condition. First off, don’t jump to conclusions and think you have to shed your credit cards. Credit cards can be a real asset if you know how to use them. Banks favor people who use credit lines responsibly and pay debt down timely. Before the have-pulse-will-loan credit bubble was born, young people – with no credit history – used to have a hard time accessing credit. If underwriting standards go back to where they should be (and used to be), this will be the case once again. Don’t close down credit cards you have had for a long time, especially if you have generous lines of credit on them. Unused credit lines impart to your creditors a message of control and dependability. Keep longer-term cards with larger credit lines and dump the cards with the "starter" credit lines. Credit cards with puny credit lines – $1,000 or 2,000 – aren’t very favorable toward your credit score. Also, since banks frown on debtors who carry a balance of more than 35% of their total line of credit, a $400 charge on a card with a $1,000 balance can ding your credit score. If you do keep balances on your card(s), keep more cards with lower balances as opposed to dumping it all on one or two cards and blowing over that 35% figure. If you do have a credit card with debt that is over 35% of the credit line, call the bank and ask for an appropriate credit line increase that will drop your balance below that point. Also, banks are starting to reassess their risks, and hence their exposure to consumer credit. If customers are not using their cards, many banks are closing out their accounts without them requesting any such action. I have heard from many acquaintances and readers who report that this has happened to them. The loss of an unused credit line may ding your credit report. Use your cards that you want to keep. Charge bigger ticket items and pay the bill in full when it comes due. That keeps your account active. Or even pay an occasional interest bill for one month to keep the bank happy. Paying customers will be retained by the banks. It is worth an occasional, small interest charge to keep open a credit line that 1) benefits your credit score, and 2) you can use in a worst-case scenario (just ask someone who has been fired/laid-off without warning). Or better yet, game your credit cards. J.H. Huebert wrote an article on this recently – I enthusiastically support his position. Use your Discover – if you have one – for cash back on gas and auto expenses. As you roll up your points you can turn the points into cash to pay off the balance. Use ‘cash back’ and ‘airline miles’ cards – this is smart money management. You can borrow money in the short term for no charge, pay off your balance upon receiving the bill, and earn free money. A secondary benefit of this type of credit use is that it will be beneficial for your credit score. Cars! Avoid buying a new car unless you absolutely have the cash flow to absorb the payment. The credit bubble put people into the bad habit of perpetually buying or leasing a car and making endless payments. The credit bubble warped peoples’ time preferences and their perceptions of their own financial condition. Decisions to finance items – especially cars – were based on "Can I make that payment with my current situation remaining the same?" The fact that people were living paycheck-to-paycheck in order to make their payments on debt didn’t seem to matter. As long as they could make the payment from current available cash, the purchase was deemed practical. If your budget can accommodate it, however, this is a great time to be buying a car. Rebates are bountiful and interest rates are zilch for people with a solid credit history. Otherwise, remember Gary North-a-nomics and think used car (See Part I and Part II). Pay cash for a well-used car in great shape with higher miles at a good price. As an adherent of Gary North’s used car credo, I drove the same truck for 250k miles and 14.5 years. I’d still have it except the engine bearings were wearing down, and plus, the 11 miles per gallon at $4.40/gallon was a bit much. I looked at replacing the engine, but the truck was also going to need $2,000–3,000 of bodywork to stave off the rust that was starting to appear. So I bought a 2003 vehicle with 70k miles in mint shape. I immediately put some Pirelli tires on it. The interior looks entirely unused, still, even with 115k miles. If you are stuck with a new car with a hefty payment (thereby crimping your cash flow), get rid of it. Instead, pay cash for a used car or put a sizeable down payment on a used car that you can pay off in a year or two. Take care of your car. Do all maintenance and fix things when they break. Little things matter, like maintaining your fluids and keeping the interior clean. Spend the money to keep it sharp. You don’t need the over-priced meal at P.F. Chang, but you do need your car. Eating Out Consider this a worst offense for many of us. Stop eating out so often, and for goodness sakes, do some grocery shopping and put the brakes on the carry-out orders. The biggest culprit is eating lunch out because you are too lazy to pack food each day to take to work. Eliminate most lunches out and save yourself a ton – those lunches are a waste of resources. Dinners out are enjoyable because you share that with good friends, family, and lovers, but cut back on that habit and keep it to a minimum. Nowadays, restaurants are going coupon crazy because they are trying to draw you in as a customer and stay afloat in hard times. When you do go out to eat, be flexible as to restaurant choice and use the coupons. I now get coupons in the mail from some of the nicest places in town, and this is something these restaurants have not done in the past. One obvious occurrence of the boom has been the development of the seemingly trendy, high-priced restaurant. Mom-and-Pop, family-style restaurants, though reasonably priced, became bland and boring while overpriced and mediocre bistros, steakhouses, and entertainment-theme restaurants flourished. People who couldn’t afford the pricey family outings did so anyways, eating beyond their means thanks to an excess of Mastercard moments. These places are losing their attractiveness as the banks reel in credit lines and people return to a more cash-based existence. Those restaurants that offer something truly unique – healthy, organic, vegetarian, genuine upscale, or just great service/food – will survive and figure out a way to retain customers and make a profit in a downturn. Look for deals from the survivors – they will be there. But never, ever put a meal on a credit card – unless the card is used for budget, business, or convenience purposes and will be paid in full when due. Coffee, Caffeine, Starbucks This is a tough one for me because I don’t like to diss Starbucks. Two years ago, I waited for Starbucks to mark down its Barista expresso machines to half-price, which I knew was always the case each year right before Christmas. Now I buy fresh beans and grind them myself and I make my own lattes most of the time. That means I have to get up five minutes earlier, or be to work five minutes later than usual. No big deal. The cost of each cup of latte, with sugar-free syrup and whip cream, does not exceed fifty cents. The same latte at Starbucks costs $4. Starbucks should be an occasional treat for most of us. On a consistent basis, it is a huge waste of your money. Unless you are upper-middle class or above, you cannot afford the Starbucks lifestyle. Think about buying your own machine – you typically have to spend $200 or more to get a good one that will work dependably and last, but it will pay off in the long term. Coupons A co-worker recently said to me: "I don’t have time for cutting and using coupons." I’ve never heard such bloody nonsense. Neither do I "have the time," but I do use them and always have. I use coupons for my dry cleaning, airport parking, oil changes, car washes, pet services, manicures/pedicures, and all of my favorite retail stores, including Bath & Body Works, New York & Company, and Borders. Sign up for emails from your favorite retailers to help make coupon collecting painless. However, don’t use the excuse of coupons to buy something that you probably shouldn’t be buying. Food I may go to three grocery/food stores in one evening in order to take advantage of sales, double coupons, buy-one-get-one-free sales, freshness/quality options, etc. I rarely pay the regular price for anything, except for differentiated food items or items that don’t often go on sale. Learn to substitute for foods when the prices are up. For instance, produce prices can be erratic. If vine-ripened tomatoes go from $1.29/lb to 2.99, don’t buy them. Don’t buy blueberries, strawberries, iceberg lettuce, seedless cucumbers, green onions, or other items when they are double the typical price. You have to be willing to change your habits in order to adjust to price changes. If you are a creature of habit, set in your never-changing ways, learn to get out of that rut, and quick. Learn to change. Buy frozen foods, canned goods, and paper products in large lots when they are on sale. I have a basement fruit cellar – the size of a small bathroom – for storage of food and essentials. Too Many Sales Don’t use the excuse of a clearance or sale to buy something that you probably shouldn’t be buying. Don’t cripple yourself financially with discount addiction. Don’t use clearances and sales and bargains and Black Fridays as an excuse to overspend or rack up debt. The same goes for Wal-Mart, Costco, or the other discount stores. Buying too much crap on sale at Wal-Mart is no more honorable than buying too much crap from Best Buy or Ann Taylor. Home Security Security in your home becomes more necessary when economic times are harsh and the riffraff become more daring. Crime is already up in many areas, especially home burglaries and invasions. Here’s where money spent can make you more Depression-proof. A home defense shotgun is a good start, followed by a pistol and a concealed weapons permit. Don’t just buy guns to stuff them in a drawer until the moment comes – learn how to use them and master them. If necessary, go to your local range or gun shop and pay about $70–100/hour (or thereabouts) to spend a few hours with a professional who will show you how to use and master your guns for personal protection purposes. Also, learn the basics of home protection such as picking a "safe room" and keeping an extra cell phone and a high-intensity, tactical flashlight in the room. I hang out on Internet gun boards occasionally in order to get some valuable tips along these lines. I also recommend Boston’s Gun Bible for everyone. Since the one thing you want to ultimately do is keep the intruder from entering your home, there are steps you can take to deter an unfavorable situation. A security system – from a major company such as ATD or Protection One – costs about $300–$400 to install and about $40 per month for monitoring services. The signs will deter all but the professional criminals. The neighborhood undesirables who are looking to kick in a door or break a window so they can walk away with your DVD player, jewelry, or other items with street value will go somewhere else where the pickings are easier. You can also install driveway and/or landscape lighting to keep your property well lit at all times. I stuck those new, environmental bulbs in my front and side exterior house lamps, and I leave them on all the time. They last a long time. This electricity cost is not where you’ll want to save. My additional electric cost, in addition to occasional bulb replacement, is very minimal. A motion detector light (or two) on the house, when it is set correctly, is an excellent deterrent. Lowlifes scrounging for goods to turn into cash for their next bottle of liquor, Whopper, or drug purchase don’t want to deal with layers of impediments to their plan of action. Spend some money to make your house a difficult option for them. Mall Wandering For most people this is too great a temptation to survive. When people wander malls with no purpose, they tend to buy things they don’t need, and yes, things they don’t even want a week or a month later. Mall wandering has become a great American pastime because the credit bubble enabled people to buy what they didn’t need without justifying the expense that is to be spread out over years, with interest. I see whole families wandering the mall together. It’s become the way to fight boredom. People who are bored should stay home and be bored away from the temptation of buying stuff. Get Rid of Your Land Phone Ditch it if you can do it safely. Most people, including the kids, have cell phones, so why the landline? Even the cheapest calling plan is still too much to pay. The worst part of having a landline is the government taxes that are attached to the bill. Push aside your many excuses and determine if you really need one or if it’s just a crutch you lean on because you dislike change. Family plans for cell phones are so cheap now that it rarely makes sense to have a land phone anymore. Wine Sorry, there’s too much to say that this one gets its own article in my upcoming "Wines for the Depression," coming soon on LewRockwell.com. The House This is essential. Take care of your house. Don’t let things crumble and become withered. Avoid outlandish expenses that became a ritual during the McMansion mania of the credit bubble. As far as your maintenance equipment, it is time to stop thinking everything is disposable. Snowblowers, lawnmowers, edgers, leafblowers, etc. – they all can be maintained. Many people who over-indulged during the boom are now selling off their assets in order to stay afloat. Look for used appliances, furniture, and lawn & garden equipment on Craigslist and elsewhere. There are a lot of good bargains out there right now, and if you have cash you can take advantage of them. Fitness/Health Take care of your fitness needs. Don’t eliminate your gym/sports/fitness expenses if you use them. Now is the time to be healthy and fit, and to stay that way. On that note, if you are overweight and you need to spend money (Weight Watchers, health clinic, gym/personal trainer, special foods or supplements, etc.) to bring that under control, do it. Cut the budget elsewhere, but don’t give up your health. Miscellaneous I have a few personal spending traps – iTunes, books, and useful electronic gadgets like computers, iPods, satellite radio, and BlackBerry. Not bad, because it could be worse, like using my house as an ATM, being addicted to new cars, or even pricey clothes, shoes, and jewelry – none of which describes me. I have also cut back on a favorite purchase of mine: magazines. I stopped buying them altogether. Determine where your spending waste is and try to cut back on that stuff where and when it makes sense. For instance, I know I need to replace a computer or BlackBerry every now and then, but I don’t need magazines and I have not found it necessary to toss my old-but-working Toshiba television in favor of a trendier $1,200 plasma TV.
December 17, 2008 Karen De Coster [send her mail] is a Certified Public Accountant, has an MA in Economics, and works in finance and accounting in the securities industry. See her website and her blog. Copyright © 2008 Karen De Coster
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Surviving
a Depression is going to demand financial strength which is acquired
via fiscal restraint. Even people who have exercised restraint and
have not taken part in the debt-for-stuff orgy need to re-assess
their financial condition and determine what moves they need to
make to ride out the tough times ahead. Some items we deem essential,
and others we just like to have. It is up to each individual to
determine his or her highest-priority needs and most useful wants,
and strike a sensible balance between them.