Gold Investment

Zion, IL
By A.B. Dada
—

The day doesn’t end without at least 3 emails from family, friends and customers who are now starting to listen to me. For 3 years, I’ve been the contrarian “sky is falling” housing bubble (and stock bubble, and commodity bubble) advocate, with few if any listening. Now the news is admitting the market’s problems, and some old media organizations are backtracking to the start of it all.

I was the sole Greenspan-detractor in 2002 of anyone I knew. Now everyone is bashing the man that was king.

The most common email I get is “So what do we do???” I’ve been preparing a Flash-based applet that lets people enter all their facts (income, expenses, mortgage, credit, leases, etc, etc), and tries to come up with an answer. Of course there is no one-size fits all solution, but there are generalities for all income and expense levels that should give you a foot in the door to escape the credit crunch.

Many people I know are not YET affected by the credit crunch, because their income exceeds their expenses, if even slightly. Yet with the price of oil, energy, insurance, and taxes moving upwards, more may find themselves upside down sooner rather than later.

If you are concerned about your overall situation, and future, I’d love to get your information so I can navigate some recommendations for each. All I need is weekly income, mortgage/rent payment, property taxes, average monthly utilities, family size, car lease/loan, and total credit card balances. With that info, I can start keying some solutions to the predicament that many of us will face.

My #1 answer to most, which should work for most, is to find a way — immediately — to have 18-24 months of minimum payments in the bank. Yes, cash is devaluing quick, but most of your debt is fixed in payment. By having a 2 year padding, you can still survive up to 4 years just by getting 1 or 2 low paying jobs, and living even tighter. I have one friend, a previous 6-figure earning mortgage broker, who did just that, and he’s stressed but surviving. I know him and his wife (no kids) wear sweatshirts and blankets at home to keep their heating bills low, and I also know that they sold many assets in order to pad their savings more (rather than pay down debt first). More important than having no debt is having your nest egg, your safety cushion, which keeps depression at bay and the bills paid. They’re not doing as well as they were 2 years ago, but they’re surviving, and that’s a key element in keeping your head above water.

For MOST families, I still see spending in excess of 30-40% over the survival minimum. Some families are spending 60-100% over that minimum. With the retail shopping season ahead, it is time to swallow your pride and get a part time job if you can’t save 18 months of payments in the next 6-8 months. I know of one family that started with a $62,000 household income (and $11,000 annual take-home savings after all minimum payments and taxes) with $26,000 annual minimum payments. In 9 months, they will have $30,000 in savings — all because they each added a second job, and cut their expenses close to zero. They’re each making an additional $150 per week, and saving an additional $260 per week by cutting back. After selling assets, adding in their previous savings, and cutting a few huge expenses out, they’re already at $21,000. In 6 months, they’ll be at close to $40,000 saved. Once they pass the $50,000 mark, they’ll be set for at least 2 years — and both will hopefully still have their main job and their backup job. Is life tough? YES. But it is easier than the fellow I know who complains to me every day that he can’t pay his bills, but he spends 10 hours a day online doing nothing. I wish he would jump in, drop the ego, and get a job at the local mall or restaurant.

The worst situation I can see, right now, is the retiree with only social security. I’m not sure how they can survive the pending destruction in the value of their dollar.

This article is followed up here: Save Now, Pay Off Debt Later: A Theoretical Analysis