As much as I hate using the old washed up political cliche, I can't think of a more appropriate way to summarize what the HHV households are up to: steady as she goes.
Here's my top five must do and do not things in an economic environment like that which we find ourselves in today:
- Pay down debt. Let's be honest. Investments are not performing. GICs are not performing and interest rates on pretty much any debt eat the difference from anything remotely "safe" that you and I have access to. So the best thing to do is get rid of any and all debt. If you're out of debt, save up a minimum of 3 months worth of expenses, 6 months is ideal. Take confidence in knowing you can weather whatever waves get thrown your way in this storm.
- Don't spend any money on unnecessary things. That new Wii so you can play Rockband? Actually, you may want to get that, it could potentially keep you entertained for many a night with the whole family and prevent you from spending other money on unnecessary things. So, Rockband and Wii, cool. New big screen TV to watch yourself rock out, not cool right now. Patience, it will only get cheaper.
- Take advantage of every opportunity to learn something new. Instead of spending money going out, read all this great stuff we get for "free" online. We are looking at an unprecedented economic learning opportunity. Drink it in. Disect it. Discuss it. Learn from it. Learn how to make money from it. Learn how to see it coming in the future and protect yourself.
- Don't quit your job. I nearly did. I was set to start my own business 2 months ago. I'm delaying that for the near future. Job security is paramount in these times. Remember the pecking order in the downtimes: consultants go first, newly hired next, retirees are offered "early retirement" incentives, and then people plain old lose their jobs. Do everything in your power to be the best employee, contractor/consultant or whatever you are.
- Do not make a major purchase. Cars are about to get really cheap. Hyundai is already offering "don't pay till 2010" incentives. But most importantly, no matter how bad your current rental is, do not fall for the "same price as rent" and "time in the market is better than timing the market" advertising going on right now. Need to be convinced your safe not buying? Check out the chart from Roger below. It uses an assumed 5% loss YOY for the next two years. And unless things change, we'll be into double digit negative YOY declines next spring already.
The key number that convinced me here was in the Total Interest row. Saving $44K in interest payments alone using such a conservative correction as a baseline is worth it to me. The savings only get better when you consider the next jump up:
When I see work like this, I realize why I kept blogging everytime I felt fatigued. Thank you Roger, your contributions to my real estate education have been immense.