I’d say Jean Chatzky is a well-known personal finance writer. She was the columnist for Money Magazine, has written several books, is the financial editor for the TODAY show, and has the site Her Money.
So yeah, she’s considered in the know when it comes to money, and she recently wrote a piece answering some questions, including how to prepare for the next recession. The post contained useful information and some good advice about how to prepare for the inevitable downturn.
But I’m not practicing most of what she preaches.
“Be cautious in your spending”
To prepare for the recession, Chatzky recommends scaling back spending. Good advice overall, right? But if anything, I’m spending a bit more than I (personally) used to.
True, overall costs have gone far down thanks to the divorce since Tim was the spender in the relationship and had expensive health conditions/medications. But my own spending has gone up because I’ve decided to allow for some lifestyle inflation. For example, I’m now permitting myself takeout once a week. I’m getting my hair cut and colored every six weeks instead of eight.
Similarly, I’m spending more on going out.
One of the few downsides of working from home is isolation. This leads to my going out with friends more often, not to mention the dates I’m going on. Those can mean Ubering and paying for drinks if either the guy doesn’t offer or he paid last time.
Granted, I don’t exactly live large. The “spend cautiously” advice is probably geared mainly toward people who live above or just barely within their means. But most of us could be more cautious if we really wanted to.
However, I’ve chosen to spend on what matters to me. As long as my spending stays at current levels, I’ll consider myself to be spending an okay amount.
Good advice at any point in time, Chatzky recommends bulking up your emergency fund to be liquid in case of a recession.
I’m (slowly) adding to my EF with a minimum of $200 a month, but it’s not my main priority. In fact, I have just barely three months’ worth of expenses in there. And I’m not putting as much into savings as I used to either.
Instead, I’m desperately throwing money at retirement. While that is a form of saving — I count it in my savings rate for my monthly financial updates — it’s illiquid. It’s not something I can (or at least should) touch in case of a financial crisis.
Now, Chatzky was probably talking to the people with small to no emergency funds. (She cited a recent Fed survey that found that 40% of Americans have less than $400 in their emergency fund.) Meanwhile, three months’ worth of expenses is decent, so perhaps I’m not the population she’s addressing.
Still, most personal finance bloggers would preach that I should have at least six months’ expenses socked away. They’d say that three months’ worth (especially with an older house prone to repairs) isn’t enough. They’d tell me that I need to find more room in the budget — perhaps just paying down less additional principal on my house — to pad the EF and my savings account. (At least the latter is definitely healthy.)
But I’m going to stay slow and steady on my current path. I have a few goals that need attention, with retirement being the biggest one. It’s been neglected, and at least for now I have good job security. If that ever starts to change, I’ll bulk up my emergency fund for sure. But for now, the smart move is to do my best to make up for lost time in my retirement accounts.
Chatzky recommends preparing for the recession by not taking risks and being very careful with investing for any short-term goals like a down payment or college.
Well, this one doesn’t even apply to me. I don’t have any investments outside of my retirement accounts. And as already stated, I don’t plan on slowing down my retirement contributions, no matter what the market does.
If anything, I’ll try to throw even more money into the accounts if the stock market dips and stocks go, for all intents and purposes, on sale.
Of course, this part of Chatzky’s advice is for mainly for people who invest outside of their retirement accounts. Or those managing their own retirement accounts rather than letting some company like Vanguard do the heavy lifting, which is my preferred method.
In those cases, not taking risks is good advice when facing potential market volatility/decline. But for me, it’s moot. So yet another thing I’m ignoring.
Chatzky suggests another way to recession-proof your finances to is to lower your monthly mortgage payment through a refinance.
This one I actually take issue with in general. A refinance is probably going to cost thousands of dollars, draining people’s apparently already-low savings accounts or, if they don’t have savings, threatening their already-fragile finances. (That or they roll the cost of the refinance into the mortgage balance, the way I stupidly did, which makes the mortgage that much harder to pay down.)
I suppose if you can shave a percent or two off, it might be worthwhile to refi. But mortgage rates have been so low for so long that I doubt most people would see significant savings through refinancing, unless they switch to a 15-year loan from a 30-year one.
Even if you think refinancing is a good idea for a lot of people, it’s definitely not for me. My rate is already pretty low, and my mortgage payment is a ridiculous $595.17. There’s no way that I’d save a significant amount. Besides, if getting Tim’s name off the mortgage is any indication, it’d nearly kill me (or at least my sanity) to secure a new loan what with all the paperwork involved when you’re self-employed.
All in all
So that’s it. I’m ignoring every bit of Chatzky’s advice. Yet I think I’m still making some pretty smart money moves.
Mainly because I’m finally saving in earnest for retirement. Yet even with that, I’m still building up my emergency fund and savings account — just not with the focus that she’s recommending.
Of course, as always I’ll remind you that I speak (write?) from a position of privilege. I have a well- to high-paying job (depending on your perspective) with relatively good job security. And I’m already able to live on a lot less than many folks out there because I don’t have kids and have the aforementioned ridiculously low mortgage.
If you’re living on the edge, these pieces of advice could be invaluable. Though I still am skeptical about refinancing if your savings account is already low. It could take a year or more to recoup the costs of the refi in the “savings” you’ll see.
So I’ll admit that this information could help a lot of people. But like so much personal finance advice out there, this just doesn’t fit my life.
Are you following any of this advice? Do you plan to?