The past few weeks have brought us devastating news about our financial situation. Day by day banks and lending institutions crumbled right before our very eyes. Could it be that ultimately that “The American Dream” got us here? We all bet on the fact that home values would increase as would our wages and other investments. The idea that the market would keep getting better proved to be false. Instead of riding the credit dependant wave of the past we are all washed out now.
How did we get to this point? That question can be answered quite simply: easy lending. Millions of people went to get a loan from their bank. After working with the prospect the bank determined the future homeowner could actually take on a bigger loan. This news coming from a bank was solid advice right!? WRONG! Banks actually received more money for securing higher risk loans. Yes, some people took advantage of the system on purpose and falsified information to banks yet the majority did not. It was the perfect storm: banks lending more then they should and consumers buying more of a house then they could afford. The cash flow from the average Joe to Wall Street came to a screeching halt when loan after loan went bad.
The Bailout is a result of not catching this problem earlier. With the money for this revised rescue plan America will be able to strengthen it’s lending again. Until then we have time to make sure our future is secure. Suze Orman pointed out some good things to concentrate on RIGHT NOW!
1. Make sure your money is FDIC insured. I wrote about this in a previous blog. Check the old post for a video. Or check this website: www.myfdicinsurance.org (If I’m not mistaken the Bailout plan proposed to increase the FDIC insured individual limit from $100k to $250k). If your money is in a Credit Union you need to check on that as well. The NCUA (National Credit Union Administration) insures 98% of the unions. If your money is in the 2% that is not insured it is recommended that you move it to one that is insured.
2. Pay down your credit cards. Many consumers will start to see a reduction in their credit limit because of our current crisis. The banks do not have to warn you of this decrease. This is also the worst possible time to be late on your payments. Being late could result in being “credit-less”.
3. Get health and life insurance! The #1 reason in America for Bankruptcy is medical bills! It can be crippling to you/your family if someone needs extensive medical care and was uninsured. This is a huge problem for us and the best protection is insurance!
4. PARTY IS OVER! Stop spending more then you can afford! That is what got us into this mess in the first place. We need to start valuing who we are over what we own! We have been knocked off our high horses and need to humble ourselves. Living within your means is also a lot less stressful. I wonder if divorce rates are higher when finances are in trouble??…..I bet they are.
The main idea here is to spend money only on things you need and not on things you desire. This is a time for everyone to cut back and examine how they spend their money. We were just served with a huge wake up call and need to pay close attention to it. From our Government to average Joe – we all overdid it. The market will not change until the banks are comfortable lending money again. Until then it will be tight. When the banks feel their debt has been absorbed they will begin to operate more freely.
We can get through this mess. Being smart about our money and not panicking is key. These uncertain times can be used as a time of reflection and healing. We can begin to remedy our past mistakes and move forward. The economy will get better but first we have to prioritize and refocus our goals in order to get on a better path for a healthier future.
