More To Come...The Fat Lady Hasn't Sung Yet

Of course, we could change...

If you think the finance crisis in this country--or the world for that matter--is close to ending, think again...

Looking at the debt levels every entity has accumulated--from the federal government through states and municipals, to corporations and individuals--we have finally reached that unsustainable position.

A tipping point. It is downhill from here.


Unless we do something different. We have got to wake up out of this debt fantasy.


Did we honestly think we could keep on borrowing?

If 40% debt is acceptable for an individual to qualify for a fixed mortgage, when health care, food, fuel, insurance and other basic costs are rising at an increasing pace...how is the regular Joe going to sustain fixed mortgage payments that are at the top of his debt range from the getgo?

Let alone the credit card interest that increases with each passing month. Add in future costs of rising tuition, clothing, medical care for children the average homeowner will pay over the next twenty years...


Are we that stupid to think we can get away with this?

Where is the money going to come from?

I guess it will have to be printed, because it seems there is no end in sight to the borrowing everyone advocates.


What is wrong with living within your means?

First you have to determine your means. If you have not realized a relatively stable income for a while then you should not sign a mortgage or any loan document.


Why cannot everyone, including the governments and Wall Street follow basic principles of finance?

When can we have financial education in our school systems?

If we do not educate our youth, they are going to repeat the same mistakes. That is if they get the chance.


PERSONAL FINANCE 101

We need a public finance education campaign to teach people basic finance principles:

1. Do not spend more than you have coming in.

2. Do not borrow long term if you do not have stable income with a few years history.

3. If you do not have an emergency fund with at least 3-6 months of expenses saved, you should not sign any kind of debt instrument.

4. Pay yourself first--put a minimum of 10% of any income aside in a separate fund that is not to be considered emergency funds.

5. Stop using home equity to finance anything that does not improve the value of the home that can be recouped upon sale.

6. Reinvest dividends instead of spending them--the secret to the finance universe is the power of compound interest.

7. Do not assume others know more than you do. Do your homework.

8. Take a deep breath and keep your head--do not let anyone talk you into anything. You are the one who has got to live with the consequences so take your own sweet time making any financial decisions.

9. Gather as much information as you can about a subject, give yourself enough time to think about it, ask yourself how you feel about it, sleep on it, then do what your gut tells you.

10. If you marry, make sure your intended shares the same finance policies and outlook as you do.

11. If you must marry, make sure you have done all the forgoing first (stable job, home, emergency funds, purchases, retirement).

12. If you want kids--plan them. Do not bring kids into the world that you may not be able to provide for. Things are very iffy now and your kids deserve a bright future. If you do not have financial stability, you cannot afford them.

13. Do not blame others for your bad decisions. It is your own fault. Accept it. Move on. Do better next time. Learn from your mistakes. Tell others what you learned. Make the world a better place.


CORPORATE, GOVERNMENT FINANCE 101

There needs to be organizational finance policies in place to ensure staff and officials follow the basic finance principles, beginning with...

1. Do not spend more than you have coming in.

2. Do not borrow long term if you do not have truly stable income with documented history.

3. If you do not have an emergency fund with at least a minimum predetermined amount of expenses saved--like a complete operating cycle, you should not sign any kind of debt instrument.

Operate from a cash position, not a borrowing position for operational expenses. If you run short and have to dip into your emergency fund, change the way you are operating so you can replenish the fund--not borrow, which increases your operating expenses!

4. Pay yourself first--put a minimum of 10% of any income aside in a separate fund that is not to be considered emergency funds; this is to build business stability and ensure good ratings and reputation.

5. Stop using loans to finance anything that does not improve the value of the business that can be recouped upon sale.

6. Reinvest dividends instead of spending them--the secret to the finance universe is the power of compound interest.

7. Do not assume others know more than you do. Do your homework. That goes for everyone--from the janitor to the board member.

8. Take a deep breath and keep your head--do not let anyone talk you into anything. You are the one who has got to live with the consequences so take your own sweet time making financial decisions. This applies to every level of staff and officials. Think before acting!

9. Gather as much information as you can, give yourself enough time to think about it, ask yourself how you feel about it, sleep on it, then do what your gut tells you. If the decision is one to be made by a committee or group, make sure there is true consensus. Otherwise you may not have a group later.

10. If you merge, make sure your intended shares the same finance policies and outlook as you do.

11. If you must merge, make sure you have done all the forgoing (stable income, adequate operating facility, emergency funds, purchases, employee retirement).

12. If you want to start other businesses--plan them. Do not start more than you can sustain. Things are very iffy now and your employees deserve a bright future. If you do not have stability, you cannot afford to branch out and take on more risk.

13. Do not blame others for your bad decisions. If you did not follow the above, it is your own fault. Accept it. Move on. Do better next time. Learn from your mistakes. Tell others what you learned. Make the world a better place.


Pretty similar, right?

So why cannot people, firms, governments, do these things?

The answer is they can, they have, and they should. We just have to encourage this kind of behavior. Who is going to lead by example?

We are all to blame for buying into the debt fantasy. But it is time to end it and start being responsible with our money.