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The Color of Money

March 31, 2009

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Rick Rose did just about everything right with his finances.

He worked hard. He saved well from the $85,000-a-year job he had as a communications director for a nonprofit here in Washington. He bought a home he could easily afford. In fact, he had saved about a year’s worth of living expenses.

But in two months, Rose, 43, will be completely out of money. He lost his job last spring and has been living off his unemployment and savings ever since.

By contrast, Juan and Bobbie Wilson made many mistakes. When the couple were earning $98,000 a year, they admittedly spent too much. They weren’t extravagant but they did what many families do. They ate out too much. They overspent using credit. They didn’t budget.

Come May, both Rose and the Wilsons will be in the same exact position. Rose and the Wilsons will barely have enough money to make their mortgage payments. Rose will worry about coming up with the money to pay for the expensive medication he takes for a chronic illness. The Wilsons will be wondering wheter they can pay for health insurance for their family.

The fact that Rose and the Wilsons are faced with the same financial issues illustrates how cruel this recession has been and how none of us can arrogantly think we’re better off than our down-and-out neighbor or friend or family member or former co-worker.

Even though the Wilsons could have handled their money much better, they weren’t reckless. They just didn’t plan for the worst.

And yet, Rose did plan for the worst and it became catastrophic.

“I thought I was being very careful,” Rose said. “My house isn’t extravagant. I don’t have huge expenses. I have an unexceptional wardrobe. I don’t vacation much. I cut back on eating out.”

If you had a sustained period of unemployment, how long could you last financially? Would you take any job, even one that paid significantly less than you were used to making? Is your job the key to health care?

A new challenge

Over the next nine months I’ll be sharing the struggles of Rose and the Wilsons as they look for new and sustainable work. They are the faces of this recession that has taken families down all over this country.

In past challenges, I’ve spent a year working with individuals and families, helping them get their money straight. For the most part, it’s been an easy task. It’s something I’ve done with dozens of others. The advice is generally the same. I first make them do a budget. They have to get rid of their credit cards and face up to their spendthrift ways. For this year’s Color of Money Challenge, I decided to specifically focus on families impacted by a job loss. The theme for the challenge this year is “down but not out.”

This challenge is so dramatically and emotionally different. This isn’t a matter of eliminating eating out. Challengers are struggling to keep food in their refrigerator. They are worried an illness will bankrupt them.

In one respect, having a large cushion made Rose feel too secure. With a lot in savings, he didn’t have to settle for just any job. In the past when he lost a job, it only took a few months for him to find employment.

Rose has sought help in his job search at a career center, called 40Plus of Greater Washington, a nonprofit that offers a wide variety of career support services. However, he’s not done everything he can to find a job, he admits.

It’s hard to stay motivated when the openings are few, and the rejections are many, he said.

“What am I going to do to support myself?” he asked.

Rose has concentrated his job search largely in the nonprofit sector, which has been hard hit by the recession as donations from financially strapped individuals and corporations declined.

At least he kept his expenses low, and was the beneficiary of some good luck. He bought a home in the District of Columbia for about $200,000 before prices jumped dramatically. Then he sold at the top of the market for $685,000. He had decided his single-family house was too much to maintain, so he then bought a condominium, plunking down a huge down payment. That kept his monthly mortgage payment to a comfortable $1,300 a month, including his condo fee.

But Rose hadn’t been perfect in his money management. He should have put more money into his retirement plan. He has extra debt because he took out a $20,000 home equity loan in part to pay off past credit card debt and cover tuition for a graduate program he had to withdraw from after he lost his job.

Communication gap

The upper-income life came to an end for the Wilsons after Bobbie, 38, was laid off in January from her legal administration position. It was the fourth time she had been laid off since 2002. Bobbie’s husband, Juan, 35, also lost his job working for a semiconductor company in 2008.

“We had an emergency fund saved but we did not use it wisely or we used it to help us live and it dwindled slowly and, of course, by the time I was laid off there was nothing,” Bobbie said. “So we are scrambling and I feel overwhelmed, anxious and panicky.”

One reason they had financial trouble is that they didn’t communicate well about their finances, often disagreeing on their spending.

“Some, or rather most, of our money talks end up in arguments,” Bobbie said.

You can imagine the conversations are a lot tougher now.

“I feel terrible right now,” Juan said. “It’s hard. It’s hard not having the money you used to have.”

Over the course of the challenge, I’ll provide advice and encouragement as Rose and the Wilsons try to piece their financial lives back together.

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