Wednesday, September 17, 2008

The Financial Crisis and What You Can Do

Well, it looks like all Hell is breaking lose now in the financial world. I don't understand it all entirely, but as far as I can tell, most financial institutions were lending out more money than they could support. When you loan money to deadbeats and losers, you don't get your money's worth.

But the all of us average idiots who couldn't understand the difference between a profit and a profit margin, I've got a short list of things you can do to weather any financial hurricane that comes along:

-Get rid of all you debt. This will probably take awhile for most people, but paying off your credit cards, student loans, and car loans will make your life much easier. I currently only have one (large) student loan left that I am working on. Your home mortgage is fine, provided it doesn't eat up more than 25% of your net pay.

-If you own a home that costs you more than 40% of your income each month (includes taxes, insurance, and mortgage), then you should sell it and stop trying to keep up with the Joneses.

-Try to get some emergency fund put together in the form of a checking or money market account. Ideally, it should be 3-6 months of personal expenses (usually 10K-20K), but try and at least get 1000 dollars set aside as fast as you can. I have a small emergency fund like this. Don't ever consider using your home equity line, a credit card, or 401(k) loan for emergencies. When you borrow against your home to fix a broken car, you've just shifted your priorities from shelter to transportation. When you use a 401(k), you've just potentially sacrificed your future to fix a car. And when you use a credit card, you've just borrowed money at a horrendous interest when you could have walked, rode the bus, or carpooled. Having cash set aside gives you freedom. And keep in mind that you will need to refill that fund whenever you have to use it. That will be your top priority.

-Keep on contributing to your mutual funds. Regardless of what happens, unless every single company in this country fails (in which case, food will be more valuable than money anyway), you will always gain money over the course of 10 years. Right now, consider the failings to be stocks on sale and continue investing.

-Try and get your house paid off, as soon as possible. With the mortgage industry in chaos, a paid-for house is a good thing to have. Also, 100% of all foreclosures were homes that had a mortgage on them.

The bottom line is that life goes on and that everything will be fine. If Jesus comes tomorrow, this all won't matter anyway. If civilization fails, you should be able to fight through it and survive. The world changes all the time. This is life and your life is controlled by you and you alone. You cannot control other people 100% of the time nor should you be able to. Manage your own affairs wisely and when things like financial bankruptcies or tax payer bailouts occur, you should be fine.

However, if you live for today and not for tomorrow, then you are doomed to die in a ditch. And I won't have sympathy for you.