Pundits and politicians danced around the word for months, not wanting to declare such bad news, but last week's decision by the National Bureau of Economic Research (NBER) made it unavoidable. Not only are we in a recession, but we have been for the last year.
"Big surprise," many of you are saying. It's true: whether it was officially labeled a recession or not, the last year's economy has been tough on most of us. Many have adjusted their lives to make their dollars work, from small changes like eating out less often, to big ones like undergoing a loan modification to save money on home mortgages.
So, while in reality, the official recession news probably won't change your day to day too much, here are some things to keep in mind as we face the beginning of a new year:
historically, by the time the NBER gets around to officially declaring a recession, we're usually within a few months of the end of it.
in the years since WWII, the US has experienced 11 recessions (this one included), the average length of which is 10 months. We're officially in month 11, which means that statistically the end is in sight.
many firms are aware of the recession and are more willing than ever to work with consumers financially, whether through a loan modification on your mortgage or a restoration of credit. Now is the time to start negotiating!
although the stock market is taking a beating right now, time heals all wounds. Historically, 100% of all the 10-year rolling averages of market returns since these things started being recorded have ended in the black. Try not to panic about your 401(k) and instead, give it time to recover.
The main thing to keep in mind while living through a recession is to stay optimistic. Things could most certainly be worse, and there's never been a recession that we haven't come out of!
Do you remember a time growing up when your father said to you, "well, kids, it's time to tighten our belts"? Or maybe your mother tried to soften the blow, telling you in October that "it's going to be a very small Christmas this year."
In hard economic times like the ones we're experiencing now, Americans are often required to tighten their financial belts in order to make ends meet. A very positive outcome can be expected from this though, as we learn to better save and manage our money, as well as to evaluate our expenses. Here are some ideas and tips on making sure your money is being used to its best advantage:
Property taxes - these taxes are assessed as a percentage of the value of your property. In the last few years, values went up --- way up. And property taxes went up too. We all know that values are going down now, but have you seen a corresponding decrease in your taxes? If not, you can be proactive in getting those taxes reassessed and potentially saving a lot of money. Just ask us how!
Insurance - Geico, Allstate, Liberty Mutual and the rest love to tell you about how much they save their customers on their insurance. Do you know that hundreds of other insurance companies exist with equal or better coverage and lower rates? The best way to find them is through a trustworthy insurance broker who can shop many different carriers at one time to find you the best coverage at the best price. You may be able to save hundreds of dollars without losing a penny of coverage. (Put our broker to the test by contacting cyara@stratumins.com and asking for a free, no obligation quote)
Loan Modification - for struggling homeowners, modifying your home loan is a very real option to keep you in your home. Depending on your situation, you could save hundreds of dollars a month on your mortgage (to save time and headaches, please contact a loan mod specialist -- like us -- to be your advocate throughout the process).
Some other ideas to save money on a smaller scale include:
getting your hair cut less often
planning your meals a week in advance so you spend less money eating out and wasted on unnecessary groceries
canceling magazine subscriptions and read the highlights online instead
going clothes shopping for what you need only - not when you're looking for entertainment
exercising more - you'll save money on other forms of entertainment if instead you head outside for a walk
If you're short for cash, you don't need to resort to credit cards to make ends meet. A simple evaluation of your spending, as well as taking advantage of the possible savings above, will help you slide through this slowdown without visiting the soup kitchen.
Every time I listen to the news these days, I think of that old song, "raindrops keep falling on my head..."
The stock market continues to tank. Drip. The dollar is barely getting any stronger. Drip. Home prices are on a slippery slide downward. Drip.
Bad news just keeps pouring down out of the heavens, causing America to shudder with fear every time a news item flashes into our minds. We start planning out "what if" scenarios in order to prepare for the worst. We batten down the hatches and wait, paralyzed with the fear of losing everything.
Did you know that fear of losing is making you miss out on a lot of potential opportunities to improve your lifestyle?
There are the obvious examples:
buying real estate at a "bargain" (may or may not be a good idea for your particular situation)
buying stocks at a bargain
renegotiating your home loan with your lender to take advantage of a potentially lower payment (only works if you're clearly struggling financially)
And then there are the examples that we like better, of the "think outside the box" variety:
make over your home by benefitting from contractors lowering their prices to get you to accept their bid
create new business concepts that work better in a struggling economy than a booming one, like a business helping families learn to cook healthy meals at home on a budget
save money on entertainment by instead vowing to discover your own neighborhood
If you are feeling nervous in this bad news rainstorm of an economy, first acknowledge that to be nervous about the future is normal. Then, shake off your fear, straighten your shoulders, and give us a call to see what opportunities may be available to you.
The good news for real estate investors: buying a home in Orange County is about as cheap as it was in 2003.
The bad news for real estate investors: competition is fierce and rents are dropping.
We all know that with so many families foreclosing on their home loans, buying inexpensive rental properties is becoming relatively easy for investors. One of the [millions of] side effects of this whole crazy economic downturn is that now those savvy investors are having a hard time finding tenants who can afford the rent.
Rental rates here in Orange County will "only" drop about 3% this year, which is not nearly so bad as Florida. There, rents are expected to drop 10%! (OC Register).
So for any tenants or potential first-time home buyers out there, pay attention and watch for opportunities, either to negotiate lower rent, or find an inexpensive home for which you can afford the mortgage. Investors, make sure you've got a reliable tenant lined up before you head into escrow to sign your closing papers.
The father of a friend of mine has been flying for American Airlines for over 30 years. Though this pilot will only be turning 60 this November, he has decided to take an early retirement. He has some very foresightful reasoning for doing so.
Knowing that his pension is linked to the stock exchange, this man took the chance a year or two ago to lock in his retirement income amount to what the stock market was doing then. I'm not sure of the logistics, but this lock only lasts a couple of years. Rather than retiring in a few years as planned, he has decided to take advantage of his good position now instead of working until the lock expires, and then having to work a few more years just to get his retirement back to the original position.
I've got a couple decades left until I can retire at the standard age, but this gentleman's actions got me thinking. The news reports all this market volatility as bad news only. In reality, there are many opportunities afforded by this investment market that wouldn't have been available a few years ago.
In the meantime, I'm resolving to continue thinking creatively to see how I can make the most of less than ideal times. It just takes a little outside-the-box thinking.
Problems are an inevitable part of life. Who among you, reading this right now, can honestly say that they've never encountered any sort of difficulty during their time on the planet? Who can report that all the bad financial news out there hasn't personally affected them in one way or another?
The fact that we all have problems is a uniting aspect of being human. Where we really start to differentiate ourselves from others is how we deal with our problems. Next time you're facing an issue that you're not sure how to tackle, try some of the following techniques to get yourself above and beyond and onto the next goal:
Sit up straight. My mother would be disappointed at my tendency to slouch, but I've noticed that working on improving my posture simultaneously improves my mental clarity and drive to work.
Tell a tall tale. Attempting to retell your day's experiences in an entertaining manner sharpens your creativity and power of recall, which is useful in all areas of life.
Keep a journal (or a blog!). Renowned inspirational author Jim Rohn recommends writing every day, as the practice helps you clarify your thoughts as well as build a routine and sharpen self-discipline.
Take a walk. The repetitive and rhythmic motion of walking is extremely therapeutic for the mind, helping you release energy and clear your mind to solve problems or be creative.
Tell a joke, or laugh at one. When you laugh, your body realeases endorphins which create the same feel-good high as cardiovascular exercise. The more you laugh, the better you feel (and of course, the better you feel, the more you'll laugh).
With bad news hitting us from all sides, it's important to remember that we are not slaves to our environment. We each have the power within us to transform our experiences into positive growth opportunities. The only way others can take that power away from you is if you let them.
Seven years ago, President Bush addressed the nation in order to shore up confidence in US strength and supremacy after the 9/11 attacks. This last month, the President addressed us again to try to quell growing fears about the financial crisis that is rocking the nation.
According to an article (with the same title as this post) by David Rothkopf published yesterday in the Washington Post, the crisis we are facing today is not only bigger in scope than the 9/11 crisis, but it may signify the end of an era. America is the main global superpower and has been singing the praises of a free market economy since the start of Reaganomics. But with the passage of the bailout bill, Congress has essentially spit in the face of free markets and begun what is likely to be a series of government intervention in the economy.
My whole life has been lived in a free market. Every course I took to achieve my business degree focused on the importance of the free marketplace and Adam Smith's invisible hand. It's essentially the only thing I know.
The basis of the free market is that each individual who goes into the marketplace with the intent to make earnings for himself will also end up taking actions that are good for the whole economy. I wonder, in formalizing this system, did Reagan and Smith underestimate the inherent greed of human nature? It seems that people did go into Wall Street to earn for themselves, but took it way beyond normal limits, leading the system to shudder under all the tricks and scams that were used to cheat the system and earn more money.
I understand that life has to change, and the economy has been in constant flux since it was born. The problem is, my position on the political spectrum leads me to cringe when I think of the government becoming more involved in our lives financially.
Do you think this is the end of the era? Or do you think this is a blip in the constant growth of the US economy?
A sales rep, an administration clerk, and the manager are walking to lunch when they find an antique oil lamp. They rub it and a Genie comes out.
The Genie says, "I'll give each of you just one wish."
"Me first! Me first!" says the admin. clerk. "I want to be in the Bahamas, driving a speedboat, without a care in the world." Poof! She's gone.
"Me next! Me next!" says the sales rep. "I want to be in Hawaii, relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life." Poof! He's gone.
"OK, you're up," the Genie says to the manager.
The manager says, "I want those two back in the office after lunch."
Moral of the story: Always let your boss have the first say.
My sisters ran a marathon a few years ago with Team in Training to benefit the Leukemia and Lymphoma Society. After one of their team meetings they showed us this video about a father-son racing team they had heard about.
Most of you have probably heard of Dick and Rick Hoyt (they've been on Oprah!), but in case you haven't, take a few minutes to watch the video. The more easily touched people out there may want to grab a Kleenex... :)
The media has accurately predicted 33 of the last 4 recessions.
-- Zig Ziglar
We all know that the media tends to feed on drama, reporting bad news when it's available, and finding bad news to report when nothing horrible is happening. They have a lot to report these days!
One fear the media is feeding on right now is people's fear of losing a lot of money and savings due to the stock market's wild fluctuations lately. While there is no way of denying the roller coaster ride going on down on Wall Street, we thought we'd throw some history at you to ease your fears this Monday morning.
1974 - President Nixon resigned, causing the market to drop by 42%. Five years and one month later, the market had gained back everything it lost.
1987 - On the day known as "Black Monday", the market dropped 23%, and regained everything it lost within the next 6 months.
2001 - The World Trade Towers collapsed and the Dow Jones Industrial Average lost 14% of its September 10 high of 9605 in one week (the largest one-week drop in history). 58 short days later, the DJIA closed at 9608.
Did you know that no matter how you measure it, 100% of all the ten year periods in the stock market's history have ended up? Which means that for those of you holding money in retirement accounts or long-term savings, holding on to those investments for ten years historically guarantees that you'll earn more than you put in?
"The stock market on the short term is a spoiled brat who throws hissy fits, but on the long term, she's a beautiful woman that's very predictable." (Dave Ramsey)
The thing to remember is that playing around with stocks is very risky, especially in volatile times like these. But as far as Wall Street is concerned, good things come to those who wait. Instead of worrying about your investments, take the time to sit back and relax, knowing that your money will come back. It may just take a little time.
Carey Pott
The good news for real estate investors: buying a home in Orange County is about as cheap as it was in 2003.
Problems are an inevitable part of life. Who among you, reading this right now, can honestly say that they've never encountered any sort of difficulty during their time on the planet? Who can report that all the bad financial news out there hasn't personally affected them in one way or another?
Seven years ago, President Bush addressed the nation in order to shore up confidence in US strength and supremacy after the 9/11 attacks. This last month, the President addressed us again to try to quell growing fears about the financial crisis that is rocking the nation.
The media has accurately predicted 33 of the last 4 recessions. 
;)
;)
