andydidyk.com

(update: Budget Surplus as a Percentage of GDP, 1965-2009 – image credit – www.powerlineblog.com, and thanks for the link, Pete!)

I’ve been doing a bit more reading lately than writing. I think that has to do with trying to wrap my head around these tumultuous economic times, and the best way for me to do that is to read and discuss. Here are a few places that I’ve been spending my time lately, and my own take on the recession:

Blogs to read:

Blogs are great because they are free, personal, and you can talk back to whoever wrote them. Here are three of my favorites:

1. Get Rich Slowly – This is an oft-referenced and well-researched personal finance blog. With the economic climate being what it is, I’m always looking for another angle on saving money and better managing my finances. Believe it or not, sound micro-economic principles often translate well into the macro-economic world of my clients. Another good reason to stay up with the times.

2. My Money Blog – Another great personal finance blog. Here, the author shares (to the penny!) every detail of his financial picture. Investments, debt, mortgage rates, etc. Of course, it’s a bit voyeuristic, but also extremely informative. Here in America we’re generally very secretive about our personal finance, and therefore we rarely, if ever, have the opportunity to learn from one another’s financial experience. I’m not about to publish my net worth online, but I’m glad this blog does. It’s also full of great, realistic tips for saving money and for making money on the side.

3. I Will Teach You to Be Rich – This is Ramit Sethi’s blog about personal finance. At times he can be a bit brash or even egotistical, but the financial advice he offers is very sound, and many people can benefit from such advice as, “Shut up about your money unless you’ve taken the time to read a book about how money really works”, even though it might fall more kindly on folks’ ears if it were rephrased. Overall, great stuff.

A few reasons why we’ve had this recession coming to us:

One of the recurruing themes I’ve seen in everything I’m reading is the basic assertion that things are going to get worse before they get better, and that Americans have had this recession and market correction coming for a long time.

According to the U.S. Bureau of Economic Analysis, consumer spending makes up roughly 70% of America’s GDP, and according to the NY Times, the average household credit card debt (this doesn’t include houses, cars, college loans, etc.) was over $8500, and collectively Americans owe $2.56 trillion on credit cards alone. All this, while the savings rate has plummeted from 8% of income in the 1960’s to less than half a percent today. Simply put, this trend is completely unsustainable, regardless of your polictical views or whomever you’d like to point the finger at.

Sadly, the recession will undoubtedly hurt many people, because as consumer spending drops (people tend to hold on to their money when they are scared they might lose their jobs), companies will suffer and have to let people go. Those people who have been laid off then cease, save for necessities, being consumers. Thus the companies suffer further and either let more people go or collapse completely. There is a very real reason that our fine elected officials on Capitol Hill are scrambling around to pass the “bailout bill”.

What the government wants you to do:

1. Ignore the gnawing feeling in the pit of your stomach that the economy isn’t doing well. The official label for this is “poor consumer confidence,” and it drives the stock market down into the toilet because people want to pull their money out in anticipation of a collapse. Also, if you are afraid of losing your money you will spend less. Which brings us to #2.

2. Spend more money. Spend it like you did back in 1999, or even 2004. Buy frivolous things, and big things, like cars, boats, and houses. This will have the effect of “stimulating” the economy, will increase the “consumer confidence” of your friends and neighbors, and

3. Get sick. Going to the doctor will help to bolster a critical sector of our economy and its hyper-inflated fees. If possible, get sick long enough to go to the hospital but not long enough to file for unemployment or disability.

4. Save less. Money sitting in the bank might be good because it gives banks the cash needed to make loans (see #2), but seriously, if consumer confidence is high enough, banks will find a way to lend to everyone anyway.

What you actually should do:

1. Admit that, in fact, things are bad. That’s okay to admit, because it’s true and the resulting fear, anguish, anger, or frustration can help motivate you to make the changes necessary to survive.

2. Spend much less money and save more. The fact is, you could lose your job, and the stimulus package that Congress just passed, if it works, won’t do so in the immediate future. That means you need to have cash reserves set aside to be able to ride out things for awhile – 6-8 months or more. With the costs of everything going up, you can only save money by cutting back on your present expenses or by earning more.

3. Don’t get sick. Take steps to exercise and stay healthy. This will help you avoid costly trips to the doctor, make you feel better (it may even increase your confidence, in a good way). Also, taking sick days means you are not at work, which means someone else might be getting a leg up on you in your absence. Plus, if you do lose your job and your health insurance, you’ll be in a much better position to stay strong and out of life-ruining debt.

4. Give stuff away. As I pointed out earlier, owning things really just means that you have to spend time taking care of things. There’s definitely a point of diminishing return for everyone, so take a moment and figure out what that might be for you. Plus, if you give things away you’ll be helping someone else out, and according to some research, that’s the only way to truly stay happy anyway. Charities are really struggling right now, and giving generously helps to put your life into perspective, a perspective that will become more and more necessary to weather the coming storm.