You Should Look a Gift Horse in the Mouth

The old adage is Don't Look a Gift Horse in the Mouth. In my mother's view, it meant that if someone gives you a present, you should accept it graciously, even if it is something that is not exactly what you want. My view is that the economy fell apart because greedy people failed to examine that steed. Too many people jumped at the chance to get homes, cars, and other luxuries they couldn't afford with loans and cheap credit they knew they couldn't repay (at least not in this lifetime, based on minimum payments). I'm old-fashioned enough to be suspicious whenever someone offers me something that sounds to good to be true. Read that fine print and you'll find that it almost always is. The size of our economy is a function of how much credit is being used. The quality of our economy is a function of how much we save, how much we keep spending within our means, and how frequently we buy products that are manufactured here rather than abroad. Don't always look to cheat the system, or you may find that there won't be a viable system at all in the future.

Saving Money Made Easy

Americans are known for saving very little of their income. Many think they just can't do it; others think that saving just a little bit would be insignificant. The truth is that the best thing about saving is that it gets you into the habit. Try this approach: Open up two accounts at the bank. One should be a savings or money market account. The other should be a checking account. Every time you get paid, deposit the whole amount into the savings or money market account. This account becomes your capital formation resource. Every time you receive any payment, deposit all of it into your capital account, and transfer only what you need for immediate expenses and current bill payments into your checking account. Some weeks you may even have to transfer out more than you put in that week, but the important thing is that you get into the habit of following the deposit-and-transfer procedure. After a while you will start to see the residue amounts that you left in your capital formation account increase significantly. Save just a little, but do it over a long period of time, and it pays off. Even if your bank account for capital accumulation doesn't pay much interest, it will soon let you start to pay some bills from cash instead of charge cards, and that will save you plenty of interest. You may even find that you will be able to reduce or eliminate your past balances on those cards.

Unemployment & the Poor Housing Market: Mutual Solutions?

It's actually possible that unemployment and the poor housing market may be at least partial solutions for each other. Consider the fact that if you are unemployed, along with many others in your area, it is likely that you will have to go somewhere else to find a good job. If you go somewhere else, you will have to get a home there. When you look for that home, you will be helped by the facts that home prices are depressed and interest rates are low. In order to move, you will have to go through the ordeal of selling your existing home, but it is likely that you have more equity in your current home than the amount you will need for a downpayment on your new home. That means that you will have some remaining capital as you start your new job in your new location. Having cash resources will allow you to furnish and remodel your new home as desired. Spending that money to get your new house ready will contribute to improving the economy, which will create more jobs and make more people able to afford a new house. In every transaction, someone spends money to get something he or she wants, and the seller of that product or service gets cash to do the same thing later on. Spending circulates cash and builds up the economy. Spending only cash that you already own builds up the economy more slowly than spending other people's money through loans and credit cards, but it is a lot safer in times like these.

Economic Security or Temptation Toward Problems?

I heard a financial advisor on television say that the first thing you should do to guard against financial problems is to set up a line of credit against the equity you have in your home. She said that you don't have to borrow against your home equity unless you have to, but that this step would give you instant access to capital when you needed it. Frankly, this advice made me feel very uneasy. If you are in a position where it is at all likely that you will need capital, this approach will keep dangling the temptation in front of you to borrow and maintain a rich lifestyle. If you want to plan ahead against possible financial adversity, you are better off to learn how to trim your lifestyle so that it doesn't take as much capital to sustain it. If you start borrowing even a little against the equity you have in your home, especially in an economy that is tending to reduce the value of that home, then you are going to be tempted to do it again the next time you need a little cash. The commentator said that borrowing against your home equity line of credit is as easy as using a credit card. That is exactly the problem. The banks and mortgage holders make it easy because they want you to borrow. It tends to be a one-way street of borrowing more and more and not paying anything back beyond the interest, of which there will be plenty. Has anyone else noticed that the Fed has been reducing interest rates while the credit card companies have either left them the same or found more reasons to increase interest rates whenever you get into a technically incorrect position? Now is the time to learn how to reduce your spending in step with the reductions in the economy. Now is not the time to set yourself up to be tempted to borrow more and more.