Households at the Edge

According to a recent survey, many people would find it impossible to raise just $2000 in 30 days from any source - savings, credit, family, friends, etc. - in a pinch. The table below is extracted from the article, which is well worth reading.




The results are shocking to say the least, especially for the USA - supposedly the "richest country in the world." $2000 is not a lot of money when one aspires to a middle-class lifestyle; it could represent the cost of car repair, a home repair, a minor medical problem, and so forth.
These sorts of things crop up continually.

Mexico is no great surprise, but the fact that the UK, Germany, and the USA (all supposed major economic powers) rate worse than Argentina - a country with serious issues in its struggle to remain prosperous and civilised - should be cause for concern. This survey, if accurate, indicates that not only are half of UK, German, and US households there essentially broke, but most of the other half is so frayed financially they are in no position to help out poorer friends and relations; or perhaps simply socially support networks have collapsed. In either case (and both could be true) the situation is terrible.

This is not the sort of economic information we would like to see near the beginning of this Depression - and yes, we are still early on in this thing. Faced with falling income and no standby resources to fall back on, it is clear that more and more supposedly 'middle class' households are going to sink into financial ruin merely from routine financial stresses.

Our advice to our readers is simple: make sure you are living well below your means; that your net worth is rising and not falling; that you have ample financial resources (savings, lines of credit, willing friends or family) to draw upon should the need arise. This is serious stuff - it may require you to drop many of the trappings of middle class life in order to prevent ruin.

There are ample horror stories out there about people who discovered 'middle class poverty' by not changing their spending habits in the face of income loss. Typically they expect "something is going to happen" to fix their deteriorating situation: a new job; selling the house; etc. But that "something" never happens.

More and more, what were for many once reasonable expectations - say, getting a full-time job - are going to be as likely as having a winning lottery ticket. In a nutshell, this is why getting through the Depression is going to be about survival. Don't delude yourself; ignore the blather on the telly; get real about what is happening.

Minimising the Risk of Personal Financial Catastrophe

We were having a conversation with a friend recently about the steps one can take to avoid becoming destitute in one's old age. It occurred to us that these same steps apply to everyone at all ages and are generally good advice.

#1 Keep your income sources diversified. No matter how good it seems to be, no basket should ever hold all your eggs. Consider the people who put their entire life savings with Madoff. This applies to jobs as well. Don't count on your career choice necessarily being there for you. If your full-time job leaves you no time for developing other income sources, at least have a back up plan.

#2 Live within your means. Aim to live on less than 75% of your income. This may seem daunting, but it is always do-able. The less you save, the more at risk you are.

#3 Live in a small, paid-for house, in an OK neighbourhood. If the neighbourhood deteriorates, move. If the neighborhood gentrifies, move (and reinvest the profit) - though this isn't too likely to happen for a while. If you can't afford to move, you have violated rules 1 & 2.

Some years ago, we were living in Duluth, Minnesota when the city went on a demolition spree. They started tearing down perfectly good houses. We were very perplexed until we discovered they were enforcing a minimum square footage zoning ordinance throughout the city - and there was no grandfathering! Long-term residents were being forced out of their homes for no other reason than the houses were 'too small'! In light of current developments, this policy was completely insane. People need to have the option of living in small houses, when they cannot afford big ones. If cities only allow big houses to be built, as people become poorer, fewer and fewer people will be able to live in their own private houses.

#4 Be physically active. It keeps you healthier and stronger. It sharpens your mind and increases your stamina for work.

#5 Learn new skills. It keeps your mind sharp.

#6 Maintain a social network. If you lack social skills, develop them.

#7 Don't opt for elective medical procedures. They are budget busters, and often do more harm than good. Learn self-care, and low cost management of conditions that require attention.