Deleveraging until the good times

By Dave Anderson:

The past year has been a rough year economically for my family.  I was laid off at the end of the third quarter in 2009, and my wife has been working no more than 30 hours a week consistently.  In the past year I have had a couple of short term gigs, but nothing permanent and nothing great paying.  However, we have gotten by; indeed, we have improved our fiscal position as we have less debt and cheaper debt now than the day I was laid off.  Every bill has been paid on time. 

We have done that through a combination of unemployment insurance and drastic reductions in our expenditures.  The easiest cutback was daycare; I have had the joy of chasing our daughter around.   Our biggest home improvement project this year was either fifty dollars worth of landscaping in the backyard or sixty dollars of temporary weatherization for the windows (that will pay off in decreased heating bills in one month).  At the same time, we lost health insurance for the entire family; CHIP has been a gray-hair saver as my daughter has great insurance now.  My wife and I have catastrophic coverage in case a meteorite hits us. 

It looks like the family economic crisis is ending. My wife has accepted a full-time position at a major local firm, and I have a 90% probability of receiving and accepting an offer from another signature Pittsburgh firm. My potential future employer's HR department is finalizing the background check and just do not like the fact that my name is too common.  We are expecting a massive jump in income and more importantly, above baseline living expenses income even as baseline living expenses increase with the need for daycare starting in January. 

I say this for two reasons --- if you see a crazed lunatic doing the happy dance in Pittsburgh, this is the reason.  More importantly, my wife and I were significantly revising next year's family budget last night.  Our basic changes were to add in my projected new income, add in the expense of another bus pass and day-care.  Other than that, the vast majority of the marginal income is being dedicated to debt reduction or savings.  We are intent on quickly cleaning up our balance sheet so it is clean enough for open heart surgery to be performed on it. 

Atrios made a good point last week about this recession:

This has been a very very long recession and people are being economically destroyed by it. It's going to take a long time before people feel any kind of economic security again. It might be morning in America again, but people will still feel like shit.

People who feel insecure, or have recently been repeatedly kicked in the economic junk are not going to spend even if they have the income to support current expenditure.  I know our family plan is to recession proof our family budget over the next eighteen months of family full-employment by paying down debt and massively increasing our liquid reserves.  We'll be working hard, but deleveraging hard as well. 

I have a feeling, with minimal current evidence, that the Millenials will have the same attitude towards money and debt that the Great Depression generation did --- save the cash, avoid the debt.  If that happens, my family is in great shape, but we and anyone else like us are drags on growth.