Saving Money in a Slow Economy
In a slow economy people should try to watch their spending that might jeopardize their future financial goals. Let's look at some of the most common mistakes people make and how to avoid them.
Don't Cosign a Loan - Cosigning a loan can be a very risky thing to do even in flush economic times. After all, if the individual taking the loan doesn't make the scheduled payments, the cosigner could well be asked to make them. However, during an economic downturn the risks associated with cosigning a note could be even greater as the person may be at greater risk of losing his or her job and the means to pay down the loan. Also, the cosigner is more likely to land in the unemployment line as well.
Getting Into an Adjustable-Rate Mortgage (ARM) - When purchasing a home, some buyers choose to take out an adjustable rate mortgage (ARM). In some cases, this move might make sense. After all, as long as interest rates are low, the monthly payment will be low as well.
However, what if the individual were to be laid off and interest rates were to rise as the recession or slowdown started to abate? As rates rise, the monthly payment may go up. In such a case, the homeowner may find it extremely difficult to come up with the money to make the payments. Keep in mind that late payments or non-payment can have an adverse impact on the individual's credit rating, which can in turn make it more difficult for them to obtain a loan at a future date.
Don't Add Debt - Taking on new debt may not be a problem in good times if the individual makes enough money to cover the monthly payments and still has extra funds to live on and to save for retirement. In many cases, recently laid off individuals may have to take jobs that pay less than their previous salaries just to make ends meet and to keep money coming in the door. Unfortunately, the new income may not be anywhere near the amount they had previously earned. When this happens, savings can quickly dwindle away.
In short, if you're considering adding monthly payments/debts to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason.
Don't Take Your Job for Granted - During an economic slowdown, it's important to understand that corporations are under financial pressure. In many instances, that may mean scale back and cut jobs as a means of saving money. Job cuts are targeted by many companies that are struggling because the cost of keeping an employee on board can be huge. Think about it. Sometimes in addition to salary, the employer may also have to contribute to healthcare costs and/or make retirement contributions.
Because the employment situation during a recession may be so fragile, employees should generally try to do all they can to make sure their employer has a favorable opinion of them. This may mean coming to work early, staying late and of course doing top-notch work at all times. While there is no guarantee this will save your job, it could make you important enough to your company to ensure you're kept on the payroll.
Avoid Risky Investments - Business owners should always be thinking about the future. They should always be thinking about new and exciting ways to grow their businesses. However, an economic slowdown may not be the best time to make risky bets.