The Stinking Ecomomy - Who is to Blame?

While the economy in the US is having challenges and we hear rumors that the sky is falling,  it is important to understand what is causing these reports.  I believe the doom and gloom is a direct result of  our refusal to place the blame upon ourselves.  To place the blame on anyone other than ourselves would be irresponsible and would do nothing to enable us to learn a lesson. 

Let's look at the reasons I believe we are in this mess and how each of these worked together to create the perfect storm.

What we have control over.

• We tend to be selfish with our money and don't give the first 10% (a tithe) back to a church or community need.  I don't know anyone who gives consistently complain about not having enough.  Do you?
• We are overspending and purchase what we want without saving up for them or putting them in a budget.
  
• We don't create a budget, and therefore have no idea what has happened to our money.
• We don't share our possessions.  Everyone in the neighborhood has garages filled with the same items which are rarely used. We have to own it all, even though we only need it an hour or less a week. 
• We always pay retail (Manufacturer Suggested Retail Price) instead of bargaining.  Yes - you can bargain and win. 
• We tend to always want "New In The Box"
  
• We allow ourselves to purchase and finance extended warranties which ARE NOT good deals. (If you must have an extended warranty, make sure you pay cash so you don't pay 2 or 3 times the cost of the service)
• We allow ourselves to believe that credit is a good thing, and a tool that we all need to utilize. The net result of this is that we are no longer a saving nation.  Instead we are spending 120% of our paycheck year after year.  While we should be saving at least 15% of our paychecks for our futures, the average savings in the  US is now 1/2 of 1 percent.  Twenty years ago we were saving on the average of 8 percent.  
• Most people who do save in the bank are doing so at a measly 1% - 3%.  This kind of "saving" is not wise, as the inflation and taxes you will pay will average about 6% annually, so you will lose money  yearly with savings or investing in CD's.
• We don't educate ourselves about how money works. Most of us don't want to discuss money because we either have been told it is rude to discuss finances with our peers, or because we are afraid to admit we are ignorant of the subject.
• We tend to panic at the market vulnerability over the short term instead of looking at the long term.
• We believe that being able to "afford" means we can make the minimum payments on items.  We don't consider if we can continue to "afford" something with payments if we were to lose a job, take a cut in pay,  if gasoline goes up, or if we were to get sick.
• Accepting a mortgage payment which requires more than 25% of your take-home pay.
• We have no emergency money saved and emergencies require we spend money we don't have.
• We take loans on our 401(k) retirement funds without realize the implications of it. (Did you know that if you lose your job you are required to pay it all back within 30 days - as if you could afford it at that time?)
• We use Payday loans, or car title loans for "emergencies",  then pay the Payday loans with another Payday loan.
• We believing the slime sucking collection agencies who will tell you almost anything to get you to pay their accounts first.  You have a responsibility to know read and know the rules of the Fair Credit Act so that when you find you are over-extended you know the truth and can pay the house or rent, the groceries, the transportation, and utilities before you pay the credit cards. 

What we don't have control over.

• Higher minimum payments on revolving charges. 
• Higher interest rates on loans.
• Outstanding credit card debt which is given higher interest rate even after the items have been purchased at the lower interest rate.
• Greater penalties on late charges.
• Fudging by creditors who do not apply payments as they are received resulting in late charges.
• Understanding all the fine print on credit card agreements
• The price of oil.
• Catastrophic events which lead to market down sliding.
• Outsourcing jobs to offshore countries. 
• The government who instead of regulating loans, is often paid to look the other way by lobbyists.  I have seen videos showing our representatives supporting the banking institutions rather than people who have been hurt by them.  
• Our schools who need to be teaching responsible money management skills but instead are teaching other subjects like World History.  I don't want to offend anyone, but World History did not prepare me for life.   Our colleges are also allowing banks to market their credit cards to students who do not have the resources to pay the bills. Many applicants are able to obtain credit cards without even a job.  The schools receive financial compensation from the banks and often it is the bank who pays the school the most - and not the bank which offers the best deal to the student. (See yesterday's posting for the Business Week article I mentioned).  There have been more students leaving school for bankruptcy problems than graduating the last few years. 

You will see me write quite often about the financial planning as taught by Dave Ramsey.  Dave offers a class called Financial Peace University which is a 13 week course offered all over the country.  If your purchase his kit you and the family you live with can attend the class free and as many times as you would like for life.  I can not begin to tell you how much I have gained from attending this and how there truly is a sense of Financial Peace.  You may agree or disagree with his teaching.  Dave also teaches his Baby Step methodology and how to get to the point where you will become financially free.  He doesn't offer a guarantee his class, but does state that if you will follow his plan it will work.   His technique is not a get-rich quick plan, but it is a simple plan which we should have all been taught many years ago.  

Dave does make some people "crazy" because:

• He teaches that it is important to pay the lowest debts before the higher debts.  While this will result in paying more in the long run, the importance of the satisfaction of paying off debts quickly outweighs the knowledge that you paid less paying the higher interest rates first.
  
• He suggests that people invest in Mutual Funds with a 10 to 15  year history of consistent 12% or higher return.  Many people unwisely state that this is impossible now, but a good look at Morningstar will show that there a still many of these funds available.  Anyone who will disagree with this has not researched this.
• Dave uses the 12% annual return rate on all his examples.  Again the naysayers will say this is impossible but as in the point above it is very possible.

My suggestion is to start leaning from the economy today and what we have done to create the panic in our lives, and what to do to ensure we won't be adding to the claims that the sky is falling in the future.  Personal responsibility is key to our future and weather we are able to make it through recessions and depressions.  

Enough said today.

Joseph