Managing in this economic climate : Rooftop Views

Rooftop Views

Managing in this economic climate

The U.S. economy has taken a turn to tougher times, and many citizens are feeling the pinch. To help ease the strain, Bills.com President Ethan Ewing offers five specific areas of economic tightening — and suggests actions individuals can take.

“About five years ago, low interest rates were on their way out; Americans were dipping into home equity; gas prices averaged less than $1.50 per gallon; and with the dollar at a record high in 2002, we could jet-set and import to our collective heart’s content,” Ewing noted. “Today, of course, the picture has changed dramatically.”

Bills.com provided these five points to help individuals update their financial plans to reflect the biggest changes in Americans’ personal economies.

1. What and how you drive.

Then: SUV sales peaked at 56% of all vehicle sales in 2004, when gas cost $2 a gallon.
Now: With gas prices around $4 a gallon in most U.S. markets, large SUVs were 8% of all vehicle sales in 2007.
What to do: Choose a car that fits your budget and lifestyle. If you require a lot of seats or cargo space, find the best mileage you can, while bearing in mind safety and other factors.
“If you own an SUV that you cannot sell, do not panic,” Ewing said. “Holding a vehicle often makes more sense than taking a big financial loss. If gas prices are crunching you, look into other options, such as walking or bicycling to work, carpooling, taking public transit, finding a job and home that are located closer together, or investing in an inexpensive means of transportation, such as an older, good-mileage vehicle or a scooter.”

2. Interest rates.

Then: Interest rates on conservative investments ranged from 0.6% for passbook savings to 2.9% for a five-year certificate of deposit (CD).
Now: Rates are slightly higher — nearing 4% as of this writing — for a five-year CD and comparable on other products.
What to do: Interest rates tend to be fairly consistent across institutions, but do research and invest accordingly. Consult a reputable financial advisor for counsel.

3. Financial security.

Then: Just 10 banks failed nationwide between 2003 and 2007.
Now: In February, CNN reported that more than 100 banks could fail within the next year or two.
What to do: Be sure your money is insured. Check your bank’s documents to be sure they have the Federal Deposit Insurance Corporation (FDIC) mark. The FDIC insures individual deposit accounts up to $100,000, and IRAs up to $250,000. Ask the bank to be sure, or check with the FDIC (www.fdic.gov). Credit union deposits are covered by the National Credit Union Administration.

4. Home equity.

Then: In 2002, Americans borrowed $130 billion from their home equity — twice the rate of the previous year. Banks advertised home equity loans at a furious pace.
Now: Many banks no longer offer home equity loans, and homeowners with pre-approved credit lines have seen their total credit lines slashed.
What to do: Considering that home values have, at best, held steady, and in some areas dropped up to 50% in the past few years, many homeowners should be grateful if they are not in debt trouble on their home. If you were relying on a line of credit, look at new options. If you wanted to borrow to remodel and you have substantial equity, talk to your banker to evaluate your choices. If you were counting on a line of credit for an emergency fund, look at other options, from saving regularly to build a cash fund, to selling the home and downsizing to be better prepared for retirement or a lifestyle change.

5. Inflation.

Then: In 2002, someone earning $36,764 per year was about average across the United States.
Now: To have the same purchasing power, in 2007 a worker would need to earn $42,372 — nearly a 14% increase. Yet the Bureau of Labor Statistics reports the mean annual earnings of all workers in 2007 as $41,994. Couple that with a consumer price index that has increased by 6.2% in the last 12 months, and no wonder many people feel a pinch.
What to do: Now more than ever, it is important to learn to live within a budget. Careful planning and a realistic perspective can reduce the stress of overspending.