Schmidt Foundation

Great Recession lessons that still apply

By Melissa Lambarena | NerdWallet

The Great Recession demolished jobs across the U.S., and it eventually came for mine, too. After graduating in 2009, I worked four months as an entry-level executive assistant at a nonprofit before being laid off.

I had limited financial knowledge, a short work history and a lot to prove to break into the field of journalism, my ultimate goal. Along the way, I picked up valuable lessons that might help you manage your finances during the coronavirus-related recession.

Save what you can

My short work history disqualified me from receiving unemployment benefits, so I relied on my savings account. Even a small emergency fund of $500 can prevent you from falling into debt, and I had socked away enough to cover a few months of expenses.

If you’re still employed, “pay yourself first,” said Samuel Deane, a financial planner at Deane Financial in New York. “Even if it’s $20 every time you get paid, make sure you put that $20 away first and then live your lifestyle with the remainder.” Automate it with direct deposit if you can.

Think twice before rejecting job offers

After many interviews and dead ends, I applied for an administrative role at an accounting firm and got hired in December 2009. It paid about $7,000 less than my previous salary. I knew it wouldn’t put my career on track, but it would cover most of my bills, so I took it.

Amanda Grossman, now a certified financial education instructor in El Paso, Texas, made similar compromises after being laid off as a market researcher in Florida in 2008. She took a career counselor’s advice and relocated to Texas for a lower-paying job in the environmental industry.

“(The counselor) said, ‘Look, the economy is not doing well. You need to take that job, it’s going to keep going down; you’re not going to be able to find work,’” Grossman sai

Get smart about money

You’ll find a myriad of financial resources online and at your local library, assuming it is open and safe to visit during the pandemic.

I struggled to save money on a lower salary. Credit cards became my emergency fund. I don’t recommend this approach, but times were tough. Had I learned about financial hardship programs, student loan repayment options or balance transfer credit cards, I would have saved heaps on interest and ditched debt faster.

Multiple streams of income

I still wanted journalism experience and extra income, so on top of my new full-time job, I learned to shoot and edit video. I began freelancing in 2010. A year later, I also launched a small social media consulting business.

Grossman, too, had other goals. “I’ve always wanted to be a writer and I love, love, love talking about money,” she said.

While she was unemployed in Florida, she launched the blog “Frugal Confessions.” She learned new writing skills from books and sought feedback from editors at newspapers. In 2013, she left her environmental job in Texas to run her blog full time.

Protect your credit and yourself

In a crisis like COVID-19, many normal financial rules don’t apply. You may need to carry a credit card balance to buy groceries or address an emergency. You may need to make only the minimum payment to cover rent. You may even need to contact your card issuer and ask for relief options like payment deferrals.

Even with three jobs, I struggled at times to make the minimum payments on my credit cards due to high balances and interest rates.

In times of emergency, prioritize getting back on your feet first. Once you do, you’ll have time to address your credit scores.

Make calculated money moves

Eventually, I left my apartment and moved in with roommates. I also read the post-recession climate and, in successive jobs, learned how to ask for a raise. Every year that my workload and responsibilities increased, I made a case for a higher salary. Asking is uncomfortable at first, but it gets easier. The extra money eventually paid off my debts.

A recession’s impact is largely out of your control, but your reaction isn’t. With strategic steps, you can insulate yourself and create new opportunities. MV

The 2 costs that can make or break your nest egg

By Liz Weston | NerdWallet

If you earn a decent income but have trouble saving, the culprits could be the roof over your head and the car in your driveway.

Retirement savers who contribute more to their 401(k)s often spend less on housing and transportation than their peers, according to a study by the Employee Benefit Research Institute and J.P. Morgan Asset Management.

Better savers also spend less on food and drink, but housing and transportation are bigger expenses that tend to be less flexible. Once you commit to a place to live and a car payment, you’re typically stuck with those expenses for a while.

“It may be decisions that you’re making as you are building your life that will ultimately crowd out saving for retirement, ” says Katherine Roy, chief retirement strategist for J.P. Morgan Asset Management.

The researchers divided 10,000 households into three groups: the 25% who contributed the least to their retirement plans, the 25% who contributed the most, and the “middle savers” whose contributions landed them in the middle 50%. High savers, not surprisingly, had higher incomes than the other two groups. Middle and low savers had similar incomes, but middle savers contributed about 5% at the start of their careers while the low savers contributed about 2%.

That 3 percentage-point difference in contributions is largely attributable to the lower savers spending more on housing, transportation, and food and beverage, the researchers found. By retirement age, middle savers had accumulated savings equal to twice their salaries. Low savers had accumulated about half as much.

A ‘beater truck’ and a fat 401(k)

Driving older vehicles and owning a modest home are the top two sacrifices cited in a study of Principal Financial Group customers ages 20 to 54 who contribute big chunks of their income to retirement accounts.

One of those savers is Erryn Ross, 30, of Tigard, Oregon. For several years after college, the accounts receivable coordinator lived at home and drove a “beater” truck, a hand-me-down from his dad. By the time he was ready to replace the truck, he had saved enough to pay cash for a new one while also maxing out his 401(k) contribution.

Ross credits his mother — who drives a 2002 Honda Accord, previously owned by her father — with getting him started.

“She said, ‘OK, you can either pay me $1,000 for rent, or you can put $1,000 in index funds every month,’” Ross says. He put the money into his retirement account.

Ross recently bought a house with his fiancee, and they chose a home that cost about half of what their lender said they could afford.

It’s not all about choice

Both studies have their limitations. Perhaps the biggest one is that the researchers studied only people who had access to workplace retirement plans. Before the pandemic, 55 million working Americans lacked such access, according to Georgetown University Center for Retirement Initiatives. Access makes a huge difference: AARP found that people are 15 times more likely to save for retirement if they have access to a payroll deduction plan at work. The researchers also didn’t factor in the cost of living, which varies widely across the country. Living expenses are 46% higher in San Francisco and 86% higher in Manhattan than in Portland, Oregon, for example.

People’s personal costs of living matter hugely as well. Someone with health problems and lousy insurance likely will have more of their income eaten up by medical bills than someone in excellent health who has good coverage. The number of people you have to support — children, elderly parents, for example — affects how much you can save. People with student loan debt have less discretionary income than those whose parents paid for college. And so on.

Income matters, of course. Some people save on small incomes, while others don’t on large ones. But the more money you make, the easier it is to save.

In other words, any number of factors — such as, say, losing a job during a pandemic — can affect someone’s ability to save.

When you do have choice, though, choose wisely.

MV