Facing the Economic Panic of 2008 3 ways to prosper in an unstable economy. BY AL JACOBS
You and your spouse can stay afloat in a bad economy by practicing a few simple rules.
There’s something about October. The stock market crashes of both 1929 and 1987 occurred that month.
With President Bush’s October 3rd signing of the hotly-negotiated federal bailout bill, many Americans anticipated an instantaneous improvement in the nation’s economy. Unfortunately, things then went from bad to worse as the Dow Jones Industrials promptly responded by posting its greatest weekly decline in more than 125 years. Our troubles are far from over.
Our nation’s political establishment addresses these problems with its customary tri-fold approach:
1. Accounting gimmicks to obfuscate the obvious.
2. Burying losses with taxpayer money.
3. PR spin to bolster investor and consumer confidence.
And expect little rationality from either major presidential hopeful, as evidenced by Senator McCain’s recent proposal to bail out millions of upside down home loans by throwing another $300 billion of taxpayers’ money into the mix. Nor is it necessarily to Senator Obama’s credit that he didn’t come up with something equally stupid, as he’s every bit as prone to ill-advised proclamations. It appears we’re all on our own.
With that said, let me offer three suggestions on how couples might best weather this period of economic peril.
1. Don’t act erratically if your home is now worth less than the mortgage loans against it. The temptation to default on your loan can be strong, but may not be wise. If you truly enjoy living where you are, and can actually afford the payments, you’re probably better off staying put. Don’t forget that home values usually rise during favorable economic periods; and hard times don’t last forever. Even if you can’t handle the monthly cost, you might work something out. Most lenders don’t want to acquire homes through foreclosure if they can avoid it. Perhaps with a little persuasiveness, you can negotiate with your lender to reduce the interest rate and/or the principal balance, along with the monthly payment to save them the misfortune of owning yet another unsalable home.
2. Turn a deaf ear to investment advisors who offer to trade you out of your losing securities and into winners that they will choose. Recognize that none of the professional experts who inhabit the world of high finance (or low finance for that matter) possess the slightest inkling as to what currently constitutes a sound investment. They’re all as confused as you. Even if they did harbor some unique perception, why would they reveal such secrets to you? You’ll be better off remaining focused on investments of minimal risk that include government-guaranteed deposits. At this point it’s not growth, but loss prevention that you want.
3. Embrace thrift. Systematically rid yourself of unnecessary debt. Payment of interest is often the difference between meeting your expenses versus falling further behind each month. In particular, get those credit card balances eliminated, starting with the highest interest rate accounts first and working your way down. And while you’re at it, rethink your plans for furniture, vacations, clothing and personal family gifts. Such expenditures are better postponed until you can easily afford them. None should be financed at any time. Lastly, look closely at your transportation costs. If you’re contemplating financing a new car or, even worse, leasing one, think again. You’re always better off owning a vehicle you bought with cash. Admittedly, this may mean you’ll be driving a 1984 Toyota Corolla, but so what? Keeping money in your pocket is preferable to merely impressing the neighbors. Hopefully, your partner feels the same way. One of the true blessings in life is when the two of you together share a sense of thrift. My wife and I are so favored. It goes a long way toward fostering prosperity.
Al Jacobs has been a professional investor for nearly four decades, with articles that appear regularly in a variety of online and print publications. His financial column, "On the Money Trail," can be viewed at www.onthemoneytrail.com.