Recession and Revised Plans

Last year I posted about an extremely ambitious personal finance plan that my husband and I took on in July. We wanted to pay down the principle on our mortgage by an additional $50,000 - above and beyond the paydown we'd see with just our normal monthly payments - over the following 12 months.

Well, that was before it was generally known that the US had entered a recession in December of 2007. Despite the downturn in the economy, we did very well with our goal up until the beginning of 2009. We have not reached it, and as of January, we decided to change tactics and put that goal on hold. You see, right now it looks as though my husband will be out of a job at the end of June.

By any middle-class measure, he's very well compensated for what he does. But he works on a contract basis, and right now it looks somewhat unlikely that his contract will be renewed after June 30th. He had a job offer late last year that appealed to him, and which he intended to accept after June. But that offer evaporated along with the rest of the economy several weeks ago.

Having no debt other than our mortgage, and having built a cash emergency savings to cover six months of expenses, we're situated as well as can be expected to weather a period of unemployment for the main breadwinner in our household. I've been more diligent about doing the various things I do to earn money. And we can be fairly sure we won't go hungry any time soon, given the garden I have all planned out for this year. Still, it's a scary thing to contemplate: losing our income.

Right now we still have almost four months of continued income to count on, and that much time for him to look for other job opportunities, hustle for an extension of his contract, and hope that the economy recovers somewhat. In February I canceled the additional principle payments that we were making automatically each month along with our normal monthly payment. That money will buffer our cash savings for the next four months. If my husband finds another job by June, we'll be able to take that money and apply it to our mortgage as a lump sum payment. If not, well, we'll be using it for necessities.

My plan right now is to either refinance or recast our mortgage in early May if my husband has not secured another job. That will lower our required mortgage payment and let us live longer on our emergency fund. If our finances pick up again, nothing would prevent us from resuming automatic additional principle payments each month, though less of our required monthly payment would be applied to the principle. Still, if we lose our main income, that's a price worth paying.

On the other hand, we are also considering a major expenditure that's not, strictly speaking, a requirement. We've asked for estimates for a solar PV and solar thermal installation that would cut our heating bills down to almost nothing. I have no idea what those estimates are going to look like. Before we would pay out money for that, we'd also have our home evaluated for additional insulation needs.

This may sound paradoxical: that we're contemplating a significant discretionary expense when we anticipate the need to live on our savings. We see it this way though; if the economy remains so weak that my husband cannot find a decent job, we want to be able to heat our house next winter without spending much money. Heating is a major expense in our annual budget, and since we heat with oil, that expense is perilously tied to shrinking supplies of fossil fuel. I'm also concerned about the possibility of hyper-inflation. If that occurred, not only would the value of our cash savings be less, but the cost of oil and electricity might easily become prohibitively expensive. Finally, we reckon that a home with solar electricity generation and low heating costs will hold its value better than many other homes. In other words, it looks like a smart investment to us right now.

We've yet to see the estimates for such an installation, so we don't know whether we'll take that plunge. But it's on the table. And if the price is right we may be able to pay for it with a bonus we're expecting based on last year's performance by the company my husband works for. (For the record, that company is not in the financial/banking sector, nor anywhere near it.)

The smaller amounts of money from my earnings that were occasionally applied to our principle are also accumulating rather than being paid out. But part of these funds are being set aside in my mind for spending as well. Mind you, I'm not planning on any frivolous purchases, but I would like to invest in some items that will be of long-term value to us, no matter what happens with the economy. I figure some responsible spending won't be amiss in these tough times either. On my list of things to buy are some extra sets of long underwear for both of us during the coming spring sales, a solar oven, some solar lanterns, and some materials to build housing for some meat rabbits, and to modify our mobile chicken coop this spring. If there's money left after that, I'll buy another 50-pound bag of bread flour, though I'm almost afraid to know what the price has risen to. Basically, I'm looking to put about $500 into things that will hold their value and pay dividends for our budget year after year.

If we are somehow able to squeak through this year without a loss of income - and that's a big if - I would like to start another savings fund for an electric assist bicycle. I understand that these are quite expensive. But I know that sooner or later we are going to have to confront the end of affordable gasoline. A bicycle was my transportation for many years out of necessity, and therefore I've never regarded cycling as recreation, as my husband does. We live in a quite hilly area, and it's more than three miles to reach the nearest spot where we could grocery shop or fill a prescription. The bulk food store is 17 miles away along the flattest route. There is very, very little public transportation in our area, and none right now that would get us to the places we shop. It would be faster for me to walk to the nearest grocery store than to take a bus, and I'd still have to walk most of the route anyway. So far, an electric assist bike is the best transportation solution I've been able to think of to the end of cheap petroleum, and it wouldn't be much fun, or even manageable, on many winter days.

Well, that's where we're at in this recession. I'm not feeling sorry for us; I know we're better situated than many. Still, like everyone else, we are feeling the anxiety. My heart really goes out to those who are already dealing with job losses and financial disaster. If you're not yet in crisis, please think about spending wisely where you are able to do so. Remember that food banks and other charities are stretched incredibly thin right now. If you can afford it, check that box to add a few dollars to your utility bill payment to keep someone else's electricity from being shut off. Plant your garden this year, and share what you can. We're in for more tough times ahead.