There are many wishes we could make regarding the global financial crisis. We could wish that lenders had not pressured US homebuyers to take out loans they could not afford, and that the homebuyers had been more careful when signing up for these loans. We could also wish that the banks had not repackaged these loans and sold them to other banks and financial institutions around the world. Finally, we could wish that the banking regulations had been stricter.
On a personal level, as the economy tightens, many of us could wish that we did not have such a large mortgage and had less owing on our credit cards. We could wish that our job was more secure, or that our business was not impacted so much by what is happening. And we could wish that our superannuation were not so badly affected.
Unfortunately, all the wishing will not make any real difference. At best, it might get us some sympathy. But it is more likely to hinder us from seeing what steps we need to take.
Here are some ideas to consider. They may help you look at the current situation in a new light and to become more conscious of your own values, while you consider the way you live your life. But, first, a warning: these are general comments and do not take into account individual circumstances. When you read them just see what pops out for you.
- Recognise that we live in a very caring country, compared to most countries in the world, including the US. I am not saying that it is easy to live on unemployed benefits or the age pension. But they are there as a last resort if everything goes pear-shaped. I am not saying these payments should not be higher or the support systems more comprehensive. But, once again, compared with most countries in the world we have a realistic welfare system.
- Talk to your spouse or partner. Sit down with your spouse or partner and go over your finances. Do not hold anything back. Describe the family’s financial situation. Include your fears about your job or business. Sure, you might hear: “I told you we should not have bought that new television set!” But persevere, because unless you are working on a financial strategy plan together, its chance of success is limited. You will not be doing your spouse a favour if you try to shoulder the financial worries all by yourself. More than likely, you will heap a huge amount of stress upon yourself, your spouse and your relationship without any financial benefits.
- Go for a picnic. When I was growing up it was common to go for a picnic or a trip to the beach with family or family and friends. We made our picnic lunches that could consist of sandwiches or a more elaborate spread. Alternatively, have a barbeque. Fine dining in restaurants can be replaced with dinner parties at home. Today, the family outing tends to be a trip to the local shopping mall. Once there, it is movies with popcorn, ice cream and soft drinks, or lunch in the food court. There are many ways of having fun and a good time that are not so directly associated with spending money. Who knows? You might rediscover forgotten pleasures.
- Get a credit card strategy. There is a bit of controversy about what to do with credit card and other high-interest debt. The standard instruction is to get rid of credit card debt as quickly as you can since it is typically the highest interest rate. In some cases, the interest rate can be more than 19 per cent a year. My opinion is that it would be best to go as hard as you can in getting your credit card debt down. If an emergency crops up in your life, you can take out a cash advance on your card, or cards. You won’t be worse off than if you’d only paid the minimum monthly fee while trying to save cash, and you will have saved yourself quite a bit of interest in the interim.
- Got money to invest. The economy always goes in cycles. This one may be the lowest in our living memory. Just the same, evidence shows that investors who took careful action during difficult times ended up making substantial profits. Recently I wrote a report called, Avoiding Capital Killers and Choosing Wealth Winners. It covers ways of recognising companies that are likely to suffer most during these times. It then focuses on ways to build a portfolio with more safety and confidence in companies that reflect your own values. The report is free at www.teaminvest.com.au .
Many well-known marketing and sales experts are changing their positions. For example, Paco Underhill, the author of the international best seller Why We Buy: The Science of Shopping recently said: “We cannot sustain the juggernaut of consumption… I want you to spend only what you can afford.” Now is an opportune time to develop fiscal discipline and financial knowledge. It is a time to rethink our own values, particularly as they relate to our spending habits and our investment strategies.