Since about the mid '70s, common sense economics has virtually vanished. That was about the time that credit cards started being distributed to nearly everyone, that frugality as a way of life for the masses became very uncool, and parents started spoiling their children to the point that they didn't want them to "suffer" so they did everything within their power to give them as many material goods as they could; these children turned into adults with an attitude of entitlement (and lots of debt used to purchase these entitlements).
Now as the economy reaches new lows each day, it is time to get back to common sense economics. Your economic life is in your hands for the most part, so it is time to take action in order to keep yourself in the best financial position possible no matter what the economy does. Here's how:
- Get out of debt immediately, even if it means you need to work four jobs at the same time. The more you work, the more money you make, and the faster you do this, the faster you will get out of debt.
- You need to own your own home if possible. Note that for some people, this may not be possible or advisable (ie: people in the military who move every couple of years, people who are in deep debt, etc). But once you get out of debt and can actually afford it, owning your own home--free and clear--gives you much more control than renting. The idea is to buy a place that you can afford (even if it is a tiny lot and a travel trailer to start) so that no matter what the economy does, you won't have the possibility of losing your home (something even many renters are facing now as the owners of their properties head into foreclosure).
- Live on cash only. This will usually curtail your spending since if you don't have the cash, you can't buy. Even if you do have the cash, it seems harder to spend this way than when you hand over a piece of plastic.
- Buy the things you need now. Don't raid your 401k to buy things, however, it is always a good idea to have lots of the basics (food, tools, ammo, toilet paper, etc) on hand so that during times of rapidly rising prices and rapidly decreasing value of the dollar, you can more or less take cover and stop shopping until things cool off a bit.
- Diversify your investments. I am not an economist but it doesn't take a genius to figure you shouldn't put all off your eggs (investments) in one basket (a single stock or single type of investment).
- Don't look for a bailout. Years ago, failure was a lesson in what not to do. The lesson was learned and then people moved on, hopefully never to repeat their previous mistakes. These days people don't want to face failure and feel that they deserve to be helped even though it is their own damn fault for being irresponsible (this goes for businesses as well). No matter the type of bailout--a loan from the parents to cover debt, a bill consolidation loan, a government program to "help"--this skips an important step, the failure step, where you get to suffer, learn a lesson, and figure out a solution to the problem. This is an important step as this is where learning and corrective actions can be made so you don't run into the same problem again.
- Keep your head above water always. Don't be misled by "easy" credit, "buy now, pay later", whining children and whining spouses, creating a financial disaster for yourself to keep up with the Joneses or because what others think about you is more important than your bottom line.
- Do the best you can. There are many situations you have control of (your spending, your investing) but there are other situations you don't (an unexpected illness, the death of a spouse). There is no shame in asking for help when something you have no control over happens.
- Prepare for the worst. You need a "Plan A" and a "Plan B" and "Plan C" for the major parts of your life. What would happen if you suddenly lose your job? What would happen if your spouse up and leaves? What would happen if your house is destroyed by a fire or natural disaster? If you have concrete answers for these questions, you are miles ahead of most people.
The bottom line is to take care of yourself without relying on others or the government to do what you didn't do for yourself. Notice I didn't say "can't do for yourself" because almost any situation you find yourself in, you can get yourself out of with enough hard work and determination. Use common sense and keep your personal financial situation as solid as possible so that you can weather any economic storm.