What should we do? recession here? depression coming?

Question

Things are already bad and seem to be getting worse…I’m about to be thirty and this is all new to me. I know that a “recession” is all about the stock market. I believe it’s 2 consecutive “bad” quarters… or something to that effect and that has not happened “yet”. We’re not involved with the stock market but we do have various investments elsewhere.

So, what is this??? Maybe it’s just the beginning of a Recession, therefore the very beginning of a depression? Are we headed for a Depression? If so what should we be doing to prepare our family? We want to safe guard our family in hard times that are apparently getting harder? I read… buy land/property outright, no mortgages, pay off your credit, plant a vegetable garden!

I’d love to, but what should those of us do that can’t buy land outright (the renters)? I can’t have chickens or goats, h**l I can’t even have a dog where I live and the only yard I have is a front lawn.

Answer 1

Debt is not bad necessarily, as long as the interest is low and fixed and as long as you have steady income or sufficient liquid reserves, so part of your advice is wrong. (Fixed rates are now on the rise though. ) It is however very sensible advice to pay off credit card debt and start saving and building liquid investments. Being frugal helps.

I'm not sure if having livestock is frugal in an urban non grazing setting. Feed is pricey. Going vegetarian may be cost effective in the not so distant future, as a pound of soy will be much cheaper than a pound of beef.

A vegetable garden is good though and doesn't take much garden space, fresh lettuce and veggies are nice to have. You can ask thee LL about raised beds on the lawn, or look for a better place to rent.

Live close to work and in walkable nice neighborhoods. Avoid excessive driving.

Regarding rents, no one knows where those will be 10 yrs from now; consider what the local supply demand is. If there was recently much construction activity nearby chances are for oversupply and this means rents may go down. If jobs are leaving town this has the same effect as residents will leave.

Although real estate varies locally, a loose rule of thumb is to keep renting UNLESS the cost of financing the full price of the home plus taxes is less than the rent you expect to pay in the near future (or UNLESS you're sure this is the home you want for life and it would make you happy).

So, a 100k home purchase could be justified if interest plus taxes only came to 7000 per year while rent was 600/mo or more.

Answer 2

A recession definition has nothing to do with Wall Street or the stock market.  The definition of a recession is two straight quarters of economic contraction (negative gross domestic product growth).  Although quite slow, the first quarter of 2008 was still positive GDP growth.  

A 'bear market' is a stock market thing and is defined as a 20% decline in major indicies over a short a period of time.  We have met the technical definition of a bear market.  

This, is possibly, the beginning of a recession and by historical standards is INCREDIBLY mild.  Unemployment is ~5.5%.  Most recessions see this number increase to 7 or 8 percent.  The unemployment rate in 1933 (considered the nadir of the depression) had an unemployment rate of 25%.  

Interest rates are historically low right now, too.  Besides the foreclosure mess, things really aren't too bad right now.  Scary, isn't it?  

The types of things you should be doing to prepare for a recession are the exact same things you should do at any point.  Live below your means.  Save money.  Carry as little debt as possible.  Personally, I haven't had a car loan in 8  years.  I carry no credit card debt.  I have 6 months of living expenses in a savings account.  I save approximately 25% of my annual salary towards retirement.  

I do have a mortgage.  I put down 25% on my house purchase and my payment is very affordable.  

How do I do it?  Let's see, my cars are 1992 and 1997.  I have no cell phone.  I am very conservative with my money and don't have flashy clothes and things.  

But, I am well prepared.  I will be able to retire some day.  I will own my house some day.  I will be able to send my kids to college.  If my job went away today, I'd have months to look for a comparable one.  

If you have debt, pay it off.  Closely examine your spending and see if there aren't places to cut back.  Big and small items (I can't remember the last time I bought anything but gas at a convenience store).  I shop around for good rates on insurance.  

good luck!