Whatever name we apply to it, our nation’s economy has received a particularly challenging blow over the past few years. The Good O’l Days of solidly appreciating home values and easily obtainable financing seem much further in the past then they are in reality.
While we regularly hear blame heaped upon unscrupulous lenders, devious brokers or even naive consumers who contributed to the current problems of adjusting mortgages, one of the little talked about savings.
From 2004 through 2007, American households were saving less than they ever had since before the Great Depression. In fact, we were collectively spending MORE than we were earning, not only by overusing credit cards, but more importantly, by dipping into our home equity.
Even now, ubiquitous ads tout the benefits of using the equity built up in our homes to pay off credit cards, buy new cards, finance family vacations, and more.
The belief that we have no need to put away money ahead of time for such expenses and that we should be “free” to live spontaneously meant that when mortgage payments began adjusting upward at the same time values began plunging downward, homeowners had no cash reserve to make up the difference.
It’s human nature, in good financial times, to spend nearly all of our income, believing we have somehow gone beyond our market adjustments and recessions. Inevitably, though, the economic pendulum swings the other way and we find ourselves again in difficulty. Already, we’re seeing savings rates beginning to rise.
If we all developed the habit of saving 10-20% of our net income for emergencies and investments, we’d find that a large portion of consumer credit and debt crises, would, like our signatures on credit card slips, simply fade away.
If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.