This is part two of a two-part blog post that discusses how each of us has the power to overcome the obstacles of the new economy. Part one was posted here. The new economy is one of low interest rates, high unemployment, low employment participation, and high consumer debt and inflation.
Make Our Money Talk
In “Our Wallet is Our Weapon“, we discuss our concern with American consumers agreeing to take on more and more debt for longer and longer terms against their best interest. This willingness only inflates the cost of the very products and services many already cannot afford today. There are two ways to improve our personal financial situation and control inflation. We must leave the spending and leveraging classes and join the saving and investing classes.
1. Leave the Spending and Leveraging Classes
Bluntly put, we must close our wallets to unconscious spending. We can no longer buy cars and houses that we cannot afford. We must understand that everyone is not fit for college. Making every high school graduate go to college puts many in poor financial situations and devalues college degrees.
We must shift from an unbridled consumption society to a justified consumption society. That means we must buy less, consume less and throw away less. Despite the fact that food prices in the U.S. have risen recently, food in America is cheap. This is why some claim we do not value food. Because of overly-conservative food preparation and preservation standards, America throws away nearly 50 percent of our food. This totals $165 billion dollars, or $1,437 per household, worth of food thrown away annually. There has been a 50 percent increase in food waste since the 1970s. This level of waste is avoidable.
Food is just one example of our consumption addiction. A car can and should last more than three to five years. With proper maintenance, we can own cars for ten or more years. There is no reason to trade cars in before they are paid off. The average family can reasonably live in a 2,000 square foot house. Not only does this save on cost per square foot, but saves on heating, gas, electricity and other expenses. We do not need to buy clothes every time there is a sale or we are bored.
2. Join the Saving and Investing Class
Spend wisely. Consumption is necessary, but we must consume consciously. This means we must know the value of our purchases and understand that cheaper is not always better. Teaser rates and sales are just that, teasers. We must read the fine print. We must close our wallets to businesses that take advantage of the consumer through tax loopholes, supply manipulation and unethical labor practices.
We must have a security account comprised of three to six months’ worth of living expenses. This makes us less beholden to work for bosses and companies we do not like. A security account eliminates the need to take the first job offer after being let go or quitting.
We must invest more. We cannot spend our way to wealth. No one ever become rich living off of credit cards. Banks get rich off of us living off of credit cards. We must make our money work harder for us than we work for our money. Our investment income must exceed our living expenses. This will make us financially independent and liberate us from the need to work at all.
Know That We Are Rich
If what we focus on expands, a belief that we are rich leads to riches. Whether through the powers of the universe, our god of choice or simply a paradigm shift, our financial situation will change when we change our perspective.
In “America’s Anti-Savings Policies: Because Your Government Makes Cheese“, we talk about how America’s entire economy is based on consumption. Even supposed fiscal conservatives promote consumption and support the Federal Open Market Committee’s easy money policies that hurt younger and older Americans the most, while banks churn out cheap loans for businesses.
1. Banking Blueprint
In “Turning a Little Money Into A Lot”, we discuss how we can leverage bank promotions and offers to our benefit and earn an extra 10 to 40 percent on our money. This approach is based off of the strategy of the wealthy who seek discounts and extra perks. It points out that there is a system to take advantage of, but do not let it take advantage of you. How do the rich stay rich? They either create a system or use the current system to maintain and grow their wealth.
Another way to bank to our benefit is to bank small and locally. Small, local banks tend to offer better customer service with lower fees. They keep our money local and support the local economy. Reward checking accounts at smaller, local bank tend to be more lucrative for the customer. Finally, it is easier to ask for better rates, more favorable terms and conditions and other benefits from someone who knows our name and lives in our community. There is a popular movie played every Christmas that portrays the difference between small and big banks. Check it out.
2. Political Push
As we say in part one, we can no longer elect the same people and expect different results. We must push politicians to do their job and apply economic theory as the market conditions dictate. We must liberate them from ideology grounded in the fear of losing elections. We must consider third-party candidates to break the collusion between Democrats and Republicans.
3. Credit vs. Consumption
Again, we must no longer overextend ourselves and we must stop over-consumption. The rich spend most of their time and money on ways to make more money. We must do likewise. A $700 monthly car payment with no retirement savings makes no sense. A $5,000 vacation brought to us by Chase is the opposite of investing like the rich.
This is how personal and national economic improvement can start with us. By shaking our apathy and focusing on what we can control, we can use the power of positive thinking and positive action to overcome the new economy.