One family feels the economy's pinch

VIRGINIA BEACH

In October, Christine Barnes realized she needed new shoes.

She spoke with her husband, Jerry, who works for the Chesapeake Fire Department and is the family's lone breadwinner. He asked her to hold off while he collected some overtime to cover the expense.

A month or so later, Christine was able to buy a pair of sneakers: white Reeboks on sale at Kohl's for $30. Raising two small boys, ages 3 years and 4 months, the family lacks the cash for much beyond the basics.

"We're just not going out and buying things," Jerry Barnes, 35, says. "I guess you weigh necessity. We're not replacing things just because they're old. We're making do."

Middle-income families like the Barneses have kept the economy rolling in recent years with their steady spending. Now, though, they're cutting back. They are giving up many extras as they wrestle with a mound of debt, higher costs for food and gasoline, and a recession on the horizon.

In their single-income home in Virginia Beach, the Barneses are acutely aware of the precarious balance between their earnings and their expenses, and the potential danger of an unexpected tip of that scale - a child's sudden illness or a loss of wages.

Jerry Barnes makes a total of about $70,000 a year from his job with the fire department, occasional overtime pay and a part-time position as an emergency-response instructor in Virginia Beach. That puts the Barnes family above the median household income for the region, estimated at $56,000, based on the latest census figures, says Gilbert Yochum, head of Old Dominion University's economic forecasting team.

The Barnes' monthly bills - heat and electricity, credit cards, auto insurance, phone and Internet services - run about $1,300 or $1,400, not including groceries or gasoline. They pay a mortgage of almost $1,500 a month.

"What would put us in a bad situation is if I lost my part-time job," Jerry Barnes says. "I would have to find somewhere to make that money up. We would not be able to pay our bills."

Christine and Jerry Barnes are consummate money managers, aware of every penny - whether it's the balance owed to their kitchen contractor or the price of meat at the wholesale club where they shop. They buy their children's clothes and equipment at a second-hand shop, their bread at a local bakery outlet and their groceries wherever they find the best prices.

It's not that the Barneses won't splurge. In late 2006, they bought a 52-inch high-definition television set and accessory package for about $2,600. It now provides the primary source of the family's entertainment, replacing expensive trips to the movie theater.

They paid a contractor about $8,000 for a new kitchen countertop and cabinets, on which they pride themselves for getting a great deal. They enrolled their older son, Jerry, in a soccer program for a $50 fee, plus a $34 equipment package.

"That wasn't in the budget, buying that," Christine Barnes, 33, says. "But he was so excited."

In September, just before Christine gave birth to Cody, the Barneses refinanced their four-bedroom house on Club House Road, a raised ranch in a modest neighborhood not far from Lynnhaven Mall. In 1994, w hen he was single, Jerry bought it in foreclosure with a friend for about $95,000 and still owed about $78,000 on an adjustable-rate mortgage.

A new house of similar size would cost the Barneses $350,000, and the couple didn't want to take on that much debt. After refinancing for $190,000, they bought out the friend and remodeled their kitchen. They also paid off the loan on their Ford Expedition, which they bought new in 2005 for $31,000.

When the Barneses were deciding whether to buy a home or refinance, a lender told them they could afford as much as a $400,000 mortgage, but Jerry balked. He had heard about consumers who had taken on bigger loans than they could handle and now faced foreclosure.

"I knew that was as comfortable as we could be," Jerry Barnes says of his new mortgage.

The Barneses fit into a category of families who have borrowed against their homes and used that money to finance purchases. Nationwide, those who took on home-equity loans and lines of credit have accounted for about 30 percent of consumer spending, according to Mark Zandi, co-founder and chief economist for Moody's Economy.com.

Now, with housing values falling and their debt reaching a limit, U.S. families are reining in expenses - accelerating the economic downturn.

Christine and Jerry Barnes try to stick to a weekly budget of $150 for groceries, gas and other basics. With milk costing about $4 a gallon and the Expedition about $50 to fill up, it has become harder to stay within that limit. A recent trip to BJ's Wholesale Club cost them about $92, mostly for baby products.

More recently, Christine Barnes has become a keen coupon-cutter. On Sundays and Wednesdays, when the newspaper circulars arrive, she studies them for items she needs. She keeps different lists for Sam's Club, BJ's, Wal-Mart, Kmart and grocery stores. In her small leather planner, she groups the coupons by store, priority and expiration date.

On Wednesday evening, she and her husband sit on the sofa in the living room with the grocery advertisements, pinpointing the best discounts.

"Pork butt, 10 pounds for 10 bucks," Christine tells Jerry. "That's a good deal." She'll prepare barbecue out of it, slow-cooking the meat in vinegar, peppercorns and brown sugar.

The Barneses have cut back on dining out. A recent meal at Cheeseburger in Paradise cost them $45.

When they do decide to treat themselves, they like Warriors Grill, a nearby Asian restaurant. Dinner there costs the family about $22, plus tip, for relatively healthful, fresh-cooked food at a place where the owners know their names.

"They treat us like family. They walk around and hold our kids," Christine says. At fast food restaurants, "we're spending, like, $18 - for grease."

They also recently abridged their vacation plans to save money. At one point considering a week long trip to Myrtle Beach, S.C., the Barneses now plan to take a long weekend or two to Washington, where they can visit the National Zoo and museums for free.

Online, they'll look for a deal on a hotel room, preferably one with a small kitchen or refrigerator. That way, they can stock up on food so they don't have to eat at restaurants as often.

The belt-tightening of the Barneses and other families has begun to show in the bottom line of Hampton Roads businesses. Taxable sales in the region - reflecting purchases at retailers and restaurants - increased 4.8 percent in the first eight months of 2007 from the same time the previous year, says Vinod Agarwal, an ODU economics professor and forecaster. However, f rom September through November, that rate of sales growth slowed to 1.4 percent from the same three months in 2006.

"People are anxious," Agarwal says. "All this financial turmoil and talk of recession, it creates anxiety and people become more cautious."

The Barneses put some of their new kitchen items on credit cards. They typically avoid plastic, favoring the "12 months, same as cash" programs that many retailers offer. With these no-money-down, no-interest credit plans for a limited time, they bought their high-definition TV set at Circuit City and a stove and some new windows from Home Depot.

Such deals run consumers the risk of a huge, cumulative interest amount at the end of the designated period if they have any balance remaining. Jerry and Christine Barnes say they keep close watch on that timeline, usually paying off the balance well before the no-interest period has ended. They plan to use their tax refund this year to cover many of these outstanding bills.

With the expected economic stimulus package, which would give the couple an $1,800 rebate - including $300 for each of the kids - the Barneses say they probably will save it in their money market account. They'd rather bank the extra money than buy things, as the president and Congress suggest they should. "We'll just have to see what happens and where we are when the time comes," Jerry Barnes says.

When the couple married in 2003, she worked as a paramedic. She put in about 60 hours a week, earned about $40,000 a year and saved a good amount of it. But she eventually needed surgery for back problems and had to ease up on the emergency services work.

Then she took a part-time emergency-room medic job at Children's Hospital of The King's Daughters. She was earning about $900 every two weeks.

When little Jerry was born in May 2004, they realized the cost of day care would take more than half of her paycheck - and leave someone else to raise their child. In addition to that, fuel costs and time spent getting up early, Christine often would arrive home at night too tired to cook. That meant more money spent on eating out.

"We just collectively decided, for us, that we were going to change the way we did things," Jerry recalls.

Promoted to lieutenant in fall 2006, Jerry now earns about $52,000 yearly in base pay from the fire department. His part-time job in Virginia Beach pays him about $21 an hour, adding about $1,200 a month to the family's income.

In the past, Jerry would increase the contribution to his employer's retirement plan with each raise. As finances tightened, he stopped doing that.

"Right now, I'm just kind of being cautious," Jerry says, worrying about tough economic times ahead. "It's easier to stay more conservative and wait to see what happens."

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com