Sunday, July 13, 2008

Common Sense Economics (Or CYA As the Economy Nosedives)

I believe in personal responsibility first and foremost. If you spill coffee on yourself, you don't sue McDonalds, you either be more careful the next time or don't drink coffee. Likewise if you get a mortgage that there is no way in hell you can afford, I don't think the government should bail you lose the house, it's that simple. It's common sense.
Since about the mid '70s, common sense economics has virtually vanished. That was about the time that credit cards started being distributed to nearly everyone, that frugality as a way of life for the masses became very uncool, and parents started spoiling their children to the point that they didn't want them to "suffer" so they did everything within their power to give them as many material goods as they could; these children turned into adults with an attitude of entitlement (and lots of debt used to purchase these entitlements).
Now as the economy reaches new lows each day, it is time to get back to common sense economics. Your economic life is in your hands for the most part, so it is time to take action in order to keep yourself in the best financial position possible no matter what the economy does. Here's how:
  • Get out of debt immediately, even if it means you need to work four jobs at the same time. The more you work, the more money you make, and the faster you do this, the faster you will get out of debt.
  • You need to own your own home if possible. Note that for some people, this may not be possible or advisable (ie: people in the military who move every couple of years, people who are in deep debt, etc). But once you get out of debt and can actually afford it, owning your own home--free and clear--gives you much more control than renting. The idea is to buy a place that you can afford (even if it is a tiny lot and a travel trailer to start) so that no matter what the economy does, you won't have the possibility of losing your home (something even many renters are facing now as the owners of their properties head into foreclosure).
  • Live on cash only. This will usually curtail your spending since if you don't have the cash, you can't buy. Even if you do have the cash, it seems harder to spend this way than when you hand over a piece of plastic.
  • Buy the things you need now. Don't raid your 401k to buy things, however, it is always a good idea to have lots of the basics (food, tools, ammo, toilet paper, etc) on hand so that during times of rapidly rising prices and rapidly decreasing value of the dollar, you can more or less take cover and stop shopping until things cool off a bit.
  • Diversify your investments. I am not an economist but it doesn't take a genius to figure you shouldn't put all off your eggs (investments) in one basket (a single stock or single type of investment).
  • Don't look for a bailout. Years ago, failure was a lesson in what not to do. The lesson was learned and then people moved on, hopefully never to repeat their previous mistakes. These days people don't want to face failure and feel that they deserve to be helped even though it is their own damn fault for being irresponsible (this goes for businesses as well). No matter the type of bailout--a loan from the parents to cover debt, a bill consolidation loan, a government program to "help"--this skips an important step, the failure step, where you get to suffer, learn a lesson, and figure out a solution to the problem. This is an important step as this is where learning and corrective actions can be made so you don't run into the same problem again.
  • Keep your head above water always. Don't be misled by "easy" credit, "buy now, pay later", whining children and whining spouses, creating a financial disaster for yourself to keep up with the Joneses or because what others think about you is more important than your bottom line.
  • Do the best you can. There are many situations you have control of (your spending, your investing) but there are other situations you don't (an unexpected illness, the death of a spouse). There is no shame in asking for help when something you have no control over happens.
  • Prepare for the worst. You need a "Plan A" and a "Plan B" and "Plan C" for the major parts of your life. What would happen if you suddenly lose your job? What would happen if your spouse up and leaves? What would happen if your house is destroyed by a fire or natural disaster? If you have concrete answers for these questions, you are miles ahead of most people.

The bottom line is to take care of yourself without relying on others or the government to do what you didn't do for yourself. Notice I didn't say "can't do for yourself" because almost any situation you find yourself in, you can get yourself out of with enough hard work and determination. Use common sense and keep your personal financial situation as solid as possible so that you can weather any economic storm.


  1. I am not so sure about the oft repeated advice of owning your own home being a big advantage. Actually, even if the bank has no hold on your home and you really do "own" it, the government still charges you rent in the form of taxes. Don't pay the taxes and you get kicked out.

    In addition is the cost and effort of maintaining the home. This is not a small amount and can be considered part of the "rent" that must be paid.

    Come SHTF, it is easier to abandon an apartment than your house. Just walk away!

  2. You make an excellent point. The general theory is that as long as you are paying for a place to live, you might as well use your housing costs to fund an investment (your home) at the same time. A home will be one of the biggest and in most, not all cases, the most lucrative investment the average person will make.
    I think taxes are a mute point because you either pay them as a home owner or they will be passed on to you in your rent whether you are renting a house, apartment, motel room, or RV space.
    That said, there are many cases against home ownership and I have many friends who fall into these catagories such as military families who move regularly and would most likely lose money on purchasing a home, retirees, travel journalists, and other people who travel around the world and stay for weeks or months in various countries (why pay a mortgage or rent for a place you only visit for a month or so out of the year?), people in domestic violence or other precarious situations where you may need to disappear at a moment's notice, and even those who really don't trust the government and have first hand experience with emminent domain and the loss of their property or loss of their investment return to the government. And, as you said,when THSHF or even in milder situations such as Hurricane Katrina, owning a home may cloud your judgement (ie: want to stay with your home and fight til the bitter end) when it would make a whole lot more sense just get the heck out of there and forget the house.
    Thanks for the response!

  3. Americans have a very pesimistic views on property homeownership
    Dictated by your own tax laws , that you have enacted by legislation wich Americans have voted. (Sorry for my English ).

    I have both, land here in the U.S.A. and two other locations abroad ( I wont tell where ) but, on both locations I can go for decades of not paying property taxes ( wich is a ridiculous amount) and the goverments will be unable to take my property away. It's just unheard of in many other countries. Of course we dont have the infasstructure that the U.S.A. have but also the laws are protective towards the preservation of the families and in not very commonly we have a system of pardon the bedt. I know of varoius cases as such. ( and I keep records of them). Believe you call it Amnesty. (But in your case it's giving by paying the debt w/o penalties.)

    During these times The U.S. going thru, I would look into just going acroos the border, Living cheaply there and commiting back to work.

  4. I really like the line...Keep your head above the water.


  5. I've both rented and owned. When I rented it ended up being much cheaper - and on weekends I could go off and play while as a homeowner there were repairs, bills, lawns to be mowed, upkeep (entropy is the always present destructor of property)...the list went on with quite a number of problems to be solved from plumbing to electrical to fighting with the neighbors over boundry lines.

    Home ownership can be an albatross around one's neck.

    As for home as an investment - take all that time spent managing the home, get a part time job, and invest that money for 30 years. You'll likely have more than the home made for you after expenses.

    Then, of course, look at the hit the real estate market is taking at this time.

  6. Wow all I can say is that you are a great writer! Where can I contact you if I want to hire you?