Prepare for the worst -- it might happen
TERRY SAVAGE email@example.com Oct 4, 2008
Traders Friday at the NYSE were holding their breath after the House vote.
Updated: May 3, 2013 12:14PM
Now, reality sets in! The bailout/rescue plan will work only if banks take the liquidity that is coming their way and use it to make business and mortgage loans that will get the economy moving again.
Over this weekend, the global credit markets will assess the bailout -- whether it is enough, whether the Treasury will move quickly to set up a mechanism to purchase the bad loans from the banks at reasonable prices and whether global banks feel confident enough to start lending again. The markets are collectively holding their breath -- waiting for the international money markets to move back into action.
Meanwhile, there is ample evidence of a potentially severe recession in the United States. Jobs are already being lost, and economic activity is slowing, whether in factory orders, auto sales, retail sales or housing. Scrooge will rule the holiday shopping season. And our slowdown will affect the rest of the world. That's what the stock market is telling us.
With these storm warnings flying, it's time to take cover with your personal finances.
DEBT: Your goal is to pay down the debt you already have. That will require absolute discipline this holiday season. The pay-down plan is simple: If you can double your current monthly minimum payment -- and keep making that same payment every month, without charging another penny -- your card will be paid off in less than three years!
Beware of debt consolidation or negotiation services, which can leave you deeper in the hole. Contact Consumer Credit Counseling Services at (800) 388-2227 and get in for a meeting ahead of the crowd. They'll help you decide the best course.
SPENDING: Get the entire family together to discuss your spending plans, and start cutting now! Look for big chunks you can cut out of your budget -- the extra car, the first year at a distant college. Try to find additional income -- not some online scheme but a real weekend or evening job that brings in cash you can use to pay down your bills.
INVESTMENTS: It's tempting to cut back on retirement-plan contributions. Don't. Pretend they're like Social Security deductions -- gone without a choice! Then, look at your investment plan and asset allocation. Helpful advice Web sites include: www.TRowePrice.com/RIC and the link to FinancialEngines that can be found at my Web site, www.TerrySavage.com.
REAL ESTATE: There's a chance that interest rates will drop slightly, if banks accept the responsibility to start making loans again. Do everything possible to refi into a fixed-rate loan. If you can't unload your house or condo, try finding a renter. Sites like Chicago ApartmentFinders.com can help.
Consider a roommate, but check credentials first by working through a local church group or reputable organization.
It's time to prepare for an economic slowdown unlike any in recent times. If I'm wrong about this, you'll just wind up with lots of extra money. But if I'm right, you'll be among the few to ride out the storm,and become the next winners when the economy does recover. Because it will! And that's The Savage Truth!
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate. Copyright Terry Savage Productions Ltd.
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