Do you know what your family would do if you lost your jobâ€”or worse, your home? Financial expert Suze Orman is ready to help you devise a recession rescue plan to surviveâ€”and possibly thriveâ€”during this deepening financial crisis.
As the recession continues to rise in the United States, the reality becomes more sobering. To date, 4.4 million jobs have been lost in this financial crisisâ€”that’s 15 jobs a minute. Personal bankruptcy filings jumped 31 percent between 2007 and 2008 and are expected to rise another 35 percent in 2009.
Families are also losing their homes at a staggering rate. Each day, another 10,000 homes are foreclosed, forcing families to turn to shelters filled to capacity. Left with no place else to go, some people are putting makeshift roofs over their heads in tent cities.
As the crisis continues, it’s easy to let fear take overâ€”but it doesn’t have to. Suze’s five-step plan can help you rise above and take control. “There’s only one person that’s going to save you right now, and that’s yourself,” she says. “You have got to get on what I’m calling the ‘save yourself movement.’ Each and every one of you has to have your own personal financial stimulus action plan.”
Step 1: Live On Half
Whether you’re single or in a double-income household, Suze says you need to live on only half of what you’re used toâ€”and put the rest in the bank. “If all of a sudden you find yourself without a jobâ€”or your partner finds themselves without a jobâ€”you are now going to have your income cut by 50 percent almost immediately,” Suze says. Unemployment also only makes up about 50 percent of your income, Suze says.
By living on half now, Suze says you’ll know whether you can really afford to pay your bills if the worst happens. “When you are freaked out, that is not the time that you go through your expenses and go, ‘Should I cut here?’” she says. Use this worksheet to assess your expensesâ€”and cut as necessary.
Suze says to try living on half for six months. “Chances are, it will take you six months to eight months to one year [to find a job],” Suze says. “See what would happen if recession really hit into your lives. Would you be able to make it?”
Step 2: Stash Your Cash
In today’s economy, cash is kingâ€”and your credit could be shrinking daily.
Before this recession, credit cards could always be used in case of emergency. Now, Suze says credit card companies are making it more difficult for people to use their cards. Afraid people won’t be paying their bills, Suze says companies are closing accounts with zero balances, reducing credit limits for those paying a little at a time and hiking up interest rates. If your credit card is no longer available, what do you do if you lose your job and have no savings? “You will be in serious trouble,” Suze says.
Before the recession, Suze says she would advise anyone with a severance payment or a small lump sum to put it toward debt. But as the economy changes, so must your financial strategy, Suze saysâ€”which is why she’s changing the advice she’s been giving for years. “If all you currently have is a very small emergency fund and you have unpaid credit card debt, … you are only to pay the minimum amount due on your credit cards,” she says. “Stash the cash till you have at least an eight-month emergency fund.”
Step 3: Make the Stimulus Package Work for You
Part of the intention behind the economic stimulus plan passed by Congress is to create millions of jobs for Americansâ€”but it’s also designed to lend a helping hand to those out of work.
Many people who have been laid off qualify for COBRA health coverage. “If you happen to get laid off, you lose your job, you have 18 months where that company has got to cover you with health insurance,” Suze says.
COBRA can be very expensive, but Suze has good newsâ€”the government is now subsidizing your premium. For nine months, you only have to pay 35 percent of the monthly premium. After the nine months, you’re back to paying 100 percent.
This coverage is available to anyone who was laid off between September 1, 2008, through the end of 2009â€”as long as your company provides COBRA. You have 60 days to enroll, and you can get it even if you declined your employer’s initial offer. Employers and employees can learn more at the Department of Labor’s website.
Another aim of the stimulus package is to give the economy a much-needed boostâ€”especially in the housing market. Part of the plan includes an $8,000 tax credit for first-time home buyers. “This is for only homes purchased in 2009,” Suze says. “If you owe $10,000 on taxes, you’re going to only owe $2,000 after it’s over. It comes off your actual taxes that you owe.”
In order to take advantage of this incentive, Suze says you have to qualify. “You cannot make more than $75,000 a year of adjusted gross income if you are single; $150,000 in adjusted gross income if you are married, filing jointly,” Suze says.
But it may not be a great deal for all first-timers. Find out if it’s right for you. In the market for a car instead of a home? Find out how you can get a tax credit on a new car.
Step 4: Make Your Home Affordable
Skyrocketing foreclosure rates and plummeting home prices have brought the country to the brink. If you’re about to fall behind on your mortgageâ€”or even lose your homeâ€”Suze says there’s a way to keep a roof over your head.
The Homeowner Affordability and Stability Plan hopes to help as many as 9 million American families afford their homes. It’s comprised of two partsâ€”the Home Affordable Modification program and the Home Affordable Refinance program. The loan modification program is designed to help families dangerously close to foreclosure. The government estimates it could help 3 to 4 million homeowners keep their homes and reduce their monthly mortgage payments.
Suze says there are two things you have to do to see if you qualify:
Go to MakingHomeAffordable.gov. The government site will ask you a series of questions and assess your eligibility.
If the site says you are eligible, contact your bank to see if they will give you a modification.
So who will benefit from the Home Affordable Refinance program? People who aren’t in danger of losing their homes now but still want to lower their mortgage payments. The government estimates this program will help 4 to 5 million homeowners who hold mortgages through Fannie Mae or Freddie Mac and are current on their mortgage payments. If they qualify, these homeowners will be able to refinance at a better interest rateâ€”even if their homes have lost value.
Suze says there are two things you have to do to see if you qualify:
Step 5: Look at What You Have, Not What You Had
How much longer should we expect times to be tough? “Things will get better, get worse. … [In] the next two or three years, it will start to turn around,” Suze says. “But I’m so sorry to say it will be, in my opinion, 2015 until every single person feels hopeful again.”
Which is why Suze says it’s so important to look at what you have and be grateful, instead of looking at what you’ve lost and feel angry. “If you continuously look in the rearview mirror while you’re going forward, you’re going to get in an accident. And the victim of that accident is going to be you,” she says. “Don’t compare. You’ll feel stronger, you’ll have more energy and you’ll be able to turn this around.”
Be grateful for the savings account you do have or the family that has helped you through. Although she knows it isn’t easy, Suze urges everyone to see what they’ve been through as a kind of blessing. “When you are gratefulâ€”when you can see what you haveâ€”you unlock blessings to flow in your life.”
Get Suze’s advice for creating a savings action plan, a retirement action plan and more!