economy — Beating Broke

Keeping Up With the Smiths

April 15, 2014 By Shane Ede 10 Comments

Keeping up with the Joneses is bad. We know that. From a financial perspective, we spend a great deal of our time overcoming the green monster called envy in order to keep our lives in some semblance of financial order. We know the Joneses down the street with their big, fancy new SUV. We see them going on long family vacations. And we know the guy that mows their lawn. But, we also know that there’s a pretty high probability that they still owe a ton of money on that SUV. That that family vacation likely was financed through a credit card. Their entire financial life depends on them keeping their well-paying jobs.

Forget the Joneses

I’d like to talk about another family. The Smiths. You don’t know them. We don’t talk about them like we do the Joneses. Why don’t we? Because, outwardly, their lives are nothing to be envious of. They don’t own a big house on a double lot. They don’t drive a brand new Escalade. Their family vacations consist of weekend trips to state parks or trips to visit family a couple of counties over. Outwardly, they may even seem a bit downtrodden. They may seem (GASP!) a bit poor.

Sometimes they are. Sometimes, they are truly victims of their circumstance, or their poor financial choices along the way. But, for every one of those families, there’s at least two that aren’t poor. They have well paying jobs. They have money in the bank. And they occasionally barbeque a steak on the cheap grill they have on their back deck. It’s those Smiths I’d like to talk about.

It’s the Quiet Ones You Have to Watch Out For

Why don’t we know the Smiths? Because we live in a society that is enamored of our celebrity. We hang on every word that that famous athlete, or famous actress says. We try and model our lives after theirs. They live a glamorous life, full of flashing photography, red carpets, and any number of endorsement deals.

Who wouldn’t want to be like that? Short of being famous, we decide that we’ll see how close we can get. The bank doesn’t turn us down for that big house, big car, or vacation to the same beach that the celebrities hang out on. Maybe we’ll even get to see one of them!

But, it’s the Smiths we should know. We should know people who live their lives responsibly within their means. We should know people who live for more than having our fellow neighbors think about how rich we are, and how rich our lives must be. We should be the Smiths. We should be the people who drive the reliable older car without the flashy rims and booming sound system. We should be the people who live in the smaller house that we try and repair ourselves.

Society may push us towards that Joneses sort of lifestyle. After all, what would become of some of the companies if we stopped trying to keep up with the Joneses and stopped buying all their luxury goods? What would the news and tabloids cover if we weren’t constantly buying their rags in order to find out what sort of clothes the princes and princesses of some foreign country were wearing this spring?

Shiny Facades, Crumbling Foundations

All around us, there are Smiths. We don’t notice them, and we rarely get to know them. We’re surrounded by the Joneses, and the shiny facades of businesses and economies that are driven by their reckless spending. But, under those shiny facades is a crumbling foundation. The economy of the world is on shaky ground. We saw just how shaky it really was in 2008. When the housing market crashed, it very nearly brought the entire world economy with it. Luckily, the economy was strong enough at the time to take a beating. It wasn’t strong enough to bounce right back. It’s been a long slog back to where we were. We aren’t even back there yet. There are still parts of the world that are hurting economically.

Imagine, for a moment, if we rebuilt that economy, not on the sands of bailouts and extended unemployment benefits, and instead built it on the bedrock of hard work and frugality that got us where we were in the first place. Imagine if we had seen the folly of our loose spending ways and tightened our belts, stuck to our budgets, and started building an economy that doesn’t shake and quiver at the smallest rise in unemployment, or the slightest miss in an earnings report?

What if, instead of running around willy-nilly chasing the lifestyle of the Joneses, we were calmly working ourselves into the stable economy of the Smiths? What if we all didn’t have wait for our next paycheck to buy gas because our last paycheck went to our mortgage and car payments? What if we were able to fill a tank of gas from the cash in our bank account and know that we still had our emergency funds to help us along should a real emergency come along?

We can. We can bring our spending in line with our earning. We can sell the fancy car that we don’t need. We can downsize our house to something that we can afford. Sure, the dependable used car you buy might not have as much chrome as the fancy one. It might not have the same heated seats. And the house you downsize to might not have a walk-in closet, or a jacuzzi bath tub. I’ll let you in on a little secret. You don’t need them. They’re luxuries. You only think that it’s normal to have those things because the Joneses told you it was.

We should be keeping up with the Smiths.

We can be the Smiths.

How to Protect Your Investments in an Unstable National Economy

February 11, 2014 By Thomas Bawdy 5 Comments

The U.S. economic downturn of 2008 caused investment losses for many, leaving everyone unsure about economic instability. You may wonder how you can keep your investments safe in an unstable national economy. Educating yourself, seeking unique opportunities, avoiding staying too liquid, employing defensive stocks, keeping selling separate from buying, and considering commodities are several ways to keep your investments safe.

Paper with Financials

Image via Flickr by Andreas Poike

Educate Yourself

Proper education is critical for both the investor’s comfort level and investment success. Just as the housing bubble contributed to the Great Recession of 2008, future bubbles could threaten your investments. Recognizing the characteristics of a bubble could help you get out of risky investments. While there is no one formula for determining whether an industry is in a bubble, businesses with small revenues with large market caps should cause concern. Understand that industry bubbles have large-scale impacts on the entire economy.

Understanding other economic indicators is helpful for proper investment selection. Fisher Investments supports investor education. Their YouTube videos about investing outlooks and education offer insight on ways to make the best financial decisions.

Seek Unique Investing Opportunities

Everyone knows that diversifying your investments is a great way to protect them from volatility. However, are you considering unique opportunities? Peer-to-peer lending is unique and can provide an additional investment strategy to keep you protected during an unstable economy. These loans are higher risk because they involve unsecured loans to individuals, but the lending platforms generally bundle loans to decrease the risk of failure. Depending on the loan you choose and your risk level, these can have attractive returns.

Invest for Your Timeline

Your response to economic instability should relate directly to where you are in your investment timeline. If you are close to retirement, you are investing conservatively to protect your assets. However, if you are early in your investing, economic instability should have less bearing on your longterm goals as the ups and downs will level out over time. Continue to exercise caution in an unstable economy but be comfortable taking risks as long as you are comfortable with losing that investment. In a long-term investing strategy, you have time to recuperate any losses from risky investments.

Avoid Staying Too Liquid

In an unstable economy, keeping cash on hand might be tempting. While it is good to keep some cash, too much cash prevents you from enjoying market returns. In an unstable economy, increase cash but do so modestly. This allows for a balance between having a safety net and benefitting from market growth.

Stacks of Money

Image via Flickr by vxla

Employ Defensive Stocks

Defensive stocks are from sectors that stay consistent despite the economy. Examples of sectors with defensive stocks include healthcare, food companies, utilities, and consumer staples. If another economic downturn occurs, these stocks continue to offer growth. The downside is that these lower risk stocks offer less lucrative returns. Use a diversity model consistent with your investing goals when adding defensive stocks.

Keep Selling Separate from Buying

While common practice tells you to always buy more stocks when you sell, this is not always the best move in an unstable economy. By sticking to the rule that you should only sell when you have something else you want to buy, you may miss opportunities to sell your stocks at their best price. Instead, when your stock hits its target price, sell. You will have other opportunities to buy stocks that align best with your investing goals.

Consider Commodities

Commodities are a possible option for keeping your investments protected. If an unstable economy begins to drive up inflation, people will still need to purchase commodities. A diverse portfolio with commodities allows you to capitalize on this. Because commodities present greater risk, buy according to your investment goals.

There is no foolproof plan for keeping your investments safe during an unstable economy. Incorporate these tips into your investments so that they align with your level of risk and comfort. These steps can lead you towards a better-protected portfolio. What are some other ways to protect your investments in a shaky economy?

American Economy on the Brink of Collapse?

February 10, 2014 By Shane Ede 22 Comments

I think it’s normal, during hard times, to consider what might happen should the worst happen. A recent post by Crystal, asking “Will You See the Collapse of America“, brought the question to the forefront for me. Is the American Economy on the Brink of Collapse? Will we see the collapse of America?

First, the optimist in me immediately says no. There are too many good things going on in our country for it to collapse completely. The stock market just came off of a really good year. The job market is, if not rising, holding somewhat steady and certainly isn’t gushing jobs like it was in 2008-2009. And, up here in North Dakota, we’re working on providing lots and lots of oil. We just need a little bit more refining capacity to do even better.

But, those aren’t the only indicators. Crystal points to the slow degradation of our rights, and our ever increasing consumerism as reasons that America might collapse in 100-200 years. While the loss of rights is something that we have to do something about, our consumerism had shown signs of slowing down. With the crash of the housing market, the average saving rate had been rising. From a low in 2005 of 1.5%, to a rate of 5.4% in 2008. Since then, it’s begun to slowly work it’s way lower, but is still close to 4%. At the same time, the average consumer debt held has continued to decline. Maybe, just maybe, we’re making a difference and a better educated population is starting to make the changes that are necessary to be more financially stable. Now, if only we could convince the government to do the same.

An Economy, Broken.

And, really, when we start talking about the American economy, it’s going to be the government that makes it or breaks it. After all, you and I can save 100% of our income, but it won’t do a bit of good against a $17 Trillion dollar (and growing) debt. The truth is, with debt that increases by several Billion each day, the rate of personal savings won’t do a bit of good. At some point, the countries of the world that use the Dollar as a basis for trade will cease to do so. The continual weakening of the dollar against the other world currencies (even BitCoin), makes for a potentially disastrous recipe. It’s very possible that, if spending (and that debt) don’t come down, that the American economy could find itself between a rock and a hard place very soon. And that could spell a major recession or depression. How the government reacts to such a thing could be the only indicator of whether the economy ever comes back out of it, and, ultimately, whether the America we know and love continues to exist.

Like Crystal, I think the eventual collapse of the economy is unavoidable. The government hasn’t made any meaningful steps to reduce debt or spending. And the majority of the population either don’t see it, or believe that the people that we are electing are going to save us. Frankly, without a major overhaul of the government, and some changes to who we elect, it may be too late. Really, it just comes down to how quickly the collapse will come.

Crystal thinks it’s 100-200 years from now. She may be right as far as the collapse of America. The country itself might last that long. The Roman empire lasted for many years before finally collapsing completely, but the signs were there for a very long time. If I’m being optimistic, I think we might have 4 or 5 years before we see any major collapse of the economy. But, we’ll start seeing signs even sooner than that.

Signs of the Collapse

What signs, you ask? There are some broad indicators, like the overall housing market and the stock market. The rate of inflation as well. But, unless you’re heavily invested in the stock market, that indicator might not make much difference to you. Watch for more simple indicators. The price of gas. The cost of a gallon of milk. The cost of produce. When you combine all the simple indicators that you notice every day with the overall indicators, you should be able to make a pretty good guess which direction the economy is heading.

What next?

Let’s say that I’m right. In 4-5 years, the American economy collapses. Maybe it’ll be gradual, or maybe it’ll be a crash for the ages. Either way, what can you and I do about it? On the grander scale, not much. We’re not going to stop the collapse by ourselves. But, we can push it further off, and we can prepare.

Delaying the Collapse

I’m already taking some steps to delay the collapse of the economy. How? By talking about it. By making people aware of how to best handle their money. You are too! By being a good steward of your money, and telling your money how to work for you instead of your money telling you what to do, you’re making your own contribution to the betterment of the overall economy. We can get involved in politics (I know that sounds like a lot of fun… or not.) and push our representatives to work harder to reduce debt, reduce deficit spending, and to get it done without any partisan politics. Just don’t hold your breath that it will happen. We can also help by not only helping our own finances out, but by also helping our friends and family get their financial houses in order. It’s a touchy subject, but, ask yourself this; how many of your friends and family do you want knocking on your door when the economy collapses?

Preparing for the Collapse

Even with all that work, the collapse might (probably will) still come. Surviving it will depend wholly on your preparation for it. I’m not saying you have to go out today and become a prepper. What I am saying, though, is that you need to start taking steps to be ready. Start learning how to be more self-reliant. Learn how to grow some of your own food. Then learn how to can it and preserve it. Yes, that might mean creating a little bit of a stockpile like a prepper, but I happen to think we could all do with a bit more sustainability in our lives.

Most of all, have a plan. What happens in an emergency? Even if it isn’t caused by the economic collapse of America? If you were without power for days, how would you keep warm? How would you eat? What would you do for a bathroom? These questions don’t require anything more than a little thought, and maybe some research on solutions! Have a plan.

What do you think? Is the American economy on the brink of collapse?