This is part two of a two-part blog post that discusses how to manage our wallet in this new economy. Part one is here. The new economy is one of low-interest rates, high unemployment, low employment participation, and high consumer debt and inflation.
Manage Our Wallet
In “Our Wallet is Our Weapon“, we discussed our concern with American consumers agreeing to take on more debt for longer terms against their best interest. This willingness inflates the cost of the very products and services many already cannot afford. There are two ways to better manage our wallet. 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 wallet 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. This is why some claim we don’t value food. Because of unnecessarily conservative food preparation and preservation standards, America throws away nearly 50 percent of its food. This totals $165 billion dollars, or $1,437 per household, worth of food thrown away annually. There’s 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’re 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 don’t need to buy clothes every time there’s a sale or we’re bored.
Sticking to a budget isn’t easy, but this first-rate tool can help.
2. Join the Saving and Investing Class
To manage our wallet, we must 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 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 an emergency savings account comprised of three to six months’ worth of living expenses. This makes us less beholden to bosses and companies we do not like. An emergency savings 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. We’ll never 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.
3. Know That We Are Rich
If what we focus on expands, the 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 talked 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.
4. Bank Smart
In “Turning a Little Money Into A Lot”, we discussed 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 on the strategy of the wealthy who seek discounts and extra perks. It points out that there’s a system to take advantage of, but don’t 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 use banks 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 banks tend to be more lucrative for the customer. Finally, it’s 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’s a popular movie played every Christmas that portrays the difference between small and big banks. Check it out.
5. Vote Smart
As we said 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.
6. Avoid Credit
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.
If we better manage our wallet 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.
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