| by Dr. Jeffrey Lant This title is sure to startle people who follow the ups and downs of the economy with care and perception. "Economic disruption," they might say. "Whaaat? It is my distinct impression that things economic are improving, slowly but surely. Am I wrong?" No, you're right. Things ARE improving, the signs are unmistakable: Item: Online 2010 Christmas sales rose 15% this holiday season from October 31 to December 23. Online retailers took in $36.5 billion during this period, compared to $31.5 billion the same period a year ago. (Note: apparel sales lead the way with $7.3 billion in sales, up 25.7 percent from a year ago.) Item: Weekly unemployment applications of around 425,00 signal modest job growth. Such applications peaked at 651,000 in March, 2009. Item: Companies increased their orders for long- lasting manufactured products by the sharpest increase in eight months, the Department of Commerce reported before Christmas, 2010. Demand rose for computers, appliances, and heavy machinery... with overall expected 2011 growth at 3.5 percent to 4 percent, up from 2.8 percent in 2010. Andante ma non troppo. The rich are out and about buying things meretricious de rigueur for the country club set. As retailers to the rich can unhappily confirm, wealthy shoppers, with their penchant for acquiring gaudy and overpriced items the rest of the world gets by quite happily without, were in short supply during the recession. This Christmas season of 2010 was very different. Mere bagatelles such as luxury automobiles and eye-popping ice were snapped up with alacrity -- and no buyer's remorse. Said Michael J. Silverstein, a senior partner at the Boston Consulting Group in Chicago. "Many households with incomes above $100,000 don't believe the sky is falling anymore. And when they don't believe the sky is falling anymore, they want things." Amen. For instance, some national chains and independent merchants expect double-digit increases in jewelry sales for 2010, a dramatic turn-around from the painful 40 percent drops the hardest hit jewelers experienced since 2008. So, if things are getting better bit by bit, why is this article about the next great economic disruption? Because, quite frankly, the ease and abundance of good times are like a drug obliterating the painful lessons and memories of bad times... which all contributes to creating the next, inevitable bad times. Instead of losing the lessons of the still clear and painful past, we need to make every effort to remember them.... while preparing for the next great economic disruption for which we must be better prepared than the one from which we're emerging from now. The great English romantic poet Lord Byron can assist us. One day his lordship received a message from his demanding inamorata Lady Caroline Lamb to "remember" her. Tired to death of her incessant impositions, he sent her this message of unmistakable clarity: "Remember thee! remember thee! Till Lethe quench life's burning stream. Remorse and shame shall cling to thee, And haunt thee like a feverish dream! Lord Byron indeed would remember and rearrange matters accordingly ... and so must we all. After all, we all know that such disruptions occur at predictable intervals for which we must be ready. Here are the preparatory steps to follow starting TODAY! 1) Start a "rainy day" fund. Build this fund by regular monthly additions until it represents at least 6 months of total home expenses and not a cent less. Building this fund in good times takes exceptional determination, not least because in such times you want to "make up" for the things you went without during the recession. At all times, therefore, you must remind yourself that the next bad times are on the way... and that you are determined to be ready for them. Save then as if your life depends upon it... for it does. 2) Survey all expenses. If you think you did so during the bad times, think again. Now you know how many of these things you can comfortably do without. Root them out now... and put the savings in the "rainy day" account. Turning current expenses into income-producing capital is a crucial part of how you'll get comfortably through the next bad times. 3) Review the damage the bad times made. Did you, for instance, borrow against an IRA account or life insurance policy? If so, you must replace these funds by regular monthly payments, not least because such borrowings are likely to have tax and high interest payment implications. These need to be taken care of ASAP. 4) Start your trek ahead with a clear understanding, with a precise, realistic appraisal of where you are today. Many people at this point in the economic cycle are deeply depressed by what they have lost. This is a mistake. Instead of fretting over what is gone from your asset balance, instead review what you have and consider just how you will improve your net worth. Still more recommendations 5) If you are self-employed, as many people reading this article are, always make the maximum allowable contributions into your retirement account. Treat these as payments, as you would any invoice. And always pay these retirement payments first, before other bills. 6) Make the maximum charitable donations that you can. Your charitable contributions should begin in January of the new year... and not in December. You should set a dollar donation objective for the year (in conjunction, of course, with your accountant.) Start working towards it as the new year dawns and not as it exits. 7) Remove yourself from what I call the "squandering classes." Review each and every expenditure... not just for yourself but for any children still at home and old enough to have jobs. All have a responsibility to think first, determine whether this expense is in fact warranted, and reduce or go without whenever possible. 8) "Batten down the hatches" for 1 month. As a test of your system and habits, live one month in the good times as if it were one month in the bad. Cut expenses accordingly and see how easy (or difficult) your life would be in recessionary times. Such a drill should yield many good ideas as well as clarity on your spending habits. Death, taxes, bad economic times When I was growing up people said there were 2 great inevitabilities of life: death and taxes. However, there is in fact at least 1 more: bad economic times. Count on it. They will recur in your life over and over again. Will you be ready for them? You certainly will be if you treat them as the certainties they are and prepare accordingly, along the lines of this article. Doing so, when they arrive you will have nothing to fear, and that places you amongst the very smartest and best prepared, the ones destined to ride out the next great economic storm in comfort and with quiet satisfaction. |
