There’s a lot going on in the world and it can seem like a very complex & challenging place at times. 2020 has been a wake up call to many but old habits die hard.
I’ve been reading with some amusement about the problems caused in the USA, where millions of middle class people are broke and at the point of bankruptcy and are desperate for a $600 cheque from the government. However this $600 is being held up by politicking and intransigence from (from what I can make out) the Republican belief that only the rich should get bail outs and that it’s not the government’s job to help anyone (unless they are rich or donate). What’s happening in Oregon is a global joke – the comments over at Leopards Ate My Face are amusing to say the least.
So there’s a stimulus package worth $900 billion and each person (about 330 million) in the US will get $600 making $200 billion and the rest will go to tax cuts or free money for the already well off. The politics are subjective but it’s funny how the normal stance of the Republican party and the right wing propaganda agents like Fox News have skewed the minds of normal Americans to think that any help for anyone be it social security, healthcare, decent funding for schools, education and universities, unemployment benefit, support for those with disablements. In America you are on your own – it’s a dystopian Darwinian “survival of the fittest” where only losers would complain about not winning.
Why are rich people so broke?
The simple answer is that if Winners are rich, then acting rich will make you a winner. There’s a nuclear arms race to appear rich – and when you think of all of the “mod cons” you now need in your life to be a normal person in society, it’s hard to not end up having very high outgoings to sustain any sort of lifestyle. We’ve gone from a single income, one car world to a two income, two car world and it’s not any better. Spending grows to meet your income in the day to day because it is paying for these things that ends up eating up all of your income and putting you into debt – which is a lot easier to get a hold of than more income – so many rich people are always only a few paychecks away from having nothing. And what about the future, retirement, savings, even paying off the bloody mortgage? Forget about it. And by the way, do you know why in the US the phase is paycheck and not cheque? Because most people need to check if they’ve been paid because otherwise they’ll default and have their car repossessed.
The Shrinking Middle Class
It’s been known for a long time (I first read it 20 years ago and it formed my views on personal finance) that the middle classes are being squeezed. Incomes not rising to meet inflation and new and higher costs in things like education, healthcare, housing, childcare and a decimation of retirement benefits mean anyone born after 1980 (and many before) are screwed! Add in a bit of deindustrialisation, globalisation and reduction in union power and you have a situation where life is not better for many. Best of all, the rampant inflation busting inflation in the cost of housing is seen (overwhelmingly) as a good thing in the UK by the powers that be – and if you don’t agree, then can you ever imagine a political party with a stated aim to reduce house prices ever entering office? No, me neither.
The Christmas Disease
This time of year is even worse for many people. The pressure to buy your kids over-priced, heavily marketed “must have” toys for Christmas pushes many people into debt. Of course, disappointing your kids is not something people want to do, so they opt for one marshmallow now instead of two later. LINK You don’t want your kids to have less than the Jonses’ kids do you?
We’re poor and angry and demand to know who to blame!
So, life is an eternal struggle and since the powers that be will like to tell us that we are good and that our plight is not due to their actions but instead because of the actions of a bogus enemy. It could be a fifth column of treacherous groups like the Jews or gypsies or scroungers or immigrants or illegal immigrants or the Poles, Romanians or Irish, Blacks or Mexicans or whoever fits the bill. If you can’t think of someone just blame the ethereal metropolitan elites or the omnipotent Brussels. Those feeding you this tirp will be careful (sometimes) to cloak their xenophobia often in the respectability of something like a flag, slogan or in the name of patriotism.
Save humanity or just the chosen few?
I’m not a prophet or preacher but I’ve often considered how these mad men (and they are almost always men) have to decide between having a universal message for all which will end up getting ignored or drowned out or supplanted by someone with better marketing skills or at best; condensed into a slogan put on a coaster and sell for a buck or two. However, reality hits you and you realise that you can only trick [strickthrough] convert some of the people some of the time – thus begins a cult and if it’s successful it spreads like a virus infecting everyone everywhere.
I’m not hoping to lead a cult or convert the world but I do think that if you have managed to create some savings from working in your life – even modest amounts build up over time – then in the face of an unprecedented collapse in the economy and the prospect that your income will dry up and may not come back once this is over you’ll be fine.
Having savings in a crisis is like having an umbrella in a rainstorm. You can keep dry while others get wet, and who doesn’t like singing in the rain?
Don’t sell in a downturn
This is plainly stupid advice – but this March 13th Monevator was kind enough to remind us. Of course you shouldn’t swap things around in a downturn. Chances are you’ll mess it up and sell the things that will rebound the strongest and buy the things that are already overpriced. But if you have lost your job and are running out of cash then selling your investments is a bloody great idea. You can swap something that you have (shares) for something that you need (money).
So Some Simple Rules
- Spend less than you earn and avoid lifestyle creep
- Avoid debt, credit and anything that makes it easier for you to spend money
- Keep some money (or credit) aside for month to month cashflow
- Invest the rest (wisely)
- Take responsibility for your life, your actions and your money
It’s quite simple really and whilst we might all be striving for full perpetual Financial Independence – the sort of savings = 25 x outgoings that we love to go on about, remember that just having a bit of Financial Resilience goes a long, long way. I’ve engineered my family’s finances to a point where work is optional and the stress of a lost £20 note or car repairs of what not isn’t a big deal. Even a few months off work isn’t a problem. And Financial Resilience is good; I can recommend it as it makes your life a lot less stressful and in some ways, 2020 has been the best year for me in such a long time.
Good luck. GFF