With the trillion dollar government bailout for lenders that made bad investments, the roller coaster of the stock market, and the unknown future of the cost for fuel (although we're now paying under $1.80 a gallon,) it's hard for most people to have any idea of what to do financially. Expert economists don't know what the effects of all this will be on our personal finances, so what's a regular person to do? Here are some strategies that will work in any economy:
1. Get out of debt. A few observations -- the less debt you have, the more of your own cash you get to keep. The less debt, the more flexibility you have in what you do with your money. The less debt, the less risk you have if a financial catastrophe strikes -- you lose your job, you have a medical emergency, etc. PLUS if you've saved your money because you have less debt, you have cash to handle the emergency.
2. Earn as much as you can. This might sound like a no-brainer, but we get complacent when we think we are making "enough" money. You may have heard of Maslow's Hierarchy of Needs. These are usually classified as motivators, or pressures to fulfill a need. After a need is met, though, it is no longer considered a motivator. If you're making "enough" money, there's no real pressure to earn more. In the next few years there's probably a 99.9% chance that our income taxes will go up. Democrats control the government. (Regardless of Obama's "promises," Democrats can't change their nature.) Somehow the bailouts have to be paid for. And the Bush tax cuts expire in 2010 if they're not renewed...and see my previous comments about Democrats and their nature. Tax revenue is their money. You can't avoid paying income tax (legally,) but you can try to outearn its effects. Extra jobs, overtime, selling stuff -- extra cash will always be handy. Consult a tax adviser to see what you can do to minimize the amount of taxes you owe.
3. Shop wisely. In a down economy, bargains show up. If you have extra cash, the appetite to buy things can overwhelm you. Resist the urge to buy the first shiny thing that you see. Buy quality. Establish the items that you want the most, and look for the best bargains in those.
4. Buy guns. Related to #3, this point concerns buying items that increase in value, a personal finance variation on the "guns and butter" model in economics. Americans typically are consumers -- that is, they buy lots of "butter." Think of the items that you use once and then have to replace. Those who purchase items that will increase in value -- "guns" -- also increase their net worth, their wealth. One thing about income taxes - they only tax your income, not your wealth. As Andrew Tobias wrote, "A penny saved is worth two pennies earned." Take advantage of financial situations, and use the opportunity to increase your non-taxable wealth. When the dust settles, you want to be in a better position financially than you were before.
Notice that I didn't say anything about investing. If the experts don't know whether to invest in stocks, bonds, real estate or, say, subprime mortgages, then I surely don't know. But if you follow the advice above, you'll be ahead of 99% of Americans.