There are two huge problems that come to mind when I think about the average American and money, we own a lot of debt and most people could not write a check for a $500 emergency bill if they needed to. We have a bad habit of looking at what we make in a month and figuring out how to spend most of it or more if we can. Currently, being unemployed sounds like a dream come true with a $600 bonus given to unemployment recipients on top of what the state is handing out however as I write this on May 13, 2020 that bonus is drying up in July. After that good luck paying your bills.
I have hopes that this virus gives the average American a wake up call on their personal finances and last month 2.1 trillion dollars was put into savings accounts, something that hasn’t happened since 1981. When it matters Americans will save money but when it counts you quickly learned its not enough to cover what is to come. Back in 2009, people squeezed their wallets and cut out all the things they realized they didn’t need. Vacations were cancelled, kids were pulled out of over priced prep schools, cars were sold or handed back to the bank, less people ate out for meals, the coffee pot had the dust cleaned off of it, cable service was cancelled, and the latest fashion trends were traded for the years prior. People know how to save money, but when the situation is going to be worse than 2009 with little chance of a bail out for the little guy how far are people willing to go to save a buck?
Considering the interest rates that people have on their debts compared to the interest earned on savings accounts we should talk about debt first. If you are looking for a more comprehensive approach to paying off debt check out The Total Money Makeover by Dave Ramsey. To sum up the easiest path to getting out of debt, pay off your small bills first. Dump everything you can into getting rid of those debts and move up to bigger items over time. Pay off the credit cards and hospital bills that have been killing your credit. Get the debt collectors off of your back until you have the car and house left, if you have payments on those, then work on the car balance. The quicker the better. If you have a manageable house payment, I would suggest only making the payment during the depression instead of paying it off. The monthly payment won’t go up while the cost of other items will during that time. With your other debts out of the way you now have cash to buy the things you need while keeping a roof over your head.
Cut down your monthly bills as much as you can. I know that during the stay at home orders everyone is watching more television, and if you are smart you pay for internet and a few streaming services which is a hell of a lot cheaper than cable TV. At this point you may want to consider which service you enjoy watching the most and cutting out the rest. How much Hulu, Disney plus, Amazon prime, YouTube red, Netflix, or google plus can you really watch? What shows do you enjoy, who offers the most content and get rid of the rest. Let’s face it, the Mandalorian was the only good show on Disney plus unlike the Star Wars movies they have been making the last couple of years. Cut the rest of the crap out of your budget and start spending more time doing other things besides sitting on the couch.
Cancel your gym membership, you haven’t gone since January and your new years resolutions disappeared along with the rest of your plans for 2020.
Put your Keurig right where it belongs, in the trash. Each box of those stupid pod things only gives you twelve cups of coffee. A bag of coffee will give you 12 pots of coffee with 8 cups in each. Do the math you are getting screwed and NO the coffee does Not taste better.
Say goodbye to Starbucks and Biggby coffee. Have they ever made your coffee how you like it? Stop handing your money over to people who can not spell your name right.
Most of the clothes I own I bought at second hand stores. You would be surprised how many new clothes are tossed to your local goodwill and salvation army thrift stores because they don’t fit correctly or they are out of fashion. You can find name brand items for a fraction of the retail cost.
Just because there is a sale, or some kind of deal, at a store doesn’t mean you have to buy that item. There was one black Friday when a co-worker posted the $1000 television they bought for $300. They bragged about saving $700 until another co-worker commented that they saved $300 by not buying a TV that they didn’t need. You can argue amongst yourselves who was the smarter of the two but at the end of the day the second co-worker still had $300 in their bank account.
Cook at home. Don’t tell me you don’t know how to cook. The instructions are on the box. Cooking is like sex; you only get better at it with the more you practice.
So now you are saving money and maybe you have a bit sitting in the bank. What do you do with it?
There are several options available to you. Personally, I like the Ron Swanson approach and have a bit stashed away in gold and silver. Can you make money on buying precious metals, sure. It’s simple math. Buy low and sell high. It’s like any other commodity. The point isn’t to make money though it is to protect your wealth against inflation. Precious metals can be traded anywhere and keep their value. Money on the other hand fluctuates and tends to lose its value when the economy goes into turmoil. Precious metals tend to do better when things are rough. It is never a bad idea to have a bit stashed away in case an emergency comes up.
US savings bonds, don’t expect these to mature during your lifetime with a current interest rate of 0. With a national debt of 25 trillion dollars coming up by the end of this year I doubt any of those will be paid out in several decades if at all.
Stocks, the stock market is the one pyramid scheme that came up with the best sales pitch of the last 100 years. It’s like Amway except when you are about to cash out the market tanks and you are stuck working until 70 years old because all of your savings disappeared while corporations were bailed out. This happens like clock work every ten years.
Savings accounts, I started a savings account for my new born daughter a few months ago. I put $100 in there to start out and three months later I received a statement that her new balance due to interest was $100.01. The current interest rates for savings accounts is under 1%. At this point what is the difference between having cash at home you can access at any time and money in the bank that doesn’t gain any value, while they are loaning your money out to other people I might add?
It is important to have assets. Pay off the house. Own land. Find things that increase in value instead of depreciating over time. When you drive that new car off the lot it immediately loses value. That signed copy of Fear and Loathing in Las Vegas sitting in the case at the book shop will continue to gain value over the years. The days that a man enjoys owning a boat is the day he buys it and the day he finally sells it. If you have a hobby besides beanie babies take advantage of the knowledge you have. It is not hard to find things that are overlooked at estate sales and build a collection of wealth under people’s noses. Recently I bought a copy of A Cook’s Tour by the late Anthony Bourdain. I later found out that the $3 first edition hard cover copy was signed by the author. A book that regularly sells for $250 on eBay. I could flip it and take that money to do other things but Bourdain isn’t exactly losing any popularity these days. I think it’s a safer bet to sit on it and wait until I need that money and cash it in later for what will still be more than $3.
To summarize my savings advice, keep money in the bank if you don’t like having access to it and like having other people make money from it except for you. Gold and Silver are safe bets for long term security of your wealth. Invest in things that you know will increase in value over time, except Beanie Babies. Buy land.
Total Money Makeover by Dave Ramsey