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Edited on Fri Feb-29-08 05:03 PM by SoCalDem
The WORST thing that can happen to you when a recession hits, is to be in debt.
Many people here have only really experienced the contrived "mini-recessions" that come along at the end of administrations. The "Clinton-recession" was engineered to hurt Gore..
Since these were manufactured, they were easy to "fix" in the short term, but for the whole adult-life of many people, credit ...and more specifically, the credit-CARD has been a fact of life..like eating, sleeping & drinking.
These are the people who probably got their first credit card while they were still in school (or just barely out of school).
Planning your budget without credit, USED to be the norm. Our family always used the ubiquitous "yellow legal pad". A friend of ours used the "legal envelope" method.
The by-the-seat-of-your-pants budgeting of the 80's & 90's is coming home to roost, and it sucks.
There's an old bookkeepers mantra.. "debits on the left-credits on the right"...and it's the only way to know exactly what you can truly afford.
You don't need fancy leather-bound "expense journals" brought at Borders, while you sip a cinnamon -frou- frou- half-caf- latte.. All you need is a legal pad with your REALITY expenses on the left (be sure to build-in the steady increases (we always used 15%... added the last 12 months+15%, then divided by 12)..
Then add up your TAKE-HOME pay ...do NOT count on raises, since they will surely be eaten up by higher costs..
The DIFFERENCE between these two monthly totals is what you have left to SPEND..
If that's not enough, then cutting expenses is your only REAL hope of survival.
Using a credit card to make up the difference, only ADDS another "debit on the left", and REDUCES the available spending money for you.
You CANNOT borrow your way to solvency. Our government has tried it and tried it and tried it, and even though they have the ability to create money from taxes or printing the stuff, they cannot do it...so Joe Consumer surely cannot do it.
The government always has an "out" though, that we do not have. Every 4 years, "they" get a fresh start and someone to blame.
The sad fact of life is that most people cannot afford to live the life they want to live..or the life they HAVE been living.
We have been taught to be consumers, and the life of a consumer can only be lived by people with incomes adequate to KEEP buying stuff. Our incomes have been stagnant or in decline for a long time now, but the STUFF we keep buying , only increases...in cost and availability-desirability..
When one diets, they HAVE to cut calories (stop buying stuff), but even that will not take the pounds(debt) away. There has to be exercise too (saving).
The experts love to tell us that saving is for chumps, because the interest rates are so small, but is that what's stopping people from saving? I think not.. What stops people from saving, is that they don't have anything left over to save. Every penny "left over" from paychecks is needed to debt-service..
No matter how much your take-home pay is, if you spend more (or are obligated for) than what you bring in, you are headed for disaster.
You cannot count on real raises these days. You cannot count on a stable job. You cannot count on finding a better job.
Optimism is a fundamental element in using credit wisely, and what we have been living through is anything BUT optimism. Credit spending, these days, is driven by panic, depression, and desperation.
Credit card companies know this. They know that people cannot afford to live the way they want to, and like diligent drug dealers, they are very friendly and easy when they offer you your first few "hits", but once you are into them and thoroughly hooked, they GOT you.
Americans are going to have to learn to do with less, and it's going to be painful.
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