January 29, 2008’s edition of the Wall Street Journal advises readers on ”How to Recession-Proof Your Career.”  The article, penned by Sarah E. Needleman, offers some tips to increase your chances of hanging onto your job during a downsizing at your company. 

• Stay at your current job.  Don’t try jumping ship to another company now, because you’re at greater risk of being laid off as a newer employee.
• Accept additional duties at work with a smile.  Volunteer to take on extra projects.  Your bosses will remember the helping hand during the next round of layoffs.
• Put your nose to the grindstone and work harder.
• Propose solutions for your employer that cut costs or increase revenue/profits.
• Get your resume in shape in the event that you are booted.  It’s a lot easier to put together a polished resume when you’re not panicked.
• Very important: network, network, network now with former bosses, colleagues, and classmates.  Needleman points out that reaching out to contacts when you are already out of a job can be a turnoff.  I’ve fielded desperate inquiries from unemployed acquaintances at my workplace, and somehow, it just feels like I’m being used.  Acting as though you are chummy with the contact to the hiring committee may also backfire.  A few years ago, an acquaintance I barely knew (a friend’s brother’s wife’s nephew) wrote a cover letter to my employer claiming that he was a really good friend of mine.  Of course, the hiring coordinator came to me and asked about the person.  Because I knew next to nothing about the person or his work abilities, I couldn’t offer anything positive to say.
• Look for another job within your company.  A friend whose job was being eliminated at Intel actually landed another position within the company and was able to seamlessly transition to the new job without any disruption in employment.

Despite your best efforts, you may still get the ax.  Just ask people working at Citibank, Countrywide Financial, or even Yahoo.  Sometimes bad financial decisions by the higher-ups in management could leave you out of a job.  So, in addition to the above tips, be sure to pad your emergency funds with as much cash as you can muster, eliminate all unnecessary expenses, and hunker down for the long haul to survive this recession. 

A caller to the Suze Orman show (”You Can Roth” episode aired on 01/26/08) wanted to tap her 401(k) retirement fund to pay off about $20,000 in credit card debt.  The caller told Suze that she was contributing 6 percent of her salary into the 401(k) account with a match of 3 percent from her employer and explained that she would pay back into her 401(k) account the amount she borrowed plus 9.5 percent interest within five years.  The question piqued my interest because I have a friend who is thinking of quitting his job and starting a business.  He wants to withdraw funds from his 401(k) retirement fund to pay for his family’s expenses while he works to get the business off the ground.  My gut feeling about my friend’s plan: doesn’t sound like a good idea.  My reaction mirrored Suze’s response to the caller, which was no way!!  Why?  Suze explains:

• Even though the caller would be paying 9.5 percent interest to herself, she is paying the loan back with after-tax dollars.  Once she reachs 59 1/2 years of age, and can withdraw the funds, she will pay taxes once again on that money, effectively subjecting the amount of the loan to double taxation.
• If the caller is laid off or quits her job, most 401(k) plans require immediate repayment.  If she can’t pay it back, she would owe ordinary income taxes and a 10 percent early withdrawal penalty.  Ouch!

Suze offered the following advice, which I thought was very prudent.  Lower the amount of her contribution to her 401(k) to 3 percent, the same percentage matched by the employer, and use the excess cash in her paycheck towards paying off her credit card debt.  Why put money into the 401(k) only to take it out again in the form of a loan? 

Suze also pointed out that money taken out of your 401(k) will not enjoy compounding returns and growth in the stock market.  Additionally, although Suze didn’t mention this, now may be a very bad time to borrow funds from the 401(k) account because of the severe drop in the stock market over the past few weeks.  You may be liquidating your 401(k) mutual funds and stocks at a price significantly lower than the price you paid for them, depriving yourself of the opportunity to recover your paper losses in the market.  Now, my friend is planning to quit his job and then borrow funds from his 401(k) account, which presumably will be rolled over into a traditional IRA when he leaves his company.  The more prudent move to make would be to reduce his contributions to his 401(k) acccount and put as much cash as he can into a savings account/rainy day fund.  He should use that fund for his living expenses, not the 401(k).  It’s already a bold (and admirable) move for my friend to quit the steady day job and plunge into the entrepreneurial world.  Why risk going deeper into the financial hole by raiding the 401(k) account, especially when you don’t need to? 

President Bush and Congress have been working together to put together a stimulus package in the hopes of averting a recession.  Why is the federal government so concerned about avoiding a recession?  Economists fear that if consumer spending drops precipitously, sales and production fall, in turn forcing companies to lay off employees.  The vicious cycle continues with massive job losses, which causes income to fall, affecting sales once again. 

Only time will tell if this stimulus package will work.  Moreover, the package on the table now could change because the bill still has to pass the Senate.  But in its current form, what will you get from it? 

• Tax rebates: Checks of at least $300 for almost everyone earning a paycheck, including low-income earners who make too little to pay income taxes, so long as they earned at least $3,000 in 2007.

Families with children would receive an additional $300 per child, while those paying income taxes could receive higher rebates.

The full rebate would be limited to individuals earning $75,000 or less and couples with incomes of $150,000 or less, but a partial rebate would go to individuals earning up to $87,000 and couples earning up to $174,000. The caps are higher for people with children.

• Business tax write-offs: Spurring business investments with so-called bonus depreciation and more generous expensing rules.
• Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,000 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans that Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.

If you are in line to receive an individual tax rebate ($600.00), the prudent thing to do would be to apply it to your credit card debt.  However, if you are credit card debt-free, why not use this windfall to treat yourself to a few luxuries and help support the economy?  Here are a few ideas, courtesy of my friend Moneypenny:

• Snatch up that New Coach Heritage Strip Tote for $358.00 at www.coach.com that you have been eyeing for months.

• Rent a stretch hummer, stock it full of sushi and champagne and take your girlfriends for a night on the town

• Satisfy your craving for premium coffee by getting a tall Starbucks latte everyday for the next 5 months or $1.00 drip coffee plus free refills for the next year and a half.

• Plan a romantic weekend with your significant other by reserving a luxury suite at the Ritz-Carlton or traveling to your favorite B&B

• Spif up your business look by snagging a sterling silver business card case for $275.00 at www.tiffany.com 

• Indulge in something you normally would never buy, like a Juicy Couture fleece track suit for $300.00 at www.nordstrom.com

 A lot of other financial bloggers and experts will tell you to save the money in your rainy day fund or invest it.  However, if you already pay your debts and manage your money prudently, why not treat this rebate for what it is: Free Money.  How often in life does $600.00 fall into your lap?  Have a little fun with it and remember, by spending the money instead of stuffing it under your mattress, you are keeping in spirit with why the money has been doled out to you in the first place - supporting the U.S. economy.

Today’s Wall Street Journal profiled some excerpts from the wsj.com/lawblog, written by Peter Lattman, including a January 16, 2008 story about a law school graduate who regrets her decision to attend law school.  Kirsten Wolf, a 32 year old Boston University Law School grad who incurred over $100,000 in law school debt, says that she is on a one-woman mission to talk others out of going to law school.  Wolf, who has found her dream job as an office manager for a literary agency, says that she initially decided to go to law school to satisfy her intellectual interests and so she “wouldn’t be poor.”  However, she quickly realized that the lucrative law firm jobs went to only a few students at the top of the class, and with average grades, she could only hope for a miracle.  So Wolf finished law school, incurring massive debt, and ultimately landing a non-legal job that pays significantly less than a large law firm associate salary.   Although Wolf loves her current position, as she describes it, she will be paying off law school debt until five years before “social security kicks in.” 

Wolf admits that she did acquire some legal skills in law school, but laments that it was not worth $100,000 of debt.  This topic hits close to home because I am also a law school grad and I understand Wolf’s frustration with the choice to attend law school.  Although I, fortunately, did not incur the kind of debt that Wolf did, I also faced serious doubts about whether my career decision was the right one.  Having learned through my own experience and through talking to other dissatisfied attorneys, I think that aspiring law school attendees must think long and hard before committing to three years of law school and potential school debt the size of a home mortgage.  Although Wolf’s primary grip seems to be that she incurred enormous debt without a payoff in the form of a lucrative job after law school, I question whether Wolf would have been satisfied with her career choice even had she gotten a law firm position with a six-figure starting salary.  A relative of mine who attended also attended BU law school did get a law firm position with a starting salary of $160,000 plus bonus.  However, she was completely miserable, working the hourly equivalent of two full time jobs and performing such non-glamorous tasks like sitting in a windowless room going through stacks of discovery documents.  As soon as her husband secured a high-paying position, she promptly quit the law firm and went to work for a non-profit.  I’ve also had colleagues who have stayed at law firms, even though they were very unhappy, because of the “golden handcuffs.”  Not only were they paying off school debt, they also spent money to buy large homes, expensive cars, and designer clothes as a form of therapy to make themselves feel that the endless billable hours were worth it.  I know this because I have been there myself.  I still have some clothes hanging in the closet with tags on them from when I worked at a firm that frequently required nights and weekend work.

According to a February 1, 2006, National Law Journal article, “As Salaries Rise, So Does the Debt,” by Leigh Jones, law school tuition is increasing at a far faster pace than law firm salaries, meaning that today’s law school grads grapple with proportionally higher debt levels than past law school grads.  With 80 percent of law school grads obtaining financial aid, and average loan debt for private schools at $77,000 and public school at $49,000, the decision to attend law school is one of the most significant financial decisions in your life.

So, before you decide to attend law school, do the following:

• Work at a law firm, as a temp, secretary, paralegal, to get a feel about what it is like to be a private lawyer
• Talk to lawyers in private practice, public service, and government about their experiences
• Decide what kind of law you want to practice.  If you are just going to law school, because you don’t have any idea what to do next, DON’T.
• Decide how frugally you can live and how much savings you can accumulate before entering law school, to minimize debt
• Talk to graduates of the law school you are thinking of attending, to see how satisfied they are with the experience.  If you run into a lot of disgruntled graduates who are unhappy with the job placement and the value of their juris doctorate degree, it might be a good idea to look at other schools

I’m not discouraging anyone from attending law school, just advising them to DO THE HOMEWORK.  Choosing law school means a lot of money and may influence your career path for the rest of your life.  It’s worth taking the time to crunch the numbers and decide whether you really want to make this commitment.  One final note:  law practice is the furthest thing from L.A. Law and Ally McBeal. 

As a follow-up to my January 18, 2008, post on surviving the recession, I am posting some ideas from a segment from today’s edition of CBS News Sunday Morning.  The program featured Ben Stein discussing his recession survival tips.  Stein starts off by smartly pointing out that the government and political pundits can’t know whether there even is a recession because there needs to be six months of declining economic activity.  According to Stein, there has been only one month of such declines, and the official word on the exisistence of a recession won’t be known until mid-year.  However, Stein admits that, even without the official pronouncement of a recession, there is undoubtedly an economic slowdown ocurring right now.  So, he offers a few facts and practical tips for us to survive the coming months, with my take on them in bold:

• No recession has lasted more than 15 months in the post-war era.  In the bleakest of past recessions, astonishingly, more than 90% of willing workers were employed.  So, look for the light at the end of the tunnel.
• Stein points out that people still buy goods and services, even through a recession.  The economy is not coming to a screeching halt, despite what Wall Street thinks.

So, Stein advises the following:

• Keep a large chunk of cash available on hand to avoid selling your house into a declining market.  This is critical to avoiding foreclosure if you are laid off or face an unexpected significant expense.
• Be the first person to arrive at work and the last person to leave work, in case there are layoffs at your workplace.  Hard to do, but it works.  My husband’s company laid off half of its employees during the tech downturn, and many people cut either had personality issues or had put in a weaker performance.
• Defer major consumer purchases, like that 60 inch HDTV.  If you’re feeling insecure, this should be easy to do.
• Invest any spare cash you have in the major stock market indices, like the S&P 500.  Go against the crowd and pick up stock shares on the cheap.  Warren Buffet says “be fearful when others are greedy.  Be greedy when others are fearful.”
• Keep your chin up; the hard times will pass, as they always have.  Have hope, as always.

As Stein says, this too shall pass.  The key is not to panic and to be prepared to weather the bad times.  So, sock away those pennies, stop shopping for luxuries, and put your best foot forward at work. 

It’s that dreaded R-word.  The question haunting politicians and average Americans - are we in a recession?  To middle America, sky-high gas prices, groceries, heating bills, and adjustable mortgages sure feel like a recession, even if Ben Bernanke and the politicians in Washington won’t admit to it.  If you’re feeling the pinch, the economic data show that you are definitely not alone.  According to today’s Wall Street Journal, the retail sector suffered its worst holiday season since 1991.  Even higher income Americans are feeling the pinch, with American Express reporting that its more affluent customer base have been slower to pay their charge card bills.

I was shocked when I walked into the Safeway the other day and saw a dozen eggs for $2.39.  I thought I was in the organic egg section.  But no, that was the price of a carton of regular large eggs, which has basically doubled in the last year.  A gallon of milk, at $4.00, has also shot up in price.  I don’t need to remind you of the astronomical increase in gas prices. 

 Now, has your salary doubled?  Probably not.  But there are a few things you can do to lessen the pain while the politicians continue their academic debate over whether there even is a recession.

• Go through all the clutter in your home.  There are two benefits to this:  one, you find out exactly what you already have.  I can’t tell you how many times I have gone out to buy an item I thought I needed, only to run across something very similar at home later.  You’ll also uncover items like unopened DVDs, clothes hardly worn, and other toys that will stave off a desire to go shopping and add to the clutter.  Additionally, what you don’t want can be collected and donated to Goodwill or the Salvation Army for a tax deduction.
• Collect all your spare change in the house and go to the local bank to exchange it for cash.  Don’t use Coinstar - it charges a steep 9% commission on your change.  This may seem a bit like penny-pinching, but it’s not.  I bet you have at least $50 to $75 in loose change all over the house, in the bottom of your purses or bags, and under the sofa.  If you found $50 on the sidewalk, you’d be excited, right?  This is a no-brainer.
• Audit all of your monthly expenses.  In addition to the obvious candidates, like brown-bagging your lunch, take a look at those regular monthly charges for your cell phone, internet service, Netflix, gym membership, etc.  My husband and I had switched to a cell phone plan with a lot more minutes because I was traveling on business frequently and used the cell phone for long business calls.  Now that I am not traveling as much, we looked at our cell phone usage and discovered that we had over 5000 rollover minutes from last month!  We agreed that it was definitely time to downgrade the cell phone plan.  We also discontinued the Netflix service, because the DVDs would sit next to our TV for weeks at a time.  We had good intentions, but with our busy schedules, it was frequently difficult to sit down and watch a two hour movie often enough to justify the Netflix service.

Saving a bit of money here and there may seem trivial, but, believe me, it adds up.  Why else would a $157 billion company like Bank of America decide to cut off hand soap and sugar-free hot chocolate to employees?  If you have any tips to add, feel free to post them here. 

If money were no object, a lot of us would shop at Neiman Marcus over Kohls.  Why?  We perceive the merchandise at Neiman’s to be higher quality, more durable, more fashionable, and generally a better product than the reams of clothing jammed into the racks of Kohl’s.  At Neiman’s, we’re talking clothing with hefty price tags, often running into the thousands, while Kohl’s sometimes marks clothing down so cheaply, that the prices are under $1.00.  It’s probably safe to assume that Neiman’s merchandise is superior to Kohl’s.  However, what if the same piece of clothing were put into both stores, with drastically different price tags?  Shoppers may very well pay more for the product at Neiman’s than at Kohl’s.  Why?  A lot of shopping is based on psychology.  An experiment with a bottle of wine that was profiled in the news this week shows that perception of quality is frequently based on price tag over actual quality.  People chose a $45 bottle of wine as being superior to a $5 bottle of wine, even though both bottles were actually the same wine.  There was no difference whatsoever.  Some people may argue that quality of wine is difficult to distinguish.  This may be true, as I am certainly no wine expert.  But this does remind me of another experiment that a friend conducted while she was managing a gift store a few years ago.  The gift store carried high-end china, silver and crystal items, with lines like Waterford, Swarovski, and Baccarat.  The friend happened to be shopping in lower Manhattan and picked up some $2.00 fake flower pots in Chinatown.  For fun, she put these items on the shelves of the store, and marked them up several times over.  They were snapped up by shoppers during a big sale.  My friend was astonished.  These items were not brand name and they could be purchased for a small fraction of the price from a street vendor in New York.  However, because the flower pots were intermingled with high end silver, crystal, and china merchandise in a fancy gift store, shoppers perceived the flower pots to be high end as well.   My friend’s experiment demonstrates that shoppers still need to be discriminating and selective when shopping at Tiffany’s or Marshall’s.  I suspect that retailers may intermingle all sorts of products throughout their stores, to raise their overall gross margins.  Therefore, it’s up to the shoppers to find the real value in what they buy. 

I empathize with J.D.’s unexpected cash layout in his Get Rich Slowly’s January 9, 2008 post on the benefits of an emergency fund.  Like J.D., we have dipped into our emergency fund for various one-time expenses over the past three months, like fixing a broken sprinkler in our home, an unexpected increase in property taxes, and an unplanned trip to visit a sick relative.  Having a stash of cash available for nonroutine household expenses is a no-brainer, which is why I was surprised with Suze Orman’s response to a question about emergency funds in a recent episode of her television show on CNBC (aired on January 12, 2008).  A woman had called into the show explaining that she was a federal government employee, with about 6 weeks of vacation leave every year, and over 4 months of sick leave.  The caller asked Suze whether she could treat her vacation and sick leave as her emergency fund because the amount of leave was so substantial.  Suze said “yes,” that in lieu of a cash emergency fund, she could rely on her accumulated leave as her emergency fund in the event she was laid off or fired.  Huh?  Let’s be realistic here.  If the caller had to take off 6 months because of a dire medical emergency, she would still receive the same pay as if she were working.  The sick/vacation leave would not cover any additional expenses that the caller might face in such a situation.  There are numerous other scenarios where the caller, still employed, might need extra cash.  Having extra cash is the entire point of an emergency fund.  Frankly, a federal government employee would rarely be fired or laid off.  So, instead of advising the caller on a situation that is very unlikely to happen, Suze should have told the caller to immediately set up a cash fund.  I think Suze is one of the best personal finance experts out there, but this is definitely one of her rare misses.

Thursday’s edition of the Wall Street Journal, Personal Journal section (Jan. 10, 2008) contains an interesting article about day care - for elderly adults (”Finding Day Care for Your Parents, by Jeff Opdyke).  The article describes the growing demand for adult day care facilities, to the tune of between 5 and 15 percent a year.  Opdyke cites the following statistics.

• Adult day care serves about 400,000 people on a national level
• For an 8 hour day, average cost in elder daycare is about $61/day, compared with $152/day for a home health aide
• Services range from basic care to physical therapy, medication management, grooming, and exercise.

According to the article, there is still some stigma attached to the idea of daycare for adults.  However, even the federal government is getting in on the action, starting up a three-year pilot program allowing a fraction of Medicare home health-care benefits to fund elder daycare.  Opdyke cites some successful statistics for the federal pilot program: in one of the five pilot sites, hospital admission rates for participants are less than half of those not participating.  At another pilot site, about half of the recepients of Medicare benefits in adult daycare reenroll, using private funds after the Medicare benefits run out.

I think this is an idea with tremendous potential.  The topic caught my eye because my mother-in-law was asking us for some advice on purchasing nursing home insurance.  The insurance is very costly, about $2,500/year for a 62 year old.  If my in-laws do not need to be admitted to a nursing home for another 20 years, which is entirely possible because they are both in very good health, the combined insurance premiums paid by my in-laws could total $100,000.  Moreover, the insurance would only cover three years of nursing home care.  Granted, nursing home care is more intensive and costly than adult daycare.  However, barring a catastrophic medical event, adult daycare may suffice, even for elderly relatives with chronic conditions like Alzheimer’s disease.

Another benefit is that adult daycare alleviates much of the pressure and guilt that adult children may face in deciding what kind of care to seek for their elderly parents.  The elder parents are looked after during the day, but still sleep under their children’s roof at night and not at a nursing home.  Adult daycare is also cheaper and provides more social stimulation for elder parents, verses a home health aide.

Opdyke provides some pointers for baby boomers looking for an adult care facility:

• Find a center through local Alzheimer support groups or state or local agencies for the aging
• Personally visit providers before signing up
• Ask questions about staffing ratios, services provided, the pricing structure, and whether they offer discounts
• Visit multiple centers
• Verify licensing and registration

Finding safe and adequate care for aging parents can be a stressful, heart-wrenching process.  A friend of mine represented an elderly lady who was suffering from alzheimers disease.  Her daughter petitioned the court for guardianship of her because the mother, who was still living at home, was hoarding thousands of items, including hundreds of empty milk jugs, that were stacked to the ceiling of the house.  The mother was ultimately moved to a county-approved home for the elderly.  While not a full-blown nursing home, the home was a private residence retrofitted to accommodate up to 10 elderly patients for long-term stays.  The monthly charge was $2,400 per person.  I visited the home with my friend: it was dark and depressing, and I would not put my own parents there.  There were some patients whose children lived in the area and came to visit them frequently.  If adult daycare does become more prevalent, adult children would not have to make the difficult financial choice of putting their parents in such a place.

Today’s Wall Street Journal, Personal Journal, has an interesting article entitled “Want to Be CEO?  You Have to Dress the Part,” by Christina Binkley.  As Binkley explains, smart dressing in job interviews and at the office can be a real minefield, given the wide range of differing corporate cultures.  A pinstriped suit, white collared shirt, and dark tie may not work well in a company with a casual culture, like Google.  Likewise, donning your favorite pair of jeans and sneakers may be frowned upon in a traditional law firm.  For job interviews, Binkley recommends calling the hiring manager’s assistant or the recruiter to ask about the appropriate look before showing up for an interview.   

 For women, Binkley cites the following looks as no-nos:

• Tight shirts
• Low necklines
• Dangling earrings
• I would add short miniskirt, halter top, and fishnet stockings to the list (Believe it or not, I’ve seen all three at my workplace).

For men, it’s:

• untucked or wrinkled shirts
• digital sports watches
• drooping socks
• I would add here BELT (To avoid other co-workers getting an eyefull more than they bargained for).

Other advice in the article by Business-etiquette consultant Anne Marie Sabath include:

• A maximum of three accessories for men, like a watch or wedding ring
• ironed shirts at all times
• This is a classic: dress for the position you are seeking, not the one you are currently in.

Some people might think merit should trump appearance.  But the bottom line is that appearance does matter, not only in an office setting or job interview, but also in self-employment situations.  You command more respect and you gain more credibility if you are appropriately dressed.  My husband used to wear sneakers, shorts in the summer, and untucked shirts at his workplace, which has a casual dress code.  However, when he was promoted to a management position at his high-tech company, he immediately began wear slacks, tucked-in shirts, and real shoes (i.e., no sneakers).  Not only does he look and feel more professional, he feels that he commands more authority by dressing the part.  Personally, I would have liked him to dress that way before he got the promotion, but better late than never.

 My office has a corporate casual culture, but many of the women do wear suits to work.  Although I used to never wear suits unless we were meeting with outside parties, I realize that the suit does convey a sense of power and authority.  I also find that it is easier to put on a suit, instead of trying to match a regular blouse and slacks.  It’s actually kind of like a uniform, which I don’t mind.  When you’re just trying to get out of the house in the morning, one less thing to worry about is a good thing.