Reacting to the Recession 

Save money as if your life depended on it — because it does.

When you're flush, save money as if you were broke. And when you're broke — keep on saving.

"Live during a good year as if it were a bad year," urges Kate Wilusz, a Certified Financial Planner and UC Berkeley graduate who works as a franchisee for Ameriprise Financial. And during a bad year — such as, perhaps, this one — she advises staying strong, keeping close track of every cent spent, and investing in real estate, stocks, and bonds.

"They're all on tremendous sale right now," Wilusz says. "You can buy them at the same prices now that they sold for ten and fifteen years ago. In many ways, this is a fantastic time. It's like going to Macy's and seeing that coat you've been wanting — and now it's marked down to 75 percent off."

But that's the fun part. Before snarfing up bargain-basement shares and rental properties, we'd better have our own houses in order. To start this process, Wilusz asks all of her new clients to itemize their expenses.

"It drives people crazy, how detailed I am about this," she said. But little things add up: Sweat the small stuff. "How much do you spend on wine? On groceries? On skiing? How much do you pay in taxes and how much is your health insurance? People tell me, 'Oh, we're safe because we make $200,000 a year.' Once I know how much they spend, I have to tell them, 'But the lifestyle you're living costs $22,000 a month.'"

Oops.

After that initial shockwave, they have to ask themselves what to cut out.

Cutting is crucial, Wilusz asserts.

"Save each and every month, even — especially — when you don't think you can save any more. Save when you're broke or you'll be broke your entire life." These savings can create what Wilusz considers the financial-planning essentials: a safe emergency fund and good insurance: not just home, health, and life insurance, but disability insurance.

"Disability insurance is the most important, but nobody thinks about it until they need it. The two main reasons that people lose their homes in this country are job loss and disability. What happens if you throw out your back or get cancer and can't work? These things can be devastating" to bodies and bank accounts. Yet most of us would rather not even imagine it: "Most people just say, 'Not me, not me, not me.'"

That la-la-la-la-I-can't-hear-you impulse also keeps many from creating wills and living trusts. The very idea of writing a will can be daunting, because it means facing death. For some, it feels like the first step toward the gallows, or like signing one's own death certificate. Living trusts, by contrast, have less of a gloomy air. In creating a trust, which is a fairly quick and inexpensive procedure, you forfeit ownership of your assets to a "trust," a legal entity which you control entirely. You name someone else as the beneficiary; upon your death, that person simply assumes control of the trust. As there is no actual change of ownership of the assets, beneficiaries can avoid probate.

For Wilusz, the possibility of ill health and death are all too real. Her father died suddenly, unexpectedly, at age 55. But most of us prefer to dwell in fantasy. Far too many, she says, count on future windfalls in the form of salary increases and inheritances. But the former is unlikely in today's job market; the latter is ever more a pipe dream.

"People live longer these days, but not healthier. Before they die, most people's parents will have long-term medical needs which will not only wipe out what would have been the kids' inheritance but might also even put the kids into debt."

So get real. First and foremost, stop spending play money.

Buying on credit means using funds you do not have and might never obtain. The acquisitions are real; your being able to afford them is imaginary. Bolstered by the fantasy that is credit, "people don't have to live within their means anymore," Wilusz laments. Debtors' prisons and poorhouses are a thing of the past, but "the modern-day equivalent of the poorhouse is living in a house you can't afford with a mortgage you can't afford while using credit cards for everything." Young people are particularly susceptible, she says. "They're going into debt for Coach and Victoria's Secret. There are twenty-year-old girls carrying $500 Coach bags on every street, and the worst thing that ever happened to feminism is the Victoria's Secret credit card.

"Don't borrow money," she pleads. "Grow up."

It's no joke. Safeguarding nest eggs often means readjusting how you think and act.

This process entails "more than money," asserts Jonathan DeYoe, a financial planner who heads DeYoe Wealth Management in Berkeley. He reached this career via a spiritual path, arriving at finance after attending the Graduate Theological Union's Institute of Buddhist Studies, and that was after absorbing a strong work ethic from his ranch-bred Midwestern father. To taxes, trusts, investment portfolios, and all the rest, DeYoe takes a keenly philosophical approach, which he boils down to three key elements: patience, faith, and discipline.

The discipline bit is familiar to anyone who ever adopted a fitness program, quit a bad habit, or actually kept a New Year's resolution. At first, it feels impossible.

"In this consumer culture, we are so trained that to not spend is somehow bad. Advertisers spend millions of dollars every year trying to get us sucked in. But we do have a choice. We can say, 'I don't have to buy all that stuff.'" Typically, DeYoe says, "when people realize the work it takes to get their houses in order, they don't want to do it." After he and his associates help clients confront their own mental-behavioral "disconnects," they compose a written financial plan: "I'm a fascist when it comes to written financial plans." Plan in hand, the seeker of financial security must adjust to making tradeoffs.

"Severely restrict spending and debt. Save until you have three to six months' liquidity, then keep saving. Maybe it means you'll have to retire a year later. Keep increasing your skills, because that's the key to increasing your income. And if you've got to save and save and save, then no: You can't buy that flat-screen TV."

Now more than ever, it behooves us to consider the future — because we're likelier than any generation in history to have a future.

"Fifteen years ago, people still retired at 65 and went fishing. Now they keep going, take a different career, write a book. Our goals and our milestones are increasing," says DeYoe. This is where patience comes in. "If you'll need $200,000 to send Tommy to college on January 1, 2018, and between now and then you want to make certain purchases and take certain vacations and go on a six-month sabbatical, then we need to determine how much you'll need to save every month in order to make that happen. What do the things you want cost now and, roughly, what will they cost at that point in the future when you hope to get them?" In plush years and poor years alike, he says, "everyone's biggest fear is outliving their money: of actually running out once they can't work anymore. And it happens daily. Half the retired population in the United States lives on nothing but Social Security."

The antidote?

Save. Prioritize. Diversify.

"Maintain a whole bunch of liquidity, including a year's income, basically in cash — just in case," DeYoe advises. Don't put all those nest eggs into one basket. Gold, stocks, bonds, commodities, cash, real estate: "The fundamental fact is that at any given time, we never know what will happen tomorrow. Even if we have an inkling, we should always maintain broad, broad diversification. That's why I never advise people to stay out of the stock market." He agrees with Wilusz that the current economic meltdown presents "tremendous opportunities. Those who are at or near retirement right now and who have been saving for years and years should be looking at this as the mother of all opportunities." Stuffing your entire life savings under the mattress or selling every last share, terrified by the daily financial news, "is as horrible a decision as buying real estate in 2005 or investing in dot-coms in 2000," he says. "These days I see a bubble of fear and pessimism, the same bubble that I saw in 2002."

And this is where the faith comes in: faith in one's own ability to budget and faith that bad times will end.

"The thing I really, really love about this country is that every four years we get an opportunity for a peaceful transfer of power. The conversation always continues, and I believe in the conversation. Humans progress, and I have faith that with so many people trying to solve this current economic mess, it will be solved. The Great Depression was a ten-year, horrible, awful debacle — and it was solved. In the early '70s, we had 18 percent inflation — and that was solved. I know it's hard for folks in Florida whose homes are down 70 percent this year — but hey, they were up 100 percent five years ago. We go through cycles. Read history, and you'll know that this too will be okay."

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