Recession got you down? Cheer up! It will be better next time.

Admittedly there is a certain bloodlust in this title.  It is not intended as a mock of those experiencing the pain of today but rather a call to survey your surroundings and take note not to situate yourself in such a dependant position next time… and inevitability, there will be a next time. 

Similar to the Armed Forces advertising campaign suggesting that our youth become an “Army of One”, I call for you to align yourself as an “Economy of One”.  It is never patriotic duty to spend plastic currency for the sake of the economy, but rather it is your self-respecting responsibility to take care of your own financial well being.  As an intuitive logic check, consider how we might have avoided such a dramatic and traumatic burst of the housing bubble had more individuals minded their own balance sheets and income statements.

Even so, the truth remains that anything so large and dynamic as the U.S. economy is a shared being, and an unfortunate reality is that we the thinking people will always share this plight with a collection of morons – a technical term to be sure.  Quite predictably many of these dolts will not draw lessons from the events of today and in eight or ten or twelve years we will yet again experience a much hyped return of the Great Depression part III.

So the challenge confronting the conscious-minded is not to forestall the next bubble burst but to prepare for its arrival and now is the perfect time to consider such preparations.  This discussion does not elaborate on the steps to address an individual’s struggles against today’s economic environment.  Those articles are available separate to this.  Rather, this article is slight encouragement for today and grand game plans for tomorrow – in three bold strides.

Become Lean

Carbon footprints are a popular environmental term.  Allow yourself to consider your budgetary footprint.  What are your monthly obligations relative to your cash intake?  For too many the assessment is not pretty.  Consider that from 2005 through the first quarter of 2008 the national savings rate was frequently below 1% and actually dropped below 0% in 2005.  Is there any wonder our current economy resembles a dumpster fire when compared to the near 12% savings rate as recently (in economic cycle terms) as the mid 1980’s?

Fortunately there is a straightforward solution for the average citizen:  shed debt and build savings.  Your budgetary footprint will contract as you begin to shed unnecessary debt – hint, virtually all debt is unnecessary.  Car payments, student loans, and especially credit cards all sap the strength of our income and swell our budgetary requirements.  Even home mortgages, which represent the closest thing to required debt, can be paid off with proper diligence.  Disagree?  Assuming you did not make the mistake of purchasing a home you could not afford and without the drag of all other superfluous debt, one should be able to double principle payments on a 15 year mortgage and then be free of all debt in under 8 years, or in plenty of time for the next economic collapse.

Once your outflow requirements have been downsized, the relative value of your savings will be maximized as fewer dollars are required to address monthly expenses.  Additionally, you will now have plenty of cash to save and invest and step two now awaits.

Prepare to be Opportunistic

Stop, look around, what do you see?  Everything is on sale!  Oh to have an extra ten or two hundred thousand dollars available for investing in today’s market.  Stocks and Real Estate are all available at fantastic deals.  Luxury items, while not investments, are on sale too.  The “rich get richer” is lousy as a mindset but honest in its messaging.  Having ample cash reserves to capitalize on today’s pricing suggests that you have already achieved affluence and are poised to catapult into the next level of moneyed once values return to their rightful perch.

While personally not in a position to capitalize on today’s market, my ability to recognize what is happening and thoughtfully prepare for its next occurrence is at once motivating and liberating.

Always be Gracious

No amount of amassed wealth, spotted trends, or stocked storerooms entities one to behave an ass.  Rather, we are called to be stewards over all we have been given.  And while this is always true, it is doubly so in times of hardship.  Perhaps a relative or friend or tenant is in the throes of panic this time or next.  It is our imperative to share with them what we have, even if only knowledge and hope.  If we have achieved steps one and two, our calling may extend even further.  The particulars will be personal but the ideal is universal.

So allow your thoughts to return to your current state… and plan accordingly. 

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Category: Personal Finance

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