One of the issues facing many right now is whether or not one’s personal finances can survive a recession. (And, of course, while we’re not technically in a recession, people are starting to feel the pinch.) The best way to beat the recession is to prepare your personal finances ahead of time. While it may be too late in some areas to downsize effectively, there are four areas that Jeffrey Strain, writing on The Street, suggests can be downsized:
- Home: “Take Warren Buffett. Even with a net worth of $62 billion, he lives in the same house in Omaha that he bought in 1958 for $31,500. Most people with far less money would have continually upgraded their home as they earned more, whether they needed to or not. Buffett’s house meets his needs, and therefore he sees no reason to move.”
- Car. “When choosing a car, you should seek out a car in the smallest class size that will meet your everyday needs. In addition, understand the total cost of buying the vehicle rather than just the sticker price and gas mileage.”
- Stuff. “It’s estimated that 80% of the stuff in your house are things that you never use.”
- Food. “At the same time, you throw out a lot of the food that you buy. The average family of four throws out approximately $600 worth of good food every year, according to Timothy Jones, in a University of Arizona study.”
I think that Strain’s points are very well taken. Part of the reason that we are having problems right now is the idea that we always *need* more and more and bigger and bigger. Indeed, the prevailing thought over the last few years has been this: How much can I get? Just because a lender will approve you for a certain loan doesn’t mean that you should actually take that amount. In most cases, it’s probably better that you don’t.
Spending as much as you can on items isn’t practical personal finances. Instead, you should evaluate your needs, and prioritize your wants, so that you aren’t spending all of your resources. Rather, in order to beat a recession (or possible recession), it is important to live well below your means.