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Tuesday, March 18, 2008

Facing the Storm

So as I'm sure everyone has heard or read, the Federal Reserve Board again cut rates in an attempt to stop the current economic downslide. From what I've read, it sounds like a number of analysts believe that we are officially in a recession.

I haven't decided if this means I will be making drastic changes. Of course, I have already noticed the increased price in groceries, so it might mean adjusting my grocery budget or simply working to buy less food.

I'm a little concerned about what's going to happen to my rent come September when my lease is up. I should really consider picking up a roommate, even if it's just an intern who comes for the summer.

I'm going to continue to funnel money into my ING Direct accounts. The interest rates aren't excellent, but they're better than I'm getting at Bank of America, and I like their security and their customer service.

I'm going to work on slowly funding all of my budget categories. Even if I can only drop in $5 a month, that's better than nothing.

After the slight success I'm seeing from cleaning out my closets and listing items on eBay, I'm going to continue that plan. It's kind of a dual benefit situation - I clean out my closets and declutter my life a bit, and I get a bit of cash in return. I'm selling things that I'm not using and therefore are worthless to me. Because of that, I'm delighted to get a few dollars back for it. Sure, it might be "worth" more than what I end up selling it for, but as many people have said, an item is only worth what someone is willing to pay for it.

I have a family vacation planned for the summer, but my only expense there is transportation and incidentals once we arrive (I may try to convince my parents to let me buy them dinner one night, though) and immediately following that is a friend's wedding. Other than that, I don't have any travel planned until Christmas, so no expenses to be cut there. I do have a few items of clothing that I really do need to replace, but I know exactly what I want/need (size, color, brand), so I will just watch for sales and find them when I find them. I may also decide to do more shopping online. Yes, I pay for shipping that way, but I save on gas, and more importantly, I save on impulse purchases.

I will continue to contribute to my TSP each paycheck (I become eligible for the match in June, which will be a nice bump to that account), and I plan to start funding my Roth IRA for 2008 in the coming months. I have a Roth with Vanguard, and I want to buy a new fund, which requires a minimum $3000 initial purchase, so I'm waiting a bit until I'm actually ready to put that chunk of money into an investment.

Other than that, I just plan to ride this thing out. I'm not in a position to buy a house, and the falling interest rate does hinder my plans to save for a down payment, but not by all that much. Only a few hundred dollars a year, really, and while that would be nice to have, it's not the end of the world that I have to save a little bit longer.

To summarize, I would say that my plans for this recession are to simply dig in my heels and hold on and maybe try to make a little progress in the face of the storm.


Tom said...

The FED had no choice to cut rates. If they didn't, you would have had financial catastrophe on your hands. I am not sure if you know what Credit derivatives are, but they are insurance contracts on defaulting debts. BSC going bankrupt would have caused a lot of dominos to fall. So why did JPM step up?

Look at this link. JPM has over 91 trillion in credit derivatives. They only have $1.2 trillion in assets. JPM could have been insolvent. I don't think many people know this. JPM has written checks that it can't cash if people try to cash them. Citigroup is number 2 and Bank of America who bailed out Countrywide from going BK and causing a derivative crisis. These banks along with the FED are trying to protect themselves and the system.


So what does this mean? Devalued savings and higher gas prices and food prices. Today was a good day for stocks. Will it keep up? Not sure. Will you pay for the rate cuts? Yup, we all will with less purchasing power.

Tom said...

I meant to say "The FED had no choice BUT to cut rates."

I just got home from the gym and the muscles twitch funny :)

Megan said...

Tom, I hope I didn't imply that I thought the decision to cut rates was wrong. I trust that the Fed knows what they're doing. I had the opportunity a few weeks back to sit down with one of the governors on the Federal Reserve Board, and as I said then, I couldn't blog about what was said in the meeting (the reporters were asked not to write about the things discussed that week, so I took that to apply to bloggers as well), but after hearing what he had to say, I had a lot of faith in what was happening.

Doesn't mean I can't be disappointed by it on a personal note. But I wouldn't wish they were doing otherwise.

Tom said...

Well I just think that by trying to prevent every little recession, they end up with something like this.

It's like always putting out every little forest fire. It's natures way of cleaning out the excess. Free markets are very nature like. If the Fed puts out every little fire, then the underbrush builds up to the point that when a fire happens, it can't be contained.

They didn't have a choice. If they let Bear fail, things would have been very bad. I am just dumbfounded they they let it get to this point.