Wednesday, June 3, 2009

The future of the American economy.

Everybody wonders what is going to happen next. Most want to think that the decline in the economy will be over soon. Some predict by the end of the year. Here’s my viewpoint:

Everybody, by now, has heard or experienced how bad the crisis is. With millions of homes foreclosed and huge unemployment rates The government has pumped billions of dollars into the economy to try to resolve the situation. Americans have responded in two ways. Some are taking every possible effort to streamline their lifestyle and spending and have learned from their mistakes and change their ways so that it doesn’t happen again. The others are expecting the government to fix it all and will just be happy when the hard times are over so they can get back to their old ways and forget that the problem ever happened. I suspect that this could be at least 75% of the population and includes both individuals and businesses.

Once the government money runs out I believe there will be a second and bigger downturn in the economy primarily because of the actions of the second group. It will be like the aftershock of the earthquake. Those who have refortified their lifestyle will be ok and those have not will collapse. And the collapse will be harder and bigger because all of the reserves have already been used.

This sounds like such terrible news, even as I write I think who would even want to consider that it might be true? And, who would want to believe my gut felt ideas? But, what if I told you it will probably rain? What would you do? There would be two choices. Grab a coat or go out without one. If it rains you put the coat on and be dry or you can get wet. If it doesn’t rain you can just carry the coat and you haven’t lost a thing.

Did I see the last one coming? Those of you who know me know that I have talked about it for 20 years. Am I an expert? By no means. Could I be wrong? Yes, but there is no harm in being prepared. (I guess I did learn something from my mother).

Here’s what I suggest and you can add your own ideas:
1. While the interest rates are low ask your bank if there is any benefit in refinancing. Get your payments as low as possible so that if your income drops you can still make your payment. (Watch out for scams)
2. If you rent, find the cheapest place you can. Once you save some money try to buy on a first time homebuyer plan. There are some great low down and low interest loans available right now.
3. Start a food storage program. Start building a supply until you have 6 months to a year of food. Include all bathroom, cleaning, and female products.
4. Quit using your credit cards. It’s time. Pay them off as quickly as possible. The credit card companies can continue to change your rates for another year and whatever sounds good today could change tomorrow.
5. Start saving all your change. If things ever get really tight you will have something to buy a loaf of bread without breaking a $20. This will be really important if you don’t have a $20.
6. Continually go through your possessions and sell what you don’t need. Or better yet, give it to someone in greater need than yourself. You will be able to live in a smaller home and if you need to move for a job relocation or other reason you will be more ready.
7. Make sure everyone in your family has their dental work caught up and a new pair of glasses. Then if you can’t afford it for a year or two you will be ready.
8. Think about cutting back any of your habits that cost money like smoking, drinking, the daily cappuccino. Save the money if you can,
9. Sell any cars you are not using and change for more fuel- efficient vehicles. Walk if you can.
10. Don’t get any more pets. They need to be fed too.
11. Start reading books, reading articles, having conversations to give you ideas for managing economically. In The Trenches will be out soon. Email me if you would like to receive an email when it comes out.

The economic crisis was caused nationally by the greed of our biggest corporations, putting fast profits above common sense and long term outcome, and an American public that was willing to spend and much as they had available. Although these tips are well publicized there are many of us who still have room for improvement. The goal of all this is to get your necessary expenses to under 50% of what you are now making. Yes, under 50%. Save the rest. No, not in the stock market, not in some investments that could lose it all. Just save it. If you are the kind that has a hard time saving than it is time to learn. If you still have trouble than pay three months ahead on the bills you know you will have to pay such as car insurance. Don’t go farther ahead than this because if you have to relocate or loose a job you don’t want money tied up in a specific location and want to have the cash available.

Does this all sound radical? That’s why it’s called….In the Trenches.