What happens when inflation is no longer the constant, and deflation sets in? We start hearing words like "Mortgage Meltdown" and "Financial Crisis". Houses are no longer worth the "100% financing" loans they have on them. Businesses that have leveraged dept to get ahead can no longer sell there products for enough, or in high enough volumes, to pay their lenders. This results in layoffs that cause people to loose their ability to pay their numerous bills. In an attempt to "fix" the perceived "problem" the federal Reserve starts pumping trillions of dollars into the financial markets hoping to regain inflationary momentum; encouraging cheap loans to people who can't afford them. In the mean time, people like you and me, stuffer in the crossfire.
So what do we do about it? Try to play the game with the big boys, the way they want it played, with tax shelters, Limited Liability Business shelters, and other businesses dealings that you can trash when things get tough and they go under - hopefully without trashing your own credit and reputation? Maybe try catching the benefits of a government bailout along the way?
Perhaps what we should do is avoid the quick and easy "got'a have it now" attitude that leads to indebted slavery and despair, and instead follow the council that Modern Prophets have been giving us over the last century:
"Joseph F. Smith advised . . . 'get out of debt and keep out of debt, and then you will be financially as well as spiritually free' (In Conference Report, Oct. 1903, p. 5) . . . there are certain basic principles that we . . . can apply, such as: 1. Live within your income. 2. Prepare and use short- and long-term budgets. 3. Regularly save a part of your income. 4. Use your credit wisely, if it is necessary to use it at all . . . 5. Preserve and utilize your assets through appropriate tax and estate planning." - Franklin D. Richards, “Personal and Family Financial Preparedness,” Ensign, May 1979, 38I've many times been thought in church about living within our means and staying out of debt, but for some reason I never really got it until I listened to a man who had a very specific and detailed plan: Dave Ramsey. While his plan works extremely well for anyone willing to put in the effort, I find myself wanting to take a slightly different approach, and believe there are people who need a little more flexibility in their planing. Either way many of the same principles apply, and go right along with the council I quoted above.
- Step 1: Get caught up
Heber J. Grant said, “If there is any one thing that will bring peace and contentment into the human heart, and into the family, it is to live within our means, and if there is any one thing that is grinding, and discouraging and disheartening it is to have debts and obligations that one cannot meet” (Relief Society Magazine, May 1932, p. 302).This mean having a budget. Before you catch up with your finances you must first make a budget. This is essential because if you don't know where your money is, where it's coming from, or were it's going, you'll never know if you're getting ahead or further behind.
- Step 2: Sell and dispose of vices
So what is your vice? For some it's a big expensive house. For others it's a nice car, a boat, or even credit and consumer cards used for shopping any time one feels a little down or thinks they "need" that new pair of overly expensive shoes. What ever it may be, you need to shelf it long enough to get a grip on reality and get to where you can be more responsible about it.
- Step 3: Emergency fund
- Step 4: Dept Pay-off
Eliminating that principle payment as quickly as possible, by starting with loans with the smallest balances first, frees up extra money in your budget much faster so it can then be re-applied sooner to other loans, and of course the sooner you pay of a debt, the less interest you end up paying on it. It also helps you gain a quick win which can be very motivating.
Personally, I like Dave Ramsey's theory of Focused Intensity were you start with the smallest balance and work your way up to the largest. It start with finding as much extra money as you can from your budget, by living on as little as possible, to use exclusively for paying extra on your smallest debt. The more you do without extras, luxuries, entertainment, etc. the more extra money you'll have to pay things off with. Once that smallest debt is paid off, move onto the next smallest debt using the extra money from your budget, and the money you are no longer paying to the debt you've paid off. Continue this cycle until you have everything paid off, except your house (and any other real-estate you own that is paying for its self - if it's not paying for itself you might consider it as part of step 2). By the end of this step you may find yourself paying a thousand dollars or more a month on you highest balance, high interest rate, loan.
- Step 5: Security Blanket(s)
"'. . . Plan to build up your food supply just as you would a savings account. Save a little for storage each paycheck . . . Make your storage a part of your budget . . . If you are saving and planning for a second car or a TV set or some item which merely adds to your comfort or pleasure, you may need to change your priorities. We urge you to do this prayerfully and do it now.' (Ensign, Nov. 1980, p. 33.) . . . One of the important keys of home production and storage is the acquisition of skills. Sometimes we may be able to buy food inexpensively, but the skills and intuitive wisdom gained through gardening and other home production projects are worth more than the time and effort they require. In a sustained emergency, basic gardening, sewing, repair, construction, and production know-how are invaluable. Provident living helps us develop these skills—and build family unity by doing it—before an emergency." - “Catching the Vision of Self-Reliance,” Ensign, May 1986, 89
- Step 6: Invest
- Step 7: Pay Off the house