One benefit of the recession is that common sense is back in style.
People are responding to this recession by putting their finances in order. And, they are breaking away from the bad habits that helped get us all into this mess. It’s unfortunate that it took such dire financial circumstances to make this happen. But, I welcome this as an incredibly positive change.
Now, we can only hope our Government wakes up. They seem to be the last ones to catch on to these changes. Common sense and money management have never been the Government’s strong-points.
Americans are Saving Again
The negative savings rate of -1% is gone. Americans are now saving around 4% and this could go even higher. Spending ourselves into financial ruin had become the national past time, with the Government as our cheerleader. This was a bad idea, who’s time had run out. Hopefully, we will remember these bad times long enough to change our savings habits permanently.
The reason saving is so important, is because we need this capital to finance our futures. Our savings not only represent our potential retirement, but our ability to purchase homes, start businesses and invest in education. Our choices are limited by our finances. The more we save, the more choices we create for ourselves.
We’re Reducing Debt
According to the Federal Reserve, household debt may have dropped for the first time since they started keeping records in 1952. Consumer credit decreased 3.75% for November of 2008. This is an amazing transformation. This, above all else, gives me hope. This addiction to debt may finally be coming to an end. It was like a plague or an epidemic that ravaged our economy.
The reason reducing debt is so important is because debt limits our future ability to spend and save. By saying Yes to debt, we are saying No to the future earnings used to service that debt. We are saying No to future investments and opportunities. And, we are saying No to a secure and comfortable future. Debt increases our risk.
Extravagance is Out
Forget keeping up with the Jones. Americans were trying to keep up with the Hiltons and the Kardashians. We bought designer clothes and luxury vehicles, even if we couldn’t afford them. And, we took exotic vacations and dined in style. We bought big houses and filled them with expensive furnishings. Sure, it was fun and it helped to drive the economy. But, it also ruined a lot of lives.
I say, good riddance to this era of opulence. It was bad for America. It was bad for our image. It was bad for our psyche. It was bad for our wallets. And, it was bad for our future.
The Bottom Line
The bottom line is that it’s normal to want a better life, including some things we can’t afford. It’s called “The American Dream”. It has been around for a long time and the concept is spreading world wide.
The nightmare starts when we buy things we know we can’t afford. We don’t deserve a new flat screen if we can barely pay our mortgage. And, we don’t need a vacation, if we have to finance it with a credit card. What we really need is to get ahead financially. Then, we will be living the dream, instead of the nightmare.
“It’s not your salary that makes you rich, it’s your spending habits.”
Charles A. Jaffe