Saturday, November 22, 2008

The Forecast is RAIN.

For those of you who have not been saving for a Rainy Day- you should start.

My intent is not to panic you-the news media does quite enough of that. I do not advise panic at all, actually, but I do promote preparation-that is always a good idea- calculated consistent and calm preparation.

I attended an interesting lecture today at school. My economics teacher from Spring Quarter held a special session to talk to us about the current economy and what might be coming. The professor, Karma Hadjimichalikis (sounds just like it is spelled *lol) has been working and teaching in the field of economics since the early 70's. She co-authored our economic text book with her husband.

Last Spring we learned that there are 3 types of economic downturn:

  • A "V", where the economy takes a dive and then immediately recovers
  • A "U" where the economy dives and then stays down for a while before it recovers
  • An "L" where the economy dives and stays down for long, long time.

The goal of the Fed is to prevent an economic deflation. There are reliable methods that can be employed by the Fed to deal with recessions and inflation, but not deflation. She said that the current economic situation is unprecedented. Changes are taking place so rapidly that she is having trouble keeping her lectures up to date! Exciting times if you an Econ teacher.

That being said....our prof believes that the "U" scenario is most likely. We are down now and unofficially we are in a recession- (we have two consecutive quarters of downturn before it is officially declared a recession). This should not be a surprise to anyone! She does not believe that we have hit the bottom of the U yet though.

It is expected that we will be down for a while. We will not recover until we see the housing market reach its bottom. (Karma suggests that her sources expect 2 years of downturn!) Before we recover it is expected that unemployment will drop from 6% to 8%. It is expected that as money gets tighter people will continue to restrict spending, and some will find that they cannot cover monthly expenses. Many of these people will resort to credit cards and unfortunately this will be the next shock that our economy takes. If you can avoid this trap- I highly recommend that you do!

In April, Simon and I discovered Dave Ramsey- he is very down to earth, financial planner- he has a radio show and he is a strong advocate of living a debt free lifestyle. He has a lot of practical advise for managing personal finances that just makes sense to us. I especially admire his people skills. His ideas are not at all mainstream, and he has had a huge impact on our marriage and our money- we are on the same page with our goals and our spending. Last week we paid off our final bill, and we are now debt free except for our mortgages. Our next goal is to save up an emergency fund to cover 3-6 months of bills. We are also saving to pay cash for new windows.

Our debt free state is great timing because we are hearing rumors of layoffs at Boeing. I feel better about that prospect given our current debt free state. Ultimately debt = risk. We are determined to pay cash or do without in the future.

I plan to add an occaisional post on money saving tips and other financial wisdom that I come across. And I will also increase my posts of comfort foods!

If you are interested in learning more about Dave:

No comments: