January 13, 2013

I can tell from the comments you choose to send me that all of my readers are adults; very few teenagers and certainly no grammar school students.   With that being the case, I don’t give advice.  I don’t give advice to grown adults who chart their own course,   make their monthly house payment, buy groceries and for the most part remain self-sustaining.  I’m not Dear Abby.   I must admit that over the past two years I have grown most pessimistic relative to our financial condition in this country.  We are drowning in debt with apparently no one in Washington D.C. particularly worried about the condition.  I fear we are beyond the “tipping point” and the next great event will be financial collapse.   With that being the case, I am writing this blog to repeat points given by Edward-Jones Investing in their recent publication Charting Your Path in 2013.    “Despite repeated concerns about its slow pace, the economy has persistently grown at an average rate of 2.2% during this recovery.  We expect it to keep on this pace, expanding about 2% in 2013 as the healing housing market reinforces resilient consumer spending.  This modest growth rate should also result in a slowly improving job market.”   Please note the words slow and slowly improving job market.    They indicate several possible obstacles that may inhibit growth in 2013 as follows:

  • Additional regulations—A variety of industries face new regulations over the next few years.   With that being the case, it is wise to keep you investments diversified.  Several publications I read on a weekly basis indicate that growing regulations may stifle growth and certainly add complexities that must be dealt with.  These regulations represent continued intrusions, by the FED, into our daily lives.
  • Higher taxes.– There is absolutely no doubt that we are facing, as individuals AND companies, higher taxes.   For the most part, these higher taxes will NOT be used to retire debt but to increase spending.  In other words, it won’t get much better.  We must be prepared for this certainty.
  • Slow global growth—The International Monetary Fund expects global growth to be just 3.6% in 2013, and many countries are in recession.  This will definitely affect our economy and actions taken by the International Monetary Fund.
  • Europe’s debt troubles—Although Europe’s debt troubles now seem chronic rather than acute, there is no doubt we could suffer a relapse in 2013.

I personally don’t feel I can do much, if anything, to influence Congress and certainly not the Executive Branch of our government.    They will take those actions that got them elected to pay off campaign promises, nothing more but, we can and should make changes that benefit our individual long-range survival.  Edward-Jones recommends the following actions:

  • Boost your 401K contributions this year—and every thereafter.  I f your company provides matching funds, take full advantage of these.  These actions can and will lower your taxable income.
  •  Contribute the maximum to your IRA.
  • Build an emergency fund—If you can, put away at least six(6) months of living expenses in a liquid account.  (Dave Ramsey recommends a minimum of $1,000 for every family.)
  •  Cut your debts—Every dollar that does not go towards debt payment can be invested for your future.   Our credit card debt is astounding so any reduction will seem like a pay raise when payoff is accomplished.  (NOTE: Several financial planners recommend establishing a “hit list”.  Take the card with the lowest balance and pay it off first—even if you have to make minimum payments on the other cards during the interim.  Then choose the next lowest balance and do likewise. )
  • In 2013, look for ways to cut your spending—Small things add up. Do you really need that $7.00 coffee from Starbucks?  How about buying from the Dollar Store those non-consumables; i.e. toothpaste, dental floss, soap, etc.?  You get the picture.
  • Let time work for you—Time is one of your biggest assets, so don’t waste it.  Investments made now will pay off when retirement approaches.
  • Arm yourself against inflation with rising incomes.   Inflation can erode purchasing power.  Develop multiple streams of income to provide a “hedge” against inflation and help pay off debts.  (NOTE:  There are several great books on how to develop multiple streams of income.  Read them.

My wife and I consider our “family unit” to be a small business.  We run it like one.  Income vs. expenses—we always know where we are by virtue of monthly and yearly budgets.

Hope this helps.

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