yesthattom | My economic forecast

My economic forecast

1. Don't panic. However, expect this to last 3-4 years. This is the primar point. People are saying it may last 1 year. No, it will last 3-4 years.
2. Quietly start to conserve cash. Money you spend now is more "expensive" than money you have a few years from now.
3. Stick with a stable crappy job. Find a way to make it work. (If your job is not stable, seek one that is or position yourself within the company somewhere that they will always need you.)
4. If you own a house, don't sell it. If you need a house, this is a good time to buy. (Don't sell one house to buy another; that's going to screw you.)

If you are super rich, this is the time to start a new company because labor is cheap and by the time you get it up and running the recession will be over and people will be ready to buy. However, I doubt this applies to many of us.

Flat | Top-Level Comments Only

Debt is essentially negative cash. When cash becomes more valuable, debt becomes that much more costly. So I agree with you that it's even more important to pay down any outstanding debts in this climate, but at the same time I don't think it contradicts this point -- doing so is still getting you closer to "conserving cash" in a sense.

I agree, but the phrase "money you spend is more expensive now" might lead people to not spend on anything. :) paying debt isn't spending, and yet most people cut back debt payments earlier than they ought to when conserving money.

I just wanted to make it clear that "money you spend" doesn't apply to debt.

I agree that paying down debt (aside from the minimum) is a bad idea right now. You might need that extra cash.

Obviously if you have a high-interest debt you have to do the math and see if that's true for that special case.

Being debt-free right now is possibly the best possible position you can be in (but mostly if you did that before the recession)

Um, I was making the point that paying down debt is a GOOD idea right now.

And my point is that compared to current savings interest rates, pretty much all debt, including student loan debt, *is* high interest.

Obviously you can't just spend all the $$ on debt payment and none on savings (but again, that's true in *any* market). currently my position is socking away $800 per month, so I'm OK with spending an extra $250 on paying the car payment.

And you need to look at the situation, but many places will take the extra payment as next month's payment, instead of reducing the life of the debt (credit cards don't, but most mortgage, car, and student loan payments work this way). In this way, you can still "have" the extra cash in a way -- let's say you have a bill for $250 a month, and in one month you pay $1000 towards it. Now you've paid the current month + 3 more, so if you do need the cash later, you can still "have" it, because you can decide not to pay that bill for 3 months.

Given that CD's and savings accounts aren't even giving 4% at this point, it makes sense to pay down almost any debt you have, because it's all "high" comparatively.

Everyone has to figure out what's best for them. I also have family that can help in a pinch, though I don't want to be in that situation, of course! (and currently we have 6 months of expenses in savings, so again, it makes sense for us. In fact, it probably would make more sense to take some of that $800 a month we're saving and spend some more of it on paying down more debt, but we're cautious types).

I recommend Mary Hunt's Debt-Free Living as a really good book that talks about how to save even if you're swimming in debt, and how to make your own decisions about what's best.

Obviously you can't just spend all the $$ on debt payment and none on savings

Any why not? At any given time, savings will be worth more than paying down debt, or not. Assuming you have money to do either, doing both is only worthwhile to the extent that it's a diversification technique.

my reasons:

0) if you get laid off and can't pay your rent, it's better to have a late credit card payment than to miss a rent payment. Switch "laid off" with "have a big unexpected payment to make".

1) peace of mind (see 0, but more for the worry, not the actual outcome. If I don't have the "just in case" funds it affects me a lot, and there is "back burner" space devoted to my worrying)

2) keeping the habit of always saving no matter what is a good thing. Most folks don't start saving because they think they *can't* save, they don't have enough to. And/or they sabotage themselves by taking out of savings to pay a bill. I struggled with the "right amount" to save for a long time before I found my own sweet spot wrt this.

3) Your credit score increases more if you make payments that are more than the minimum but less than the whole thing. Credit card companies will increase your credit card score if you spend $1000, and make 4 payments of $275 (the extra $25 per month is for finance charges/interest) than if you just pay it off in a lump sum.

For Reasons 0 and 1 to apply, you've got to not yet have enough of a cushion to make you feel comfortable and the credit line is (or might) go away as you pay off the debt. The second condition is usually true, I guess, but the first might not be.

If you view debt as negative savings, then paying off debt is savings, habit and all. So I don't see Reason 2.

I can't argue with Reason 3, except I doubt the benefit outweighs the difference in interest rates between potential savings and extant debt for most people.

We're still saving because while 6 months of living expenses are great, we are saving to buy a house. It doesn't *feel* like saving if all we're doing is paying off debt, and our savings are stagnant. Even though we *know* that's not the case, mental!=emotional.

(for example, 1/2 our 6 months' living expenses is sitting in our regular checking account, because Tony feels better seeing the cushion. I would be happy having it all in our ING account, where the other half is, but it doesn't matter to me where it is. So we take the few percent interest hit on a few thousand dollars so that Tony feels better about things).

If it were all about mental stuff and $$, anyone in the SF Bay area and greater Boston area and NYC area would move somewhere tons cheaper and save gobs on rent if/when they got laid off. I know tons of folks in the Boston area who are paying 1/3-1/2 their take-home pay in rent.

can you explain "Quietly" btw?

s/Quietly/Calmly/

Gotcha :)

Flat | Top-Level Comments Only

My economic forecast

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