This is a part of an occasional series looking at aspects of Colorado’s faltering economy.
Coloradans might be feeling on edge about hanging on to their jobs as economic uncertainty raises the specter of recession. Others are already out there looking for a job, and might be concerned about how long it’s going to take to find a new one.
No matter your employment situation, it’s always good to be prepared for an unexpected financial setback. To that end, CPR spoke with Denver-based financial adviser DeDe Jones at Innovative Financial about how to recession-proof your finances.
Here’s a list of the big takeaways from that conversation; it has been edited for brevity and clarity:
CPR: What is the first step people should take to safeguard their financial security?
Jones: Everybody needs to know what your bare monthly minimum budget is. I used to call it my ramen budget. If all of a sudden, I had to go to bare bones and live on mostly ramen, what would that look like? It is housing, utilities, food, transportation, insurance, and basic phone and internet. What is that number?
That’s where I start with absolutely everybody.
CPR: Does everybody need an emergency fund? How big should it be?
Jones: If you don't have one, you're in good company. Lots and lots of people don't. But it is important to begin funding one and start small. It's like having a spare tire in your car. It isn't the whole car, but it's enough to keep the car going when something you didn't expect to happen happens. So a one month paycheck set aside can be a big bandaid, depending on what's happening.
And this is important: no matter where you are in your career, make sure you have access to ready cash for a time like this.
CPR: What is the ultimate goal when it comes to building up an emergency fund?
Jones: Part of it is some self-awareness on how long it would take for you to get a job. So if you've got a very highly paid executive, that could be a two-year job hunt … their reserve amount is going to be much larger than somebody who is more entry level in an unpressured industry who can probably replace their job fairly quickly.
The other piece is — are there one or two incomes in your household? So if you have a married couple, but only one of them works, you can actually get by with perhaps a smaller fund because either of you could go get a job, thus shortening the time period of unemployment. So for those households who rely on a single wage earner, sometimes that's an unexpected hedge against a downturn. When you have a household where there are two workers and the household requires the full income of both workers, you're going to need a bigger fund than you might imagine. So there's different variables that come into that. So the rule of thumb we've talked about for years and years is six months of your basic bare bones budget.
CPR: What can I do to stretch my budget when money is tight?
Jones: Cooking in and buying store brands … Those are the tips our grandparents were given, and they're still good tips. But newer things that we might not think … ask yourself, could I lower this bill if I had to? [The] utility bill, could I lower it? Yeah, I could probably drop the thermostat a couple of degrees. Or the next question could be… Is this something I'd want to keep, if income stopped tomorrow? That’s where you look at all the different subscriptions you might have there. You might say … I could live without Disney Plus or HBO for a while if I have to. The library has lots of free resources for books and movies.
Then there's the other side. What can you do that's flexible on the income side? Maybe you can be a petsitter through the holidays, or you can drive for Uber or DoorDash or some other things just to keep some cash coming in. Also, I think it helps emotionally that you're out there participating in the world.
And while you’re at it, remember to keep your tools sharp. If you have a specialty somewhere, continue to network with people in your industry. Take the continuing education. Keep your resume current.
CPR: What other tips do you have to manage monthly bills during a period of economic stress?
Jones: If you're finding that the cash flow is going to be tough, contact [your creditors]. Explain your situation and ask them what their procedure is to delay billing or cut bills in half … My experience is the smaller the creditor, the more flexible they can be. But that isn't always the case … But don't be shy about it. You're where you are. You can't change that, but they're in a situation to perhaps change terms or extend the loan by a few months and let you skip a few payments. So don't be shy about it. Again, no shame in it. No one's judging you. Everybody's been in a situation like this at one point or another.
CPR: What if the stock market tanks? Should I sell my stock holdings or pull my money out of my 401k?
Jones: We are rewarded for our ability to deal with that level of uncertainty. That's what markets are rewarding us for, is our ability to be patient. So it would be wise not to watch markets on a daily basis.
As we're talking about being out of work, a 401(k) might be a source of income while you're unemployed. Now, if you're unemployed, you won't be able to take a loan from that 401k. Those are only available while you are an employee. But you might be required to take an early distribution to cover your bills. That is an option. It’s not ideal. I would not put it in the top three, but know that down on the list, that's a backup for you.
Colorado’s economy is flashing warning signs. Job growth has slowed to a trickle. Layoffs are inching up. The housing market is in a slump. Both the state and its biggest population center are struggling to plug massive budget holes. On top of all that, the longest government shutdown in history was weighing on the economy.
The big question, though, is whether all the bleak data points to something more serious: recession. And the answer is complicated.
Colorado Public Radio takes a look at what those warning signs might mean through the new series Silent Recession. Read more stories in the series here.
