There are still two weeks left in 2008 before the entire year is in the history books; even so, I’m ready to announce my first, and perhaps last, story of the year award. The story of the year for 2008 was, and still is, the worldwide economic crisis. In fact, the economic crisis took first, second and third place because its ripples have touched every aspect of our public and private lives.
The early effects were home foreclosures. This cascaded into the failure of both government and private holders of deflated or worthless mortgage securities. When public sentiment turned pessimistic, the stock market plunged taking the remaining home prices and trillions of dollars in savings and retirement funds along for the ride. Reduced spending and tight credit caused a general slowdown – layoffs followed and the spiral has continued one body blow after the other.
While things look grim right now, history predicts that the current economic crisis will eventually go away. Let’s hope we’re all still here when “eventually” rolls around.
In spite of all these difficulties, the problem is not fatal – it’s more like those initial chest pains than the final heart attack. The question is, will we heed these painful warnings or will we continue our national strategy of crossing out fingers and just hoping for the best? I’m not an investment professional, but then again, you won’t be paying me a commission for this advice.
The first lesson is that the future is always uncertain and even the best roads have potholes; therefore, it’s imperative that individuals and government at all levels limit their debt and accumulate adequate savings for the rainy day. A good rainy-day fund can be a lifesaver when the unexpected strikes. It’s better to have it and not need it than to need it and not have it.
When taking on debt, it’s essential that they keep that debt to a minimum. People and organizations are funny like that. Once they make the decision to spend, the decision to spend too much becomes too easy. Decide what is needed and what is affordable, if those two do not agree, then do some basic readjustments. Once they line up and you are ready to go into debt, do not forget that the cost of credit is a major factor in affordability.
Shop for credit as you would for merchandise or services – get the best overall deal.
It’s important to have a backup plan. What are you going to do if your primary plan does not work out? Don’t be caught trying to make plans on the fly when you are under extraordinary pressure. Whether you’re investing or working, limit your risk. Don’t put all your eggs are in one basket. Should that basket fail, you may lose everything.
I know you’ve heard it all before, maybe 100 times. It’s easy to swallow when the economic system is bleeding from countless wounds, but the important thing is to remember these rules when things are going good. When your neighbor down the street tells you he just made a mint investing everything in a company you never heard of and there is really no risk – and don’t you want a piece of the action?
Our citizens and our government must learn to live within their means or America as we know it will merely be a memory. Politicians, in particular, must be willing to set a good example by making the difficult decisions that will not buy votes, but provide financial security and stability. Giveaways are always popular with the recipients, but someone, sometime, somehow must pay the bills. You can only run your household on a deficit for so long and the same rule applies to your business. Should it not apply to government?
There isn’t a day that goes by that does not see a news story about what parents are doing for their children’s future, but there is precious little talk about the mountain of debt we are leaving as an inheritance. Do your part and insist that those who represent you do theirs and we will have a chance – live only for today and we will have no tomorrow.
Marty Richman is a Hollister resident. His column runs Tuesdays. Reach him at cw*****@ya***.com.
