Are you in your own personal recession?

By Liz Pulliam Weston

Determining whether the nation is in an economic recession is no easy feat.

The National Bureau of Economic Research, which makes these calls, examines declines in gross domestic product, real income, employment, industrial production and sales to determine whether the economy is truly shrinking or just taking a breather.

Whether you're experiencing a personal recession can be tough to determine as well. You may feel increasingly squeezed even while your income or assets are growing. Or you might think you're doing fine when your economic foundations are being eroded underneath you.

Of course, the idea of a personal recession isn't something you'll hear economists talking about. Recessions are by definition a significant reduction in the economic activity of a region or a nation.

But plenty of people see their economic well-being shrivel even while the rest of the country is doing OK, and others boom along even when the nation is in the throes of economic upset.

I'm here to help you decide whether your personal finances have entered a recession and, if so, what you can do about it. We'll look at three important indicators: your real income (and how far it goes), your net worth and your economic prospects.

Is your real income rising or falling?

To figure this out, we'll start by looking at your gross pay -- what you get before taxes, retirement contributions and other expenses are deducted from your paycheck.

If your pay varies much from check to check, take an average of your most recent paydays and compare them to a similar period last year. Similarly, if your hours tend to vary or you're working substantially more or fewer hours than a year ago, figure out your hourly wage and compare that to a year ago. (If you don't have your pay stubs on hand, you probably can check your bank records online to find those figures.)

If you're not making at least 2% more than you were last year, you're not keeping up with the general rate of inflation. In other words, you're actually making less than you were a year ago. (The inflation calculator of the Federal Reserve Bank of Minneapolis can help you track your buying power over longer periods.)

Possible economic fixes:

• Ask for that raise.

• Look into a second job.

• Consider a faster-growing company or more lucrative field.

• Invest in yourself with night-school classes to increase your skills.

MSN's Career & Jobs section can provide help. If you're afraid to ask for more money, read Eve Tahmincioglu's column "A woman's worth: How to get what you deserve." (It's aimed at women, but the advice can apply to either gender.)

Even if your overall wages are growing, you might still be feeling a pinch. The most likely culprits are health care, energy costs and food. All are 4% to 5% higher than a year ago. The more of your budget that is spent on these expenses, the more you're likely to feel as if you're losing ground.

Is your house worth less than it was last year?

No matter where you live, this is more likely to be true than not. Home prices haven't just slowed in many places, they've actually fallen. The S&P/Case-Shiller Home Price Index shows an annual decline of 5% in the 10 cities it tracks. Las Vegas, Detroit and Tampa, Fla., were particularly hard hit. The less up-to-date but far more comprehensive Office of Federal Housing Enterprise and Oversight report shows a similar, but less dramatic, decline.

But prices in many areas are simply flat, and prices in others, such as Seattle, are just growing less rapidly. Some suburbs might be affected while others are not. You can get a very rough idea of the value with automated valuation services such as Zillow or HomeScout.

It really matters only if you're trying to sell -- or if you're having trouble paying your mortgage. If you're facing a reset of your home loan, the time to refinance your house is now, before the value falls to the point where you can't.

Your house's value is an integral part of your net worth, and the direction of prices is a pretty good indicator of conditions around you.

Are you paying more for your health care?

Medical costs are part of larger inflation numbers, of course, but their impact can be disproportionately large on working folks, more than wiping out any nominal gains from higher wages. (See "Why hard work doesn't pay" for details.)

If you use Money or Quicken personal-finance software, you should be able to determine your own health-care inflation rate pretty quickly. Just have the software prepare a report on your outlays for medical care, prescriptions and health-insurance premiums. (If you don't have your paychecks entered into the programs, you may have to check your last pay stub for details of what you pay for health coverage.) A year-to-date or 12-month average can help you smooth out month-to-month differences. Now compare that to the same period a year earlier.

If you're doing this by hand, you'll need to do more digging. Check your insurance claims, check registers and credit card statements in addition to your pay stubs. Are your copays higher? Did your employer raise premiums? Reduce benefits?

Possible economic fixes:

• The cure for rising health-care costs isn't going without coverage, but you may find some suggestions in "A survival guide for the uninsured" for getting inexpensive care.

• If you and your family are in good health, you may save substantially by switching to a high-deductible insurance plan. See "Get cheaper medical coverage -- with a tax break."

• If drug costs weigh on your budget, read about "13 ways to save on prescriptions."

Are energy costs burning up your budget?

If you commute long distances by car or are trying to heat a big house this winter, you already know that energy costs have risen sharply in recent years. But you still may not realize exactly how much of your money is gobbled up by fuel costs.

Once again, using personal-finance software or a scan of your bills, try to figure out what you paid for energy last month compared to a year earlier. Include fuel for your car, heating oil, and electric and gas bills. If the total is up significantly, look for ways to trim.

Possible economic fixes:

• The usual "drive less" suggestions: Car-pool, group your errands, use public transport, walk or bike when you can. But trading in a gas guzzler, unless it is already on its last legs, is an expensive way to save on gas.

• Use caulk, weatherstripping and increased insulation to make your home less drafty.

• Swap incandescent bulbs for compact fluorescent lights and use LED holiday lights (available from Home Depot and Costco, among other outlets).

• Ask for an energy audit from your utility, or do one yourself to determine where you could save.

Are you eating your way through your money?

Households typically spend more on food than any other budget item except housing and transportation, so higher prices here can take a big bite out of your wallet. And the trend toward higher food costs seems to be accelerating: Grocery prices rose 6.7% in the first nine months of 2007, including a 17.7% bump in the cost of dairy products like milk, butter and cheese.

The good news is that there are plenty of ways to save.

Possible economic fixes:

• You know the drill: Eat out less, plan your meals, make a list, shop from a list.

• Have one or two meatless meals every week.

• Play the coupon game to win. Several sites help you match newspaper and other coupons to cyclical store sales so you can get the greatest savings. Some to check out include Hot Coupon World, The Coupon Mom, Budget101.com, Families.com and The Grocery Game.

• If money is seriously tight, food stamps or food banks can keep you from going hungry. Check out GovBenefits.gov for information on qualifying for food stamps and other assistance.

These aren't the end of the budget busters, of course. You may well have other expenses that are throwing your finances out of balance, such as a too-large auto payment (read "The real reason you're broke"). Anything that's chewing up a bigger chunk of your income than a year ago can make you feel like your finances have entered a recession. The Smart Spending blog can help you identify ways you overspend and help you make your money go further.

How's your net worth?

Even if your real income hasn't budged or your buying power has slipped, you could still be making economic progress if your net worth is on the rise.

Your net worth is basically what you own -- the value of your home, cars, investments, retirement funds and cash in the bank -- minus what you owe -- mortgage, credit cards, auto loans, student loans and so on.

You can determine your net worth now and in the past with a few mouse clicks if you use Quicken or Money. Otherwise, use this net worth calculator. Type in your current assets and debts to get your net worth now, then check last year's bank, brokerage and other statements to get values for the same period last year.

You can compare where you are with others in your age bracket using the following articles:

• "Your 20s: See how your wealth measures up"

• "Your 30s: Now's the time to get ahead"

• "Money in your 40s: It's make or break"

• "8 money moves you must make at 50"

• "12 steps you must take at age 60"

Ideally, your net worth is higher now than it was last year. But it might not be. Your home's value may have slid, your investments may have faltered or you may have added new debt.

A one-year drop in net worth isn't necessarily a crisis, but you should have a plan to start building your wealth.

Possible economic fixes:

• Pay down your debt -- particularly credit card debt. Consumer debt can be toxic to your finances, and balances on your credit cards can cut you off from a crucial safety net in an emergency (See "The $0 emergency fund.").

• Increase your contributions. If you're not taking full advantage of your company's 401(k) match, for example, you should start ratcheting up your contributions. Company matches are free dollars that instantly boost your net worth.

• Build your savings. Online accounts currently offer 4% or more on your savings, and you can set them up to whisk money automatically every payday from your bricks-and-mortar checking account. Making savings automatic is a great way to build your wealth.

Now it's time to look at the final piece of the puzzle: your economic prospects.

How's your future look?

Is your company growing so fast it's bursting at the seams -- or did it just announce another round of layoffs? If it's publicly traded, what do analysts say about its future, and how's the stock price doing? What are the prospects for your industry?

Now look closer to home. How well-regarded are you within your company and within your industry? Have you identified your next career step and determined how to get there? Are you adding skills and people to your network of contacts, or are you hiding in your cubicle?

MSN's Careers and Jobs section can help you improve your prospects and help you find your next position if it's time to move on.

Now that we've covered all three recession indicators -- your income, your net worth and your job -- the call is still yours to make. If you're not doing well in at least two of these three areas, you're in danger of sliding backward in your finances. Make some moves now to make sure that doesn't happen.

No matter the economic climate, nationally or in your own backyard, you have no choice but to live on what you make.

Columns by Liz Pulliam Weston, the Web's most-read personal finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Nov. 5, 2007