The Party is Over

Doris meows at me when I start ranting and raving. Meow! Meow! Meow! The state of our economy has me in a tizzy and I am asking, IMPLORING people to take this moment, review their finances, and make the necessary changes even though it may be difficult.

We are in the worst recession in the past 25 years. For most of my peers and especially those who are younger, we've grown up in plentiful times and have barely experienced the hardship that others faced before us. I think that my parents' struggle made an impact on me - I finish all the food on my plate (to the detriment of my waist line), I binge spend like someone who just came into money, I take responsibility of my finances because they can't bail me out, they rely on me to support the family now, and I will likely continue to support them as they get older because they haven't managed their finances appropriately along the way.

For the majority of the past 25 years, marketing has succeeded in creating a culture of consumerism. Forget the need to do well in school, be present, be part of the global solution - it's really about having the newest toy, game console, the flashiest SUV, the biggest house, etc. I'm sure you are questioning me because I'm a shopper but I'm not in debt because of my shopping. "The average American household with at least one credit card has nearly $9,200 in credit card debt." This means they aren't saving, that they have put themselves in a really precarious position if the economy turns and they lose their jobs.

Oh, right, that's happening right now. "Unemployment claims are at steep-recession levels." Let's take Jane and times her by tens of thousands of people. Jane had a good job, she was able to get a nice home and got a new-fangled loan where she only had to pay interest. She figures that she'll sell the place when the mortgage payments balloon. Life was good, housing prices were soaring (housing bubble that replaced tech bubble), things were cheap thanks to China and the low cost of gas, and she figured, live it up now because things are getting better and better.

Increased global demand results in rise of the prices of commodities - the basic stuff that you need to make other stuff. People are feeling the pain and the good news is, have cut down on driving, etc. Global demand has dropped but that also means tougher times for businesses and thus, their employees. Also, these new mortgages that are variable (changes interest rates after a certain period of time) did change and to higher levels than people were able to pay for. Foreclosures across the country have been rising. People are losing their homes.

So, let's get back to Jane. Jane's mortgage is about to balloon. She has also just lost her job. She can't sell her house because the bubble burst and the amount she borrowed is more than what the house is currently worth. She can rent the house but it will be hard to find someone who will be able to pay what she needs to cover expenses. This exacerbates unemployment because people can't move to places that have jobs because they are tied to their house which are rapidly losing value. No job, out of control expenses and no cushion of savings. This is where our country is at.

I pray that you are not in a desperate position and have a chance to protect yourself as things are likely to get worse over the next 18 months (this bailout won't trickle down to you for awhile). Take a look at your finances. Have 3-9 months worth of savings in an interest bearing account (I use INGdirect.com). Don't panic when you look at your investments - selling now would be like paying full price on a Gucci purse and selling it for 20% less at a garage sale. If you have a crazy mortgage, try and refinance to better terms. Watch your budget, live within your means. Learn about what is going on in the world, our country, and your employer and how it affects you. All this shall pass but in the meantime, take care of yourself.