BOOMS & BUSTS

I suppose change add spice to life and most people learn to adapt to changing situations reasonably well. But there are too many who throw a wobbly when something unexpected hits them. Mainly these are people who live in the past or present and let the future take care of itself. When some crisis, be it family, financial or health hits suddenly they are totally unprepared and a sequence of events takes place.

1. Alarm.
2. Temporary Panic
3. Apathy and Disinterest

We spend 80% of our waking day working for money. That’s why we get concerned at the state of the economy. We enjoy the boom times, which started in earnest in the 1960’s but we were totally unprepared for the first big bust, which came early in the 1970’s. Since then the value of the dollar has been shrinking on the world market. Inflation increased and grew at an alarming rate. Real production dropped and the only real growth has been in the investment area, shifting money around like a commodity. The effects of the inflationary spiral just resulted in higher and higher prices and these continued to soar while real production declined. We stand the risk of pricing ourselves out of the world markets because no longer do people beat a path through the forest to buy the best mousetrap. Nowadays, the mountain won’t go to Mohamed, Mohamed has to trot along to the mountain. Sometimes I think that we had it too good for too long and the last few Kiwi generations grew up with too high expectations without putting their backs to the wheel.

We certainly don’t benefit from history and the 1987 crash reminded ourselves of this fact. But since then we have enjoyed another boom and this one has lasted a long time but it looks now as though a bust is inevitable.

Too often we react to events around us without understanding what is really happening and why. We need to expect crises in the economy and learn how to respond rather than react.

It’s an interesting fact that when times are good people resort to easy credit and hock themselves up to the hilt assuming that the good times will go on forever but when the downturn comes, as it inevitably will, those who are in a debt situation are just the ones to panic when their capacity to repay is not possible.

Happy are the people who not only owe nothing when the bust comes but have a nice little nest egg tucked away to cushion the effects. The fact that you have accumulated a nice bunch of material assets doesn’t mean much in depression times because you can’t flog them off when there’s no money around. For what it’s worth I’m forecasting that the next bust isn’t too far away and suggest that you start preparing for it. Here’s a better sequence of events:

1. Pay all your sundry debts off as soon as possible
2. Save up a nest egg of $2,000 minimum and tuck it away in some high interest, “no touch” account.
3. Effect some economies and learn to live on a lower income – it can be fun.
4. Write out your financial goals for the next five years.
5. Save up for purchases instead of going into debt to acquire them.

Then you will be able to forget money matters for a while and enjoy some of the forgotten pleasures that we take so much for granted in this beautiful country.