Tuesday, November 27, 2012

Will The Economy Sag? Do You Care?

Will the economy falter in 2013?  Should you Care?

The Greek Debt Crises.  The looming Fiscal Cliff.  Lingering unemployment.  Slow growth.  Rising inflation.   There are a lot of things to worry about, in the financial markets, and the Nooze organizations spend most of their day making you anxious about these things.

Should you be worried?   After all, the networks and media say you should - just as they say you should care whether General Petraeus got a blowjob or not.   They tell you it is important because they said it was important.   And that is no reason to believe them.

But if you have structured your finances properly, you should expect occasional economic downturns, whether personal (laid off) or national (recession) and you should be prepared for them.  Few are.

As I noted in an earlier posting, most Americans live the cash-flow lifestyle, spending every penny they have and borrowing more.  Their financial lives are a house of cards, ready to collapse on a moment's notice.   One blip in the cash-flow and it all falls apart - in a hurry.

A friend of mine stopped by the other day.  He was refinancing his house.   With only a few years left in the loan, he owes $50,000 on a house worth possibly a half-million dollars.  At this stage in the game, even with a high-interest loan, most of every payment was going toward principal, and in five years, the balance would be paid off.

Yet he felt he needed to refinance the place, adding $5000 in closing costs and fees to the balance and stretching out the payments for another 15 years, in order to get his monthly costs down so he would have more money to spend.   I looked over at his house, with its brand-new satellite dish mounted on the side, the sprinkler system, and all the lawn ornaments, and wondered why he couldn't find a little more cash-savings in other things.

But instead of cutting back on bad television and cement yard donkeys, he decided to get more debt instead.  Because having debt was "normal" and not having 500 channels of Cable TeeVee wasn't.

Of course, the problem with the re-fi is that while it solved his short-term cash-flow problem, it did so at a staggering overall cost to his net worth.  It leaves him with 15 years of mortgage payments to make now, and adds to the balance on the loan.    And even though he is refinancing at all-time low rates, he will end up paying more interest, over the balance of the loan, than he would have just paying off the balance normally.

Or as I put it, "$50,000?  Why not just write a check?"  Because as his age and station in life, he should have that much money in the bank.

People put themselves in peril this way - and then worry themselves to death as a result.   And when I was younger, I did the same thing.   I bought cars, a house, and "stuff" and then loaded up on monthly subscription services and credit card debt, until one day I woke up and realized that if I lost my job - even for a week - I would be screwed royally.

I had no savings, no safety net, no real wealth.  I had a huge monkey on my back, though, in terms of a high-buck lifestyle that I had to pay for every month, whether I wanted to or not.  And like most Americans, I started to resent my job, instead of enjoying it, as I had to go to work every day, instead of wanting to go to work every day.   And there is a big difference, let me tell you.

When we lived in Washington, DC (Virginia, actually) people put humorous bumper stickers on their cars that said, "I owe, I owe, so it's off to work I go!" as if being in debt and chained to a desk was funny.  And it reminded me of my Dad, who was angry all the time and apparently didn't like his job, as he constantly reminded us that life was full of stuff "you didn't want to do" and we all had to buckle down and do our jobs.   "Do you think I like going off to work every day?" he would say, "I have to - I have to support you kids!"

And with that kind of attitude, one can end up resenting your job - and your kids.   And let's face it, your kids won't like you, either.

But getting back to Mayan Calendar end-of-times nonsense, if your economic house is in order, you won't have much to worry about, in terms of a "double-dip" recession or a tax increase.   On the other hand, if you are living hand-to-mouth, then chances are, stuff like this keeps you up at night.

And there is the choice, right there.  Anxiety and depression, offset by a new iPhone and Cable TeeVee, or low stress and relaxation - and no electronic junk in your life.

Most Americans choose the former, and it is not hard to figure out why.   TeeVee is the gateway drug in all of this - the marketing tool that gets you to believe that you "need" an iPhone and you "need" a larger TeeVee, as well as a leased car and a platinum "rewards" card.   And it gets you to think this is all normal and moreover, being up to your eyeballs in debt is normal as well (and being stressed all the time about it is, well, that's just normal life).   But no worries, the man on the TeeVee says you can refinance, right?

I am not worried about the fiscal cliff, a double-dip recession, or Greece leaving the Eurozone.  Bring it on!   While I might lose some money in my investments, temporarily, I am not at risk of losing my house, my car, or whatever, as they are all paid for.   And since I have stripped-down my lifestyle to the minimum, I can get by on very little money, as the past three years have demonstrated.

And that is a very relaxing feeling - the knowledge that you can survive and prosper, even in a down economy, simply because you got off the money-train and have your financial house in order.

And frankly, this is the way we all should live - prepared for the worst, but hoping for the best.   Instead it seems, we live precariously these days, requiring a best case scenario just to make ends meet.