Recession Preparedness

The market is typically early to the party. My guess about 6 months early.

Which means that recession is headed our way. A true, defined recession of at least 2 quarters of negative GDP. We haven't been involved in a technically defined recession yet, but I feel like it's been slow to come on, and we will definitely be slow to come out of it. In my opinion the economy has been in recession since about February of this year.

Knowing this, it's important that we all be prepared. I by no means am prepared and the questionnaire I'm writing is more for my own enjoyment (partial daydreaming or thinking about how much worse it could be for me). Also, given the current economic landscape I feel a calling towards financial planning for people who have gotten themselves in to trouble. I haven't seriously looked in to a position like that though.

Below is the questionnaire. Score along if you'd like to see how you stack up. You may need a calculator and your bank and credit card statements to help you out.

Question 1:

When I add up all of my necessary monthly bills which I need to pay in order to live (mortgage/rent, utilities, food) they equal which percentage of my monthly income?

A) 20% or less
B) 35%
C) 50%
D) 70% or more

Question 2:

Assuming the possibility of a 10% unemployment rate (or higher) the likelihood of me losing my job is:

A) Highly Likely or already lost my job
B) Likely
C) Unlikely
D) Will not happen or I am my own boss and wouldn't lay myself off

Question 3:

When someone asks me about my health I say:

A) I eat well and exercise regularly. I am almost never sick, have a good family history and am drug and disease free
B) I try my best to eat well, but time constraints make me cut corners and skip workouts
C) I don't watch what I eat and walking up the stairs in my house is enough exercise for me

Question 4:

When I look at the things I pay for on a monthly basis which are not necessary in order for me to live they equal what percentage of my monthly income?

A) 10% or less
B) 20%
C) 30%
D) 40% or more

Question 5:

If I were to pay off all of my credit cards right now - allowing your bank account to possibly go negative - how long would it take to get back to your current financial standing?

A) I feel that I could never get back if I paid off all of my credit cards.
B) It might take me two to three years.
C) One year or less.
D) I don't have any credit card debt to pay off.

Question 6:

My savings habits look like the following:

A) I am barely scraping by making minimum payments on my credit cards and might possibly default on my loans. It is not possible for me to save a dime.
B) I set up this thing called a 401K through my employer. Not sure what that is though.
C) I contribute the amount my company will match to my 401K and have started an IRA for anything extra I can afford to save.
D) I contribute the amount my company will match to my 401K, max out my IRA every year and put the rest in to a cash nest egg to be used for emergencies only.

Question 7:

The amount I have saved (non-retirement):

A) I have enough cash to afford my life for a year or more without any income to supplement it.
B) I have enough cash to afford my life for 6 months without any income to supplement it.
C) If I really cut back my spending lifestyle and sold a few things I might be able to survive 2 or 3 months without any income.
D) You mean you have more than $0 in your bank account?

Final Question, Question 8:

How concerned are you with the current economy and the economy over the next 2 to 3 years?

A) Don't know, don't care. Ignorance is bliss.
B) I read the news every now and then, hasn't affected me personally and therefore I have not changed my lifestyle.
C) I have educated myself on what is happening in the economy and have taken the necessary steps to insure I avoid any future financial stress.
D) What the media has been saying has made me very nervous. I have taken all of my money out of the bank and stashed it under the mattress. Here comes the next great depression!

Scoring Key:

Q1: A.4 B.3 C.2 D.1

Q2: A.1 B.2 C.3 D.4

Q3: A.4 B.3 C.1

Q4: A.4 B.3 C.2 D.1

Q5: A.1 B.2 C.3 D.4

Q6: A.1 B.2 C.3 D.4

Q7: A.4 B.3 C.2 D.1

Q8: A.1 B.2 C.4 D.1

Scoring Guide:

8-16: You are in a deep world of hurt and may know this, or may have just ignored it for too long. Take a serious look at your current financial standing and take action. Make a plan to take control over your own financial well being or consult a professional who can help guide you through the economic turmoil.

17-25: You are doing better than those that are really hurting out there. You are financially stable but if you or your partner were to lose your job for a few months it would really hurt. You are trying your best to save but it always seems like a struggle just to have enough in order to enjoy the money you work for every now and then.

26-32: You are recession proof. A financial all-star. Kudos. Somewhere along the way either you figured it out or someone who has lived through hard times before pointed you in the right direction. You have very little to worry about financially, and even if there is an issue that arises you've got enough padding for a very soft landing.

Author's note: Personally I scored a 22. Which puts me in the middle to upper range in the 2nd category. I am alright with being there - but obviously it can be better and I will continue to push to get to "recession proof" status. Good luck to all of us over the next few years as we navigate these rough economic waters. And by luck I mean when excellent recession preparedness meets the possible coming recession.