Saving During Tough Times: Five Questions to Ask Yourself

Photo: Living on Half: Toni Anderson, Ayesha Baker, Hendricks Family, Cathy GreeneCourtesy Toni Anderson/Ayesha Baker/Hendricks Family/Cathy Greene
Living on Half: Each of these people share their secrets for saving money during tough times.

As job anxiety bubbles up in workplaces across America, Laurie Holgate is preparing for the worst-case scenario: getting laid off.

"Everyone is paranoid," she said. "We hired so many people the last couple of years and everyone is looking around to see who it's going to be."

As a project manager at a large HVAC company in Seattle, Wa. that installs and designs heating and air conditioning systems, Holgate, 50, says they're not bidding on new projects because there are none.

In March personal finance queen Suze Orman appeared on Oprah, challenging everyone in the audience, whether single or in a dual-income household, to save half of their monthly income for six months. It was part of her "recession rescue plan." The idea was simple: start saving now, before your income takes a hit.

"When you are freaked out, that is not the time that you go through your expenses and go, 'Should I cut here?'" she said on the show.

Viewers wrote in to the message boards after the show, complaining that they are already stretched to the limit, and that "living on half" isn't a practical solution.

But Orman asks, "What would happen if you lost your job and all you had was unemployment – if you even qualify?"

In an interview with, Orman said, "If you do lose your job you will be shocked at how much more you will cut back."

One of the keys to building wealth, she says, is to continue to live the same lifestyle, even after getting a promotion or a higher salary.

"It's almost as if the more you make the more you spend," Orman said. "If people continue to spend who don't have money then we end up in situation where taxpayers support those people. When they get into trouble now we have serious problems and it's you taxpayers who have paid for the outfits in that person's closet."

Soon Holgate's company will undergo massive downsizing among its union employees that work in the field. Next year, if Holgate doesn't have another project to oversee, she fears her job will be on the line, too.

So, as she awaits news of her fate, she's increasing her savings.

She and her boyfriend earn a combined $70,000, which has allowed them to live comfortably, but in September of last year, Holgate's worries drove her to start banking half her paycheck.

Before she only saved $100 every week and now that's up to $300. No more getting her nails done and, as she said, "no more fun."

"I don't go out to dinner, don't buy any clothes for work, I'm trying to save every penny that I can," she said. "We've cut out so much. I was trying to get to the point where I would have enough to make house payments for a year [without working]."

Fortunately for Holgate, she reached her goal this year, and now has some peace of mind. "I'm not as worried about money as I used to be – I know I can survive – I'm not making unnecessary purchases."

But figuring out how much to save each month can be tough, especially during a recession when you're afraid your job might be on the line. Dayana Yochim, a personal finance expert at says there are five things to ask yourself.

1) Who Are Your Dependents?

2) What Industry Do You Work In?

3) Where Do You Live?

4) If You Lost Your Job, What Would You Be Willing to Do?

5) Do You Have Access to Credit?

Plus, learn how your saving plan ought to be structured, and what to do if you haven't saved anything yet.

Economic Survival Question 1: Who Are Your Dependents?

Do you have kids? Does your spouse work? If you are the sole income provider, then clearly you need a larger stash of cash.

Toni Anderson, 36, is a stay-at-home mom in a household of nine with just one salary coming in. Her husband, Lt. Commander David Anderson, and their seven children (the eldest is 15 years old and the youngest just two months) live on an army base in Fort Mead, Md. They don't pay for housing or health care, which is a huge savings, but even so, there are nine mouths to feed and David is the sole provider. With a large family and just one income, they knew they'd have to save a substantial amount. Currently they put aside nearly half of David's $70,000 a year salary.

"When he got his last promotion five years ago we continued to live on his old salary," Toni Anderson said. "His new [higher] salary will start next month but we won't change our budget."

How do they do it? Anderson says they avoid cable, credit cards, brand new clothing and big grocery bills.

She's inspired others to save on her blog: The Happy Housewife where she now generates about 3,000 hits a day.

"I do get a lot of feedback from readers who didn't think it was possible but are now on the path, getting there. We're not weird. Some people [who have never met us] think all my kids are wearing yucky clothes from the '60s – you can look normal and shop at a thrift store."

For those struggling to save, Anderson suggests writing down every expense. In 2007 she and her husband decided they didn't want any more debt. They spent a month tracking expenses and she said she was surprised to where their money went.

"We realized we could cut our expenses really quickly," Anderson said. "I think people are afraid to write down what they spend because they don't want to know."

Since then they've brought baby number seven into the world and bought a new, larger car that they paid for with cash.

In addition to cutting out unnecessary impulse purchases, Anderson also trimmed the family's grocery bill from about $1,100 a month to $600. "I use coupons, and buy more whole foods, non-packaged stuff."

She's also changed the way she cooks: no more cereal, she makes breakfast from scratch. She even makes her own bread. "I'm very busy. We don't have a television so I don't spend a lot of time sitting in front of the TV. I tend to stay home during the day, and save money by not driving around."

"It's become our lifestyle now -- my oldest daughter is growing like crazy and [clothes] last just five weeks. At a thrift store going through the racks can be annoying and aggravating but at the same time we left the store and spent $50 and bought 10 outfits between two kids and they were all name brand, cute, current stuff. We saved $300 to $400. Is my time worth $150 an hour? Absolutely. When I look at it that way I think going to the thrift store is not going to kill me. And then the [saved] money can go somewhere else."

Economic Survival Question 2: What Industry Do You Work In?

If yours is a niche industry, Yochim says it could be a double-edged sword. For example, if your specialty is no longer in demand, then it's going to be harder to find a job, and in that case you'll need more savings. On the other hand, Yochim said, "if you have specialized skills that are in high demand, then great." There will always be natural turnover.

Phoebe Hendricks, 26, and her husband Willie, 29, both rely on Willie's income as an electrician for a power distribution company in Missouri. His specialized skills are in demand everywhere, but if he were to lose his job, their family would most likely need to relocate.

"His job is pretty stable, but we still wanted to be prepared in the event that he lost his job," Phoebe said. "He should be able to find a job fairly easily; however, we would have to move. With that there are added expenses and we wanted to make sure that all of our debt was out of the way and we had some money saved back for our normal expenses."

They had about $36,000 in debt before deciding to take control of their finances in 2007.

"I laid out every single expense we had, wrote it down, and we just kinda looked it over," Phoebe said. "It was almost like a wakeup call."

They trimmed their grocery bill from $650 a month to $300 a month by staying away from processed foods. "I make everything now," Phoebe said. "I honestly think that your grocery budget is the easiest place to cut. Using cash [to pay for food] has really helped us. It was a major, major factor."

Now they're saving about 20 percent of their income whereas before they spent more than 100 percent. For the Hendricks family, life has changed a lot since they first started saving a few years ago.

"It's more peaceful and less stressful in a massively great way," Phoebe said. "I appreciate things so much more now than I ever did then. I think it's because we're a lot stricter with our money. We really have to think a purchase through before we do it."

Phoebe also said they are closer as a family because they spend more time together, including family game night.

"Now for our entertainment, instead of going out to dinner we have dinner at home then go outside and do something," she said.

Economic Survival Question 3: Where Do You Live?

"Is your town teeming with potential employers or have jobs gone to the dodo?" Yochim asked. Figure out your ability to relocate for work. If you're willing to move then that makes you a good candidate, but Yochim says if you have kids in school and want to stay local you'll need to sock away more in savings.

When Ayesha Barker, 33, lived in St. Paul, Minn., she was struggling to support herself and her son Najah, who is now 10 years old. In Minneapolis she sold home equity loans, lines of credit and other bank products, but she lost her $35,000-a-year job due to downsizing. She searched for a new job for six months to no avail before finally deciding to move back to Kansas, where she had lived years ago.

"I knew it was inexpensive to live [in Kansas] so I decided once I couldn't find anything that was stable to pack up and move back," Barker said. In Topeka, she was finally able to save. She found two part-time jobs within weeks of moving, and even though she earns less now than she did in Minnesota, she's saving at least 50 percent of her $28,000 salary. In Minnesota, she said, the cost of living ate up her paycheck.

"I am very frugal," Barker said. "I started coupon clipping last month, after 'Oprah' had a show that showed you how to cut your grocery bill in half. What I've been finding is in some cases you can buy name brands."

"A lot of my friends are financially struggling. I don't know anyone right now that's doing well," she said. "My father lost $31,000 in his 401(k) plan and he's three years away from retiring. There's no way he's going to come up with 30k in three years, so it's been tough. I'm buckling down now to prepare myself for anything that could be happen down the line."

Barker switched all of her lights to energy efficient bulbs. And when she does drive she plans trips so that she can do several errands at once. "I don't just pop in the car to go driving anymore," she said.

Economic Survival Question 4: If You Lost Your Job, What Would You Be Willing to Do?

Yochim says it's important to figure out what kind of immediate action you could take to bring in money. Could you contract for work at the company that laid you off? Can you freelance? Are you willing to sling burgers? "If you know, 'Yeah I could totally line up a couple of projects' you may not need as large a cash cushion," Yochim said.

Cathy Greene's husband Allen Greene had to stop working months ago due to a medical condition. Cathy, 45, who earns about $300 to $400 a week as a massage therapist and instructor, couldn't support the both of them on her income. So earlier this year she and her husband decided to take immediate action: they're saving money by living rent-free with Allen's grandmother.

"Homecare is very expensive and she wanted to stay in her home, and didn't want to go to assisted living," Greene said. "It has really benefited the whole family and allowed me and my husband to save money."

The Greenes trimmed down their expenses to a little more than $600 a month, allowing them to start banking half of their income, even though Allen is currently not working due to a medical condition. The Greenes used to eat out "all the time," but cut back to once every two weeks. They no longer belong to a gym, and have gotten used to buying used videos instead of going to the movies. Their clothing budget is minimal.

"I don't buy clothes -- I wear scrubs to work. My husband buys jeans from the thrift store," he said. Cathy buys her scrubs on Ebay, where she recently found two pairs of pants and three shirts for a total of $15.

"These are slightly worn but in good condition. I look for the brand names. I don't bid a whole lot of money. I've just got to check back -- if something's a dollar I bid five," she said.

Cathy also enrolled in the Save Yourself TD Ameritrade account that pays you $100 if you deposit $100 every month for 12 months.

Her advice? When you finish paying for something: stop buying new things. But while you're saving, allow yourself to splurge on one thing.

"I won't give up my wine and my husband won't give up his Heineken," she said.

"It's a lifestyle change. There's no such thing as a diet," she said. "Even if my husband goes out and gets a fantastic job we'll still live the same way."

Economic Survival Question 5: Do You Have Access to Credit?

If you've lost your job, or you've missed a few bill payments, credit card companies probably aren't going to extend any credit to you.

"Putting things on a credit card is not the best solution, it might even be the worst solution, but you do have to factor it into the equation, because not everyone can time their layoff," Yochim said. "First of all, keep -- don't close -- credit cards. Use them. Keep your credit active, otherwise they can close your account, or lower your limits. They only want to extend lines of credit to people who can use it."

In addition to saving, Holgate, the Seattle woman we introduced at the top of this story, built up a line of credit. She has a combined $20,000 line of credit on her two credit cards, just in case she needs to use them. And she opened a home equity line back in 2006. At the time, she had wanted to free up extra cash to remodel her bathroom. But having more than $60,000 available might also help her in a pinch -- as long as her lender keeps the line open, not a given in these days of tight credit.

If you're still working and in a good situation, Yochim advised, it may be a good idea to open a home equity line of credit. But it's important to remember that HELOCs are a last resort.

"It's a good thing for homeowners to have available, but to never use," Yochim cautioned. "You don't want to trade unsecured debt for secured debt -- don't trade the roof over your head."

But, she says, "There are true emergencies and if you need access to cash that's it and you get a tax break on interest. The same could be said for credit card offers: "Don't open them willy-nilly but if you can get it, go for it."

For the long-term, Yochim says it's not the percentage you put away that matters as much as how many months of expenses you can actually cover.

If, for example, you don't have any dependents and you can get work to tide you over in a layoff, Yochim says it's fine to have a three-month emergency fund. But, if you are the sole bread winner and you have dependents, estimate how long it would take to get another job in your industry and then, Yochim said, add three months to that.

If she does get laid off, Holgate isn't banking on another job in her industry. Instead, she's now planning her own gardening business and will apply for a business license soon.

It's possible to improve your situation in tough times: Here's what you need to know to get on that same road.

Your Savings: A Three-Tiered Cake

Saving goes far beyond the emergency savings account, which is the money you touch only when you need it.

"You have to think of it as three-tiered layer cake," said Yochim. "The top portion is the smallest one, you can have immediate access to it."

This layer covers essential expenses, fun money and your emergency savings too, which ought to be kept in a separate account.

The middle layer of the cake is looming expenses -- the kind that you see coming later, for example, savings for college, a new car, or home improvement.

The bottom layer represents long-term savings. "That's the stuff you don't want to touch," Yochim said. The largest chunk of this will be your retirement money.

If you have to dip into your savings, Yochim recommends digging into the first layer, then the second. The last resort should be the third layer.

What If You've Saved Nothing?

If you haven't saved, and a layoff is announced, Yochim suggests pressing for a better severance package, or even borrowing from your child's college fund.

"Junior can get loans but there's no such thing as unemployment scholarship," she said.

If you're worried about getting laid off, your priority should be to build your emergency fund and stay out of credit card debt.

"If it means for next three months you have to save half or three quarters of your paycheck to fund that -- it's a short term sacrifice to avoid a lifetime of debt payments," she said.

Think you have no room in your budget to save? Think again. Here are a few things you may not have considered:

"Start driving like a grandma -- raise your insurance deductibles," Yochim said. "You can save up to 15 percent on your annual percent on premiums."

Next, see if you can negotiate and lower your debt payback terms -- if you can, do it.

Look into loan consolidation and payment deferral. This will free up cash now, although you will be paying more interest in the long term.

Stop socking away for college tuition if college is several years away.

Cut back on your retirement contribution. If you have 401(k) at work try to contribute at least enough to get any company match but if you can't, then put that savings on hiatus while you build your emergency account.

If you have investments that are outside retirement accounts, and they've lost money, consider selling them. But if you made money on it remember that you will have to pay capital gains.

For more of Yochim's advice, visit the Motley Fool Web site.