A Word to Those with Money...and Without
Times are tough. There’s no denying that.
Here in the US, a record 46.2 million people—15.1% of the population—are now living below the poverty level. And we’re still in the midst of pitched budget and deficit reduction battles that are only sure to get more heated with the introduction of President Obama’s $3.6 trillion reduction plan...which is actually an addition plan—an addition of taxes on businesses and investors.
Seems we still think we can have our cake and eat it too.
The proposal from Obama brags about it’s balanced approach of tax increases and cuts in spending, but the real issue of the deficit—unfunded liabilities—is largely unaddressed and untouched.
The White House spin doctors are currently busy getting in the news the $248 billion in Medicare savings and $72 billion in savings from Medicaid that the proposal boasts. To those without a financial education, that sounds like a lot of savings.
The problem is that the estimated unfunded liability of both those programs is around $107 trillion dollars. It’s estimated that if major overhaul of these programs aren’t introduced, 49% of all tax dollars will go towards funding them by 2030.
So, the current proposal is a bit like putting a band aid over a deep cut that requires surgery. It won’t take long for the blood to seep through.
Across the pond, things are heating up in the Euro-zone with Greece looking more and more likely to run out of cash and default on its debt. Over there, hundreds of thousands are facing unemployment and deep reductions in quality of living as programs the poor and middle class have come to rely on will disappear. Once again, there will be rioting in the streets. Let’s hope Greece can afford to pay the police force.
With all this bad news, it can be hard to imagine there’s any good news at all. But there is.
For instance, interest rates last week hit an all-time low at 4.12%, largely due to “continued market and employment concerns.” Translation: most people are scared, so demand is low. In an effort to kick-start demand, banks are practically handing out money to entice buyers.
Most people are either too scared to take advantage of these rates, or unable to do so. I’d like to say a word to both camps.
Most people are afraid to buy real estate despite the record-low interest rates because they’re afraid the price of real estate will continue to fall.
Most likely, it will.
But it’s foolish to base your investing on the whims of market pricing, especially when the market is so unpredictable. Personally, I like to get the lowest price I can, but what I’m ultimately concerned about is not the price, but the return. With interest rates so low, and with a bounty of distressed real estate at low pricing, there are tons of great deals to be had in this economy.
A wise investor with a financial education focuses less on what can’t be controlled—for instance, price—and more on what can be controlled, such as fixed interest rates and rates of return.
Investors would be wise to take advantage of locking in low, long-term rates on investments and worrying less about temporary price adjustments. If the deal pencils, meets your return requirements, and you have the ability to pull the trigger—now’s the time.
Don’t invest for capital gains. Invest for cash flow.
For some, this is a frustrating time. You can see the opportunities around you, but you don’t have the money to take advantage of them.
As I learned in Sunday School, we reap what we sow. Simply, this means that if we make bad, financial decisions, we get bad, financial problems.
If you made bad financial decisions in the boom times, such as buying too many liabilities, investing at the top of the market for capital gains but not cash flow, and over-extending your wallet and your credit, you’re probably kicking yourself right now.
A couple things for you:
An infant can’t learn to walk without first falling down. The great thing about babies is that they usually just laugh at themselves and get back up. Before you know it, they’re running around the house, and you wish they’d go back to crawling. Pick yourself up, learn from your mistakes, and start re-building your financial base by paying off bad debt and putting aside money to invest in assets.
The worst thing you can do is stop paying attention. Keep looking at deals, keep thinking of ways to get out of the rat race, and keep an open mind as to how to accomplish your goals.
If you have a good deal, you may have a hard time getting off the ground right now.
But if you have a great deal, you might just be able to find investors to pull it off. Keep your chin up, and keep pressing forward.
Take this as an opportunity to learn and increase your financial education.
If you have a financial education, you can use current, economic times to your advantage. For more information on this, see “What is Financial Education?” and check out our online community here.