How to Survive the New Depression
Welcome back!
Photo Courtesy of Improv Everywhere
It appears we’re on the verge of a new Great Depression. Unemployment is up, wages are stagnant, inflation is up, major corporations and banks are collapsing left and right. There hasn’t been this much instability in the international economy since the Great Depression.
The old Boy Scout motto is ‘Be Prepared” and that’s a great creed to live by. Nothing in life is guaranteed.
So, how can you prepare for this?
Maintain Calm
The people responsible for this mess aren’t losing any sleep, neither should you. Things may be getting bad, but they’ll only get better. The nature of the capitalist systems is a series of up and downs. Bad fiscal management by the Federal Government and the Federal Reserve has smoothed out the grooves for the past 30 years or so, the problem is that you CAN’T get rid of the ups and downs. That’s just not the way it works. That’s why it’s important to prepare for the valleys just as much as the peaks.
FDIC Backing
Your money is generally safe in a bank. You should be monitoring the financial health for your bank. Since most banks are publicly traded, this information is freely available. Don’t trust that the bank will always be there. Many banks have failed already. Luckily the FDIC has your deposits insured up to $100,000.
So, what if you have more than $100,000 cash in the bank? First, you shouldn’t have that much money in a savings or checking account to begin with. If you’re truly investing your money, passbook accounts are terrible places to keep your money. Your money should be invested in mutual funds, retirement funds, bonds, etc. So, what if you do have more than that in the bank anyway? Split it up, there is nothing to prevent you from spreading your cash around to several different banks. That way you’re completely protected.
Credit Unions
If you’re completely disgusted by the banking system, like my wife and I, you don’t have to continue participating in it. Join a local credit union. You’ll have more of a say in how your money is handled. Credit Unions are not for profit, so they won’t be consolidating and joining bigger banks and then making stupid multi-billion dollar investments that will bring down the economy. Credit, above all things, are local, which is great. Credit Unions can also get you a car loan, mortgage and other products. Your money is also insured by the Federal Government under a separate insurance program as the FDIC.
Invest in Foreign Markets
Any good investor diversifies his investments for greater returns. There are huge opportunities to invest in markets other than the USA. There are places in the world that are booming right now, despite the current troubles. Many mutual funds run funds based on foreign assets and currencies. The returns on these investments are usually pretty good. It is also a good idea to invest invest in Foreign Currencies and Minerals.
The dollar is currently weak against most foreign currencies, so hedge your bets and buy foreign currencies and hold them. Chances are their value will go up and you will make a profit when you convert them back to dollars (or use them when you travel). Also, many people advocate buying precious minerals like Gold and Silver. I don’t know much about this, just that you should be very careful investing in this fashion. There are a lot of scam operations out there.
Make Budget Cuts
Most people can cuts back and throw things out of their budgets without too much pain. Make a monthly budget of all your in-goings and outgoings and then see what you can cut out. This will allow you to live in your means and save more money. Start going with less.
Consolidate Debt or Get Rid of It
Debt is basically a form of slavery. Avoid it at all costs. That’s easy to say if you don’t have any debt. But what about if you have debt? Consolidate it, reduce it, pay it off. Your mortgage should be your only debt on the books and even then your goal should be to pay that off as quickly as possible. Don’t let anyone own you and you will have much less to worry about.
Shop Frugally
Be careful in how you spend your money on your weekly expenses like food and clothing. Don’t eat out as much. Buy your groceries at places like Walmart and Aldi, where you’ll get the most for your money. Don’t go the mall, you’ll always overpay. Read sales flyers every Sunday and clip coupons.
Maximize Income Earning
You can do this by getting a second job or starting your own home based business. There are many things around the house that can make you money that won’t cost you much to start. Chances are you have hobbies or skills that you can monetize. I wrote a guide a while back on how to make money with things around the house.
Inventory Your Assets
Make a database or spreadsheet of everything you own. That way you have an idea of your assets in case you need to start sellings things to get by. You may lose your job tomorrow. It’s important to know what you can sell tomorrow to buy your families groceries.
Refocus your efforts at work and Shine
If you’re worried about your job, work harder and do a better job. Make yourself irreplaceable. If you think you might be on the chopping block, polish your resume and be prepared for the worst. My general rule career wise is to ALWAYS be looking. Always be on the lookout for new opportunities. Don’t expect your life to work out because you think you deserve your job. You don’t deserve anything in this type of economy.
Educate Yourself
Knowledge will only make you more valuable on the job market. But I’m not just talking about schooling. I’m talking about educating yourself on how this economy works, how capitalism works, how socialism works, how international finance works. If you understand how these things work, you can successfully plan your life to weather the storms. Most people don’t know what derivatives are or mortgaged backed securities. They should.
Save Save Save
You should be saving 10% of your income right out of your paycheck before you spend it. Open an account at ING Direct or HSBC Direct or your local credit union. It’s important to have a cushion of money in the bank in case you lose your job or something catastrophic happens.
Closing Thoughts
One thing to keep in mind is that things WILL get better. That’s the nature of capitalism.
Related Articles:
10 Things Around the House That Can Make you Money
9 Ways to make Money Selling Your Stuff in An Emergency
How to Cut Advertising out of Your Life
The Virtues of Credit Unions
Tough times call for new ways of banking.
People are starting to realize that banks aren’t on their side. Banks are mostly responsilbe for the mess we’re in now. They created the conditions for this mess to occur and watched idly by, while greed on an unprecented scale wreaked havoc on the financial foundations of our society.
It’s been made very clear that banks do not have our best interest in heart. So, it’s time to cut them out of the equation.
I’m not suggesting we return to storing our savings in the matress. We need a checking account somewhere to conduct business in this modern age.
The trick is to not particpate in the banking system while continueing to have banking services. Our economy is too electronic based to go completely without banking services. Our stance on being unbanked is that you shouldn’t do it, it will only cost you more money. Paycheck cashing places are a ripoff, as are the fees they charge to pay bills.
So, where does that leave us? It’s time for Credit Unions to become popular again.
The Return of Local Banking
Some would argue the very idea of a credit union is un-American. I disagree. One of the best movies ever made is “It’s a Wonderful Life.” Good ‘ol George Bailey ended up running the local savings and loan, which was essentially a credit union. The concept is simple, you put your savings in the bank and the bank makes loans with it. It makes loans to be people based on actually knowing them, it fosters a community of ownership.
The problem in our society is that we have removed personal banking from the banking equation. Banks don’t care about customers or customer services. You’re just a number and an equation of risk to them. They don’t give out loans based on knowing you personally. They give you loans based on a arbitrary and unfair FICO score system that you have very little say over (yes, you have a say in how you use credit but not in how score is calculated).
So, just what is a credit union?
Simply put it’s a banking organization founded by a group of people banded together. Every member owns one controlling share. Every memeber gets a say in how the credit union is run. Every member puts their money in, and by pooling their resources, the credit union can make loans to people and provide standard banking services such as checking accounts (they call them draft accounts), savings accounts, lines of credit, CD’s, investments and insurance. These services are not open to the wider public, they are only available to members.
By nature, credit unions are not-for-profit ventures. They exist solely for the benefit of their members, so you can bet that the customer service will be excellent. After all, you’re an owner. As a result, fees are either non-existent or relatively low compared to commercial banks. The interest rates they charge are also generally lower as well because profit it not the reason they loan money.
Anti – Credit Union Propoganda
There’s a lot of anti-credit union propaganda out there; mostly disseminated by banks who don’t like the competition. Credit Unions have also been traditionally closed to most segments of society, membership is usualy limited to a specific group of people. That’s changing. Most credit unions are now open to anyone who lives in a specific town or county. You’re money is as safe in a credit union as it is in a bank, they are not FDIC insured, but they have their own deposit insurance backed up by the Federal Government.
Another criticism about credit unions is that they don’t offer as great a return for you money. That’s starting to change. Many credit unions have competitive interest rates on their investment products. There are also plenty of online, direct savings banks that are great places to save money and have excellent rates. These accounts can co-exist peacefully in your portfolio with a credit union.
Conclusion
The overall goal of this blog is to teach people how to save money, go with less and make wise financial decisions to get through these tough times.
It’s time to put the local back into your banking. Establish a relationship with your credit union. I doubt you’ll regret it. And what of the banks? They’re like a whore spouse who takes you to the cleaners after divorcing you, then begs to have you back after you’ve met someone else.
One thing I encourage everyone to do is research for themselves. Here are some helpful resources that I found:
Credit Union Resources
Wikipedia Entry on Credit Unions
Locate a Local Credit Union
Federal Regulating Body – You can see the latest financial reports for your local credit unions and see their fiscal health
