I’ve been scratching my head about our “global economic crisis.” It’s not that I don’t believe there is one, or that people aren’t completely panicked about it. What strikes me is that if I weren’t keeping up with the news I wouldn’t know we are in a crisis. Signs in my part of the world are up, even today (I say that with the caveat that I vowed not to look at the 401K again until 2010). My peers and I are not experiencing the pain we keep hearing “main street” talk about on the news.
What I reason is that I (like most of my peers) am a person who acts rationally and behaves in a fiscally responsible manner regardless of the market conditions. I do not suddenly become an irrational and greedy individual when the market is up, and I do not freak out when the market is down. The people who do both of these things are the people who cause the market to swing so far up and down.
People who allow their financial decisions to be guided by emotions when times are good are slave to those emotions when times are bad. People who 1. do not spend more on a home than they can afford 2. do not consume more than their incomes allow and 3. understand that buying consumer goods on credit is unacceptable are far less likely to “experience” a financial crisis in any substantial way. (Unfortunately, it’s people like my peers that shoulder the financial burden of bailing out people who are not. But that’s another post.)
Live within your means. Don’t over-spend, over-extend or make purchase decisions based on what the emotional people around you are doing. Control your emotions, don’t let them control you. You’ll live comfortably in the upswing, and you’ll sleep very soundly in days like these.
Jen, I think this current crisis will affect those who need to get credit for large purchases (e.g., student loans, cars, homes). Good thing you got a buyer for your investment property — we’re dead-in-the-water with a home on the market in Oak Ridge….
Maybe, but sound judgment still trumps poor decisions that lead to bad credit. I quit my job over 3 years ago and have bought 3 homes since then. If you don’t buy more than you can afford, which includes making yourself accountable by at least 20% of purchase price, there shouldn’t be a problem.
Where you and I might feel it is if we are selling homes. I am fortunate to have a buyer (though it ain’t sold yet ;-), but I also conceded quite a bit to account for the market conditions. I can afford to do so, again because of sound financial decision making on a daily basis.
Too many people spend every dollar that comes in, plus another 10%-20%. That’s a recipe for disaster in any economy. The upswings should be treated as opportunities to prepare for the downswings, not to buy more than we can afford (on credit).
And adding one small point to this excellent post…
Markets like this provide excellent opportunities. Being able to think rationally while those around you are being driven by their emotions is a valuable skill.
This is wholly short-sighted. Sure, for many individuals, living within your means is always solid advise, but that is only the start of why this is a crisis.
Where do you shop, when that grocery store can no longer get a line of credit to stock shelves? Where do you buy a car when dealerships can get a line of credit to put cars on the dealership floor.
This is that sort of “trickle down” effect, only instead of the money that (supposedly) is suppose to trickle down with tax cuts, instead it is businesses that will feel it, and when they can’t continue to do business as they once did, will begin laying people off. Unemployment sparks more issues including consumer confidence issues, and even lower spending which hurts businesses more, which leads to high inventories, more layoffs, etc.
You certainly may be better off than some in the short term, but that doesn’t make the situation and issues any less real.
There are people, even with good credit ratings being turned down for some mortgages because credit is so tight. Imagine even with all your hard work walking into Wachovia (I’m kidding… really), and being refused a mortgage. Stunned, you will wonder why, but if they don’t have the money to lend, you can’t get a mortgage no matter how good your FICO score is.
You are confusing people’s financial issues, which can cause a downturn in the economy with a potential for another Great Depression if the ship cannot be righted.
You are right that you can survive and even thrive in a down market, I am not completely at odds with what you are saying, but just trying to point out, that just because you don’t “see it” doesn’t make it any less real.
Sure enough, there is a lot more to it than my little post, which was intentionally short-sighted (if Mom read my blog she’d be annoyed at that aspect too). There are more than enough folks talking about the causes of the crisis (as you well know) that I need not further that discussion.
What I can offer is sound reason for the average person. My approach will always fall on the side of common-sense, rational behavior and most importantly (and widely underrated) *personal responsibility*.
My point is not to lay blame for the crisis, so much as to point out that times like these don’t have to be a “crisis” in all our lives.
And I dare say that consumers operating under such logic en masse would have a positive “trickle up” effect on how the economy as a whole operates.