What to do as the economic recovery begins

By Andrew Housser

Last week, news reports began providing data on the third quarter of economic activity, supporting earlier predictions that the United States is gradually recovering from the recession that has gripped the nation for nearly two years.

For individuals, the recovery signals a return to higher levels of employment and more economic security. If you have been walking on pins and needles in the past months, now is a good time to begin returning your personal finances to economic health. Here are some tips on being a smart, money-savvy consumer as the recovery begins.

1. Aim to save 10 percent

Try to save 10 percent of gross income -- whether it's from a regular paycheck, commission or consulting check, or babysitting money. If you cannot yet do 10 percent, choose a level to which you can commit on an ongoing basis, and work to increase it to 10 percent.

2. Prioritize your spending

As you recover from the downturn, take a fresh look at how you spend your money. Here are some smart ways to prioritize what you pay and when you pay it.

•Pay your mortgage first. If you want to stay in your home, don't risk falling behind on your mortgage, and prioritize paying your mortgage over unsecured debts. Do not borrow excessively with home equity lines.

•Pay down credit card debt next -- and stop charging. For those who are weighed down with debt - especially credit card debt -- and paying interest rates of 18 percent, 30 percent or even more, work on paying that debt off. Using your money to pay off high interest credit card debt is one of the best investments anyone can make.

•Build an emergency fund. Ideally, this should amount to at least six months worth of expenses. But any amount helps. How much really is enough? "Enough" depends on a person's individual situation. Think about the level of expense that causes you to rush to a credit card. Is it a car repair bill for $250? A medical bill for $500? Have at least that amount available, and build toward six to nine months' living expenses.

•Then fund your goals according to your budget (see the next tip).

3. Budget

Budgeting is the No. 1, sure-fire way to save money. The key is to set goals. Whether your goal is to save on weekly grocery bills, have time for a hike once a month, save for kids' college or for retirement, or take a vacation to Europe, write down the goals and build your budget with the goals in mind. For some, it may mean modifying that European vacation to, say, Boston's North End for a taste of Italy -- but whatever happens, you'll find that using a budget will help you to spend smartly.

4. Pay every bill in full and on time

You will avoid increasingly high late charges, penalties and fees. Many people spend more money paying interest (and late fees) than on many other expenses.

5. Spend with cash

Start handing over old-fashioned dollar bills for your routine expenditures. People who do not use debit or credit cards are less likely to throw that extra item into the shopping cart or make an extra purchase. If you must, take credit cards out of your wallet. Some people even freeze their credit cards in a bowl of water in the freezer. The time it takes to thaw it out can serve as a deterrent, or at least provide time to really decide if you need to use it. Bottom line: If you can't pay for something now, don't buy it.

6. Shop smart at a warehouse club

Invest in a warehouse club membership to save by buying in bulk. Everyone, from single men and women to couples and small families, can benefit from the savings clubs offer if they plan and spend carefully. Buy only what you can afford, stick with items you use frequently, and watch for good values on non-food items such as gas, long-distance phone cards and clothing. Team up with friends, neighbors or family members to split large purchases.

7. Wise up on insurance

Take the time to get a variety of quotes on the insurance coverage you carry, from health insurance to home and auto policies. Be sure you are receiving the best value for your premium dollar, and if not, switch insurers.

8. Pare down utility bills

Everyone has heard by now the advice on turning the thermostat down in winter (up in summer), installing a programmable thermostat, turning the hot water temp down, etc. To really save, look carefully at your utility bills to find out the cost per gallon of water, per kilowatt of electricity or per therm of natural gas. See where you spend the most. Then focus your energies -- including improvements such as adding insulation or repairing dripping faucets -- where you will save the most money.

If the recovery brings you and/or your family increased income or steadier income, be especially careful to budget that money consciously. By planning ahead for how you will spend -- and save - -you will gain control over your own life and the peace of mind that that power brings.

Source: WALB News