With a compromise in the works for the economic stimulus bill, I have decided to reflect on one of the biggest lessons learned during this recession: There is a definite disconnect between what’s good for the economy and what’s good for individuals on a personal finance level. Our economy is not based on individuals making sound financial decisions that lead to their prosperity. Our economy is based on individuals making detrimental financial decisions that lead to their enslavement by debt.
We have an economy that based in large part on consumer spending — and not just any consumer spending. Our economy is based mainly on debt-fueled consumer spending. And we’ve come to rely so heavily on this model of an economy that our leaders are telling us it’s “patriotic” to feed our consumerism — as long as we’re buying American. Indeed, nearly all of the tax incentives in the current economic stimulus bill are aimed at getting people to spend money they don’t have on stuff they don’t need. Even the individual tax cut touted in the economic stimulus bill, small as it is, has consumer spending as its goal. In fact, the reason our leaders are giving so little directly to us is because they don’t want us to save it or pay down debt. They want it to be a large enough amount that we feel reasonably good about it, but small enough that we will spend it rather than use it to our personal finance advantage.
Forget the economy; get your financial house in order
As “unpatriotic” as it sounds, I think it is time for us to force a change on our government — a government that is, at least, practicing what it preaches (borrow and spend, borrow and spend). Now is not the time to stimulate “their” version of the economy at the risk of destroying your own financial future. Instead, follow these basic personal finance rules to shore get your financial house in order:
- Prioritize your spending. Look at what you are spending money on. Prioritize it. Make a plan. Figure out what is important to your financial situation, and spend your money in accordance with your personal finance goals.
- Stop building up debt. I admit that I haven’t done this particularly well; I just bought a car. But it’s been more than year (when we bought our house in September 2007) since we bought anything else using debt.
- Pay down debt. Paying down debt is always a good idea — especially right now. You want to free yourself from as many debt obligations as possible.
- Build up savings. Building your emergency fund, as well as long-term savings, is a good plan to help you prepare for the future. You never know what might happen.
- Check your insurance. Make sure your coverage is adequate for your needs, so that if something does happen, there’s a better chance that you won’t be financially devastated.
- Prepare yourself for job loss. The Dems were forced to scale back their job creation hopes from 4 million to 3.5 million in the economic stimulus bill compromise. Millions of jobs have already been lost, and more are likely to be lost — even if we all go out and spent a bunch of money. So update your resume, do some networking and look for alternative income streams.
- If you can, make some investments. If you have the available funds, make some carefully chosen investments. These can be of varying degrees of riskiness, depending on your tolerance level. Keep contributing to your retirement account (but check its holdings). Personally, I am upping my investments in companies that are fundamentally sound and have potential for future growth. I’m also looking into renewable and alternative energy related companies, since they should be getting a boost down the road.
Do you have any other advice for getting your financial house in order?