In December I wrote a column that outlined personal finance steps to take to prepare for a stock market that would have lost almost half its value in a year. Now we’re looking at a market that’s had more than half its value wiped out.
There has been panic on Wall Street, Main Street and even in the White House where trillions of taxpayer dollars have been spent to try to stabilize the United States banking system. Whether or not that was a good idea is up for debate, but now that it’s been done, how does that implicate the average person?
Short Term Outlook
With billions of dollars flowing to government agencies, banks and taxpayers (hopefully), we can expect the wheels of the economy to start moving again and a market bottom to develop. My guess is this will happen within the next 12 months. The first stimulus package money should be flowing through the system soon and the second and beyond will follow. Beyond that, lower mortgage rates have caused banks to become busy with refinances. This shouldn’t be reflected in the stock market until 2nd or 3rd quarter of 2009.
Long Term Outlook
Although short term, we may get a nice “pop” I’m less optimistic about the long term prospects of what’s going on.
President Obama’s plan of “growing” of this deficit is somewhat far fetched considering that even the years of growth projected in his budget, we’d still be running a trillion dollar deficit.
With all that debt floating around and no way to pay it back purely through growth, the only way to solve the problem will be to print more money.
When governments print more money, it leads to inflation since there are more dollars chasing less goods.
What this means for the average consumer (you and me) is higher costs for everything (food, travel, gas, etc.). Whether this is gradual “I can deal with it” inflation or “HOLY CRAP” rapid inflation is anyone’s guess.
You can already see the first signs of it when you go to your favorite eating establishment. A Zip Pac which used to be $5 is closer to $10 now.
So we can either look forward to higher inflation with job growth (not too bad), or higher inflation with a weak economy and low to no job growth (bad).
Your Personal Finance
The good news is that even with all this news, your personal plan should not change. As long as you are living on a budget and putting away money for a rainy day, you should make it through these turbulent times.
Just a review of the steps (Dave Ramsey style):
- Have $1,000 in the bank as a starter emergency fund
- Pay off all debt (smallest debt to largest) except the mortgage
- Up the emergency fund to 3 – 6 months of expenses
- Save 15% of gross income into retirement accounts (401K, Roth IRA)
- Save for kid’s college (ESA or 529c)
- Pay off the house
- Invest and be wealthy.
Good luck to everyone! For those who are responsible, this may be a GREAT time to be an investor.
Jon Yamasato is a Realtor with Prudential Locations LLC and a member of the top-producing “Mukai Group.” He is a graduate of the University of Hawaii with a bachelor’s degree of education, specializing in science.
Jon has been an avid investor since the late 90’s investing in real estate, stocks, precious metals and mutual funds. He is also a part owner of “The Warehouse,” a recording studio featured in the May issue of Pacific Business News. Music has been a passion and release for most of his life.
The purpose of this column is to give a perspective on finance, business and family from a young person’s point of view. The hope is to create a consciousness among young people about planning for the future.
You can e-mail Jon at jonyamasato@yahoo.com
