There seems to be so much anxiety and fear over whether or not we are in a recession lately, a lot of friends and family are always asking me if we are in a recession and if we are, how long will it last? My first concern is that whatever we are in, it does not need a label. A recession isn't the flu, you can't just diagnose it, take some Nyquil and sleep it off. There are so many factors effecting our current economy that just dismissing it is a recession (which indicates a finite end) would be naive. It has also been alarming how much our government has been intervening, trying to resuscitate our economy. Free market capitalism does not work under a socialist government.
We have a moderate situation now... even with interest rates being cut so aggressively by the Fed, the ratio of interest and principal payments to the disposable income in the household sector is at an all-time high. Americans are more in debt than ever and since most of their income is going towards paying staying afloat in their debt it doesn't seem that we will "heal" anytime soon. Many Americans can also attribute their net worth to their housing values which have decresead sharply throughout the country. Baby boomers that were banking on their home value to fund their retirement are in for a rude awakening. Instead of vacationining in Europe, they may now be re-entering the workforce and taking jobs at Target and vacationing in Rosarito instead of Barcelona. Those that enlisted a financial advisor who utilized a long term balanced asset allocation approach are probably way better off.
My advice to family and friends... Do well and work hard at your career and continue to make connections in your industry so others know your worth should you lose your job and need a new one. Your career is your source of income and current income will ultimately fund your investments and retirement. Do not invest in what you think is hot, it seems people have taken more and more risk because they want higher returns because they don't want to save as much, it is a new form of greed. I have to admit, I had a guilty pleasure when I witnessed the house flippers eat crap. Which leads me to my nexct point, save your money and pay down your debt. Debt is what got our country into this mess, the average American owns 6 lines of credit. Carrying debt is like trying to swim with weights on your ankles. Establishing credit is important but try to keep your debt to credit ratio low and you will have even better credit. Increase your 401k contribution, even if you think you are investing enough, you are probably wrong, the good thing about a recession is that it is like a Nordstroms once a year sale, everything is going to be cheap, so buy a lot of it. As I have told Kristina, I think a recession was inevitable and is a necessary wake up call, and we should come out of it much healthier.
1 comment:
Decent articulation of what is going on in our current economic state. I believe that one of the leading reasons we are in such sad state of affairs is that people lack the knowledge/skill to manage their finances. Why we dont implement elementary money management skills at the high school level is beyond me. Living in the OC is funny because I see soo many $30,000 dollar millionaires. People think if they made 10 bucks, make people think they made 30. No one cares, get a grip. Some collects toys, others collect watches, why not collect money? Allow yourself to be spoiled from time to time. I recently launched a new site that I do marketing for nationwide that is based around some of the core of this discussion ( www.thexbanker.com). So many business owners are scrambling to leverage what ever they can to access capital for their businesses, and now that the availability of boot strapping funds has vanished, they begin to panic. Sad state of affairs.
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