Preparing for the Plunge

After reading about how Net Worth can be artificially high because of house prices, I've finally decided to take the plunge and adjust our net worth down. I did not use Zillow for this; instead, I found out what a similar house on our street sold for and used the price-per-square-foot to figure out ours. It is only a few thousand from the Zillow figure, anyway.

So, the worth of our house will go down $13,000 this month to reflect the housing crash. Since we've just put $25,000 into remodeling and $2500 into new appliances, this is hard for us to chew. On the bright side, we only owe 72% of the worth of the house, even having taken out money for remodeling and such, and our mortgage interest rate is just 4.375%. While we don't want the worth of our house to drop, if it did, we could weather the storm. The majority of our debt is the mortgage and our student loans; in fact, it comprises 95.7% of our total debt (24% is student loans). Our consumer debt is just 4.3% of our total debt. So, while our net worth is not terribly high, a large portion of our debt can be deferred during hard times.

Because of this, what I really want to concentrate on right now is saving for retirement and having a really well-funded emergency fund. Right now we only have 2 months worth of expenses saved, but my goal by May 2008 is to have 6 months or more saved. That way we will be ready for an impending recession.

I will say that, as a state employee, my husband has very little chance of losing his job. He was moved from "soft" money to "hard" money four years ago, and is vested as a state employee, so it would be pretty hard to fire him. We have been hoping to move and for him to get a new job in a couple of years; a recession could stymie that plan. But I think we are reasonably well prepared to weather some hard times, although we could be much better.

My big worry is if this impending recession will last more than a few years. In the 1980s, it went on forever, and if that happened, things would get very tight. Right now my husband has a secure job, but the pay isn't that great for a four-person family. He will finish his degree in May 2009, but if there aren't any other jobs out there we could be stuck. Right now he gets the GI bill to supplement our income, but that will end next year. That's a reduction of $800-$1100 a month. Living on his salary alone will be tough, and right now I am trying to live just on his income and use the GI bill as savings or to pay off debt.

I feel like we need to practice being disciplined and not just expand our living expenses because the money is there. It's hard, but things are finally starting to fall into place as we slowly reduce what we spend every week. We will get rid of our second car in the next few months; we've gotten rid of our storage unit, are using the scooter to save gas, are eating in most nights a week and making lunches. All this means that this month we have an extra $800 to put on our debt. It's not much, but every little bit counts.

Next up: Amazon versus Half.com. I am selling around 300 books and using both sites, with the extra money to go onto our debt, of course. Keep an eye out for the update.