Plan for the Worse in a Recession

Did anyone happen to catch the Lisa Ling special report on Oprah recently? Lisa Ling traveled to her hometown of Sacramento, and investigated tent cities - small communities of people who are living in tents year-round because they are otherwise homeless. Most of these people are homeless due to job loss and/or foreclosure, and many of them are also spending most of their time looking for a job. One woman, who had been living in a tent city with her husband for almost a year, spoke about missing amenities others take for granted. "Taking a shower when I want, walking into my bathroom, turning the light on. Fixing my hair and doing my makeup," she says. "I miss looking like a girl." At a shelter, Lisa Ling also interviewed a mother and her three children who bounce from shelter to shelter with their only belongings held by a black trash bag. On the weekend days, when the shelter is closed, they are forced to wander the streets.

It's a sad story, and unfortunately, for many, it's a reality. What really shocked me is that these people were middle class citizens only months ago. In the blink of an eye, everything changed.

One particular woman had been hunting for a job for two years. Prior to that, she had been making $70,000 a year. When asked what she would do if she could change one thing, she replied, "For me, the saving is huge. You have to have something that you can fall back on. Even if it's six months holding you stable down the line—that may be all you need."

She admitted to spending more than she should have, and that she wishes she had saved more money when she could. This just proves that the problem with many of us isn't how much, or even how little we make. It's how much we are spending. No matter what amount of money we are making, we're always wishing for 'just a little more.' We are living out of, or barely within, our means. We need to try to learn to live below our means, no matter our income. In this economy, anything can happen. It's smart to be prepared for the worst. None of the people interviewed in Lisa Ling's report expected that they would be where they are. Like most of us, they thought it could never happen to them.

It's extremely important to start building an emergency fund. Most sources say to aim for six months of living expenses, but that can be daunting. Start with smaller goals. Create a budget, and cut expenses if you have to. Have money taken out of your account automatically each month and transferred into a high-interest account. Just do something. You don't want to be the person who's homeless and jobless, wishing they had saved more of their money.

Start a budget, talk to someone about saving - please, please, please take action now.