Nobody Knows Nuthin’
Posted by Gail | Filed under In the News, Money Management
Is it any wonder that most people are confused when economists start expounded on what’s happening and what’s going to happen next? The news is full of expert interpretation. And the headlines can be pessimistic, making you want to fold up your tent and run away, or optimistic, tempting you to feast on your good fortune. But read reports by any two guys analyzing the latest “economic indicators” (said in a deep voice) and you’ll need a yard-stick to measure the gap in their interpretations. Lord love a duck!
America’s banking crisis is over, says CIBC economist, Avery Shenfeld, since the market now believes that “the fear of failure has been shaken out of the system” so the US banking crisis will soon “fade out as a concern for anyone other than the affected banks’ shareholders.” Really?
Now compare that “good news” with what David Rosenberg, Merrill Lynch’s economist, recently had to say about whazzup: “… it takes six years for home prices to bottom out, and the unemployment rate typically rises over a four-year interval. …To think that it’s going [to] be this year is a little early.”
Two guys in the know. Who do you believe?
One of the biggest problems with economic indicators is that they are open to wide interpretation. Everyone has an opinion. And if you’re trying to sell the world on the stability of your sector so investors come back and you can cash in your stock options to go to Bora Bora, then you’re likely to interpret the data in a way that supports the case you want to make. Hmmm.
There have been people with the ability to look at the data and draw conclusions that seem to be prescient. They make big names for themselves while they’re riding high on their crystal-ball-gazing. But it seldom lasts. And, regardless of how off they’ve been in their most recent predictions, the media and their trusting audience still give them credit for being “in the know.” We seem willing to blindly follow anyone who is willing to shine a light on the deepest darkest recesses of money.
As for when the Spurts’ start singing off a new song-sheet, don’t get me started!
Fact is, it doesn’t matter where we are in the economic cycle, it doesn’t matter what the markets are doing, and it doesn’t matter how tight credit gets, if you’re doing the right things with your money you’ll be okay.
You’re living on a budget. You know that day-to-day money management is the key to long-term success. You know exactly how much is coming in each month and you’ve got your expenses in check.
You are on target to Debt Free. You have a debt repayment plan that you’re executing ticketyboo! You have a Debt Free Date, and you’re bee-lining to it.
Your emergency fund is growing. Having six months’ worth of Essential Expenses isn’t a nice to have, it’s a gotta have and you’re getting there step by step. When you have to use your emergency fund you don’t see it as a set-back, you see it as a god-send that you had to smarts to be prepared.
You’re saving for the future. Maybe you’re taking advantage of the retirement plan at work or using an individual retirement savings plan. And maybe you’re setting aside some money every month for the kids. But you’re NOT spending every penny you make! You know, sooner or later, you’ll be the only guy you can count on for an income.
You’re investing appropriately. You know your time horizon. You know your risk profile. You’re choosing investments in keeping with both. And you’re not letting the latest rage in the investment media sway you from your plan.
You’ve reviewed your insurance coverage: car insurance, property insurance, life and disability insurance. Your butt is covered.
You have a will and powers of attorney for both personal care and money. And you’ve named a guardian for your children. If you become incapacitated or die, your family won’t be left holding a bag of crap!
While the economic climate will make life easier or harder on you from time to time, it will not have a HUGE impact if you are following the rules of good money management. Never mind worrying about the things over which you have NO control. Take control of the things you can do something about!
May 22, 2009 at 6:49 am
How are we ‘minions’ supposed to understand what’s happening to our economy and our dollars when the kings don’t know themselves?! I almost toss my cookies every time I open the paper, because even though I’m planning I feel like I’m the tortoise in the race and I can’t get to the finish line in time. Panic sets in, I look at my savings account balances, and then I go hide in the corner, rocking myself.
Ahh, and then there’s this site that lets me know I at least have a PLAN. I may not be at the end of the goals yet, but I am working on them, and every month I’m $500 closer to having an EF and RRSP than I was last month. If the sky fell now I’d be in the middle of the creek with a broken paddle, but I’ve got strong arms so I think I could make it to the other side. If the sky falls in 4 months, I hope to be sipping wine in my yacht, no longer worried about creeks and paddles.
May 22, 2009 at 9:09 am
Hubby is an economist. A good one. He’s great with calculating regressions and doing math so complicated it makes my brain hurt. But getting the man to sit down and actually make a budget was like pulling teeth.
A tip? Listen to economists if you want to know the macro picture: how things are going to look over a 50-year period, how the global financial system works, etc. Don’t listen to them on the micro stuff: how to use your money to your advantage. The theories don’t dribble down that far!
May 22, 2009 at 9:38 am
It’s funny that I just finished reading an article saying that the American’s are passing new Credit Card regulations to crack down on stuff there, and the Canadians are furthering their regulations that they’ve already had in place. So our economy is sitting in “dire straits”. We’ve been here before. WE’ll get here again.
it still blows my mind that people still don’t plan for a future, and a flood just in case. Nature happens. Market decline happens. Job loss happens. It was happening before, it will happen after this “economic downturn”. The difference is that it isn’t just Frank down the street this is happening too. It’s Frank, Mary, Paul, Cousin Fran, Aunt Grace in Arkansas, and english Aunt Mable, and probably your own spouse/sister/yourself etc. The difference is this is happening to more people at the same time than before. It is still happening, and was before the economy took a dive and will after it “recovers”.
As Gail says Life happens. And when it does you’d better be prepared. I probably didn’t need that Wendy’s Combo Number 1 x every day of the week for 7 straight months, and should have saved that money in the EF account. “but I “didn’t think it would happen to me!”" Guess what people. It’s happening to us all. Have you awoken yet?
May 22, 2009 at 10:29 am
Great Post Gail!
Have a plan, double check it, and trust that it will work. No matter what the economy’s doing – you’ll be okay.
Speaking of wills – Gail if you read this, or other GVO readers out there – when is the best time to have your first will drawn up. I’m a 20 something female with no large assests (home, or new vehicle) and no dependents.
May 22, 2009 at 11:10 am
I just want to say that I’m getting pretty close to being consumer debt free and am excited about it.
I’m also extremely excited about buying a new bed as ours has lived its life. I anticipate being able to buy this new bed in September and guess what I’ll be paying cash for it. Every night that I curl up in our existing bed I think about how wonderful it will be to curl up in our new bed that is paid for in full.
Thanks for all your help Gail (and others) as I’m seeing the horizon of freedom which helps me sleep better… and yes that pun was intended!
May 22, 2009 at 11:33 am
Economists and weather forecasters….the only two professions in which you can royally screw up and no one calls you on it. The fact is though that complain as we may, the only thing we can do about the weather is accept it and prepare for it. And the same goes for the economy.
Have ya ever noticed though that in today’s information highway that we have very, and I mean VERY, short memories? Ask folks to recall the last recession and they shake their heads. Talk to people about their house going down in value and they will argue with you that it cannot happen. Getting out of debt? It will happen, someday, they say.
I remember studying economics in university and studying the fact that historically we have a recession every 10 years or so. But what happened in 2000? We missed it. The Y2K bug didn’t bring the world to a standstill so we just moved on with our lives, never understanding that we were long overdue for a downturn. When it hit us, we were shocked at how quickly and how devastating it was. Guess what folks? All recessions are like that.
The real bright amongst us will see that while we are most likely now at the end of this current recession, they are already planning for the next one. When will it happen is anyone’s guess, but of history is any indication of it, I will be very risk averse around 2019 – 2020.
May 22, 2009 at 11:55 am
Gail, I love your practical advice. Something that I’ve learned from you is that it’s not as complicated as it seems. Money management is really quite simple. Thanks for reminding us to stick to what we know and what works, even during these troubled times.
May 22, 2009 at 1:11 pm
Colin – I think you’re missing the Dotcom stock meltdown of 2000-2002 in your analysis.
May 22, 2009 at 2:11 pm
The downturn has finally hit our household. My contracts are only trickling in irregularly and that means our income is down almost $1G a month. The good news is that it’s okay, because we aren’t spending more than we make and we have no payments other than the house. The bad news is that we kinda liked feeling a bit of wiggle room in the budget to think about getting a less-dilapitated car!
I am going to stick with my plan and hope for the best.
May 22, 2009 at 2:39 pm
Çolin – I agree with you here! Sometimes I’d like the room in my job to be collossally wrong and not get fired!
though we had the dotcom meltdown – and we saw Enron and Martha Stewart fall apart, it wasn’t as big as the current downturn, or the on in the late 80’s apparently. (though I was more concerned about getting to my baseball game on time, and how to wear my ponytail)
it blows my mind that largely we still live in the NIMBY era!
May 22, 2009 at 3:41 pm
I just re-read my 6:30 a.m. post and realized it sounds like I have said yact to sip wine from…I hope y’all know I was making a funny…I don’t even like water unless I drink or bath with it! What I meant was if a downturn hits my family after I’ve had another 4 months to build up the EF, I’ll be more secure than if it hits now, but at least if it did hit now I’m more secure than I was pre-January. Paying down debt AND saving, what a novel concept that took me my 37 years to understand…sad that there are still so many others that haven’t gotten it yet. I pass on Gails’ site (and others) to as many as I can, so hopefully we can start a revolution of financially savvy, spending conscious, debt-free people.
May 22, 2009 at 4:29 pm
Michelle.. I duno about others, but I understood what u meant and found it amusing lol
May 22, 2009 at 6:08 pm
The dot.com meltdown of early 2000 didn’t throw Canada into a recession. Its effects were felt more in the US than here in the great north.
May 23, 2009 at 4:56 pm
Dear Jessie, regarding a will. The choice is yours but if you have only wishes as far as what kind of a funeral you would like or maybe even a charity for what assets you may have such as insurance policy or any cash that would flow to your estate, it is imperative to at least put it in writing. This makes your wishes very clear and takes the burden off your loved ones who would be devestated to lose you so young. As you gain assets and your life changes you should review and update your will accordingly (marriage, children, property, etc.).
May 23, 2009 at 7:48 pm
The dot.com meltdown affected lots of people I know! I watched over 300 people get laid off over the course of 1 week in our office location alone! As well, it continued week after week for months across the Canadian offices and warehouses. The US entity of the company went bankrupt. The remaining workers (myself included) worked our buns off as we were now doing the jobs of 3 people for the same or less pay.
The dot.com crisis in the early 2000’s effected my job security, income, stress levels, stability etc. way more then right now. I understand that my situation is the reverse of most but that doesn’t mean the effects weren’t just as devastating then as they are now.
May 25, 2009 at 9:01 am
It’s true that economists are people and, of course, can be wrong. But your example doesn’t illustrate that.
Those two economists are not contradicting each other.
The American banking crisis is over. (The crisis being the collapse of the entire system.)
Housing prices are dropping and will continue to do so in the near future.
Unemployment is going to be bad for years to come, even after the rest of the economy has recovered.
This are not contradictory interpretations of the economy but simply a focus on different areas.