Despite how few of us recognize that there was a fundamental change back in 2008, and our civilization has now crossed over from the long era of economic growth to one of permanent contraction, this fact has nevertheless turned all of the accepted wisdom of how one should manage one’s personal finances on its head. Since Internet readers seem to love tidy little lists, I decided to put together one of my own, which I call: Ten Ways You Can Screw Up Your Life. These are things that people still do every day because they remain firmly rooted in the business as usual mindset. Sadly, thanks to the relentless propaganda of the mainstream media, most will not recognize the folly of their actions until it is far too late.
So without further ado, here are the ten ways:
1). Take Out a Big Home Mortgage – Several professional colleagues of mine have done this one just within the past year alone. Most people buying homes today probably think they’re getting a great deal, what with real estate prices still being very much depressed and 30-year fixed rate mortgages going for around 4% interest. But even with all of that, prices remain WAY TOO HIGH and will no doubt fall much further in the coming years with the next big waves of job losses and government spending cutbacks. A particular folly is buying a humungous exurban McMansion, with the half-acre yard, granite counter tops, lawyer foyer and three-car garage located 30 miles from your job. In a few years when gasoline becomes unaffordable for most people, those ugly monstrosities will become virtually worthless, and all of your equity will vanish like a Texas fishing hole in July.
2). Buy a Large SUV, Minivan or Pick Up Truck – Is the current elevated price of gasoline putting a strain on your family budget? Well, if so then you have no business continuing to buy the kinds of gas-guzzling behemoths the auto industry loves to push on dimwitted customers because they carry the largest profit margin. Many parents, for example, think they need that huge vehicle with the video entertainment system in the back seat to keep their precious little snowflakes safe and entertained wherever they go. They don’t stop to think how they are going to be able to afford to pump gas into that monstrosity when one of them loses their job or gas goes to five-dollars a gallon.
3). Max Out Your 401K Contributions – I sympathize with people on this one. I really do, for I myself made this stupid mistake for about 15 years, blissfully pouring the maximum amount of money into a paper asset I cannot access until I retire. Nowadays, I just make the minimum 5% contribution it takes to get the matching payments from my employer. Even so, I am gambling that the system will hold together for three more years until I can take early retirement and withdraw that large chunk of change—10% IRS early withdrawal penalty be damned. Always remember that every dollar you deposit into a retirement account that you cannot access for years is at risk of being lost when the financial system does finally acknowledge reality and implodes. The longer your money has to remain in the account before you can access it, the greater the risk you are taking.
4). Keep Your Savings in a Big Bank – Okay, so you’ve been listening to commentators who tell you that the safest investment right now, other than precious metals, is cash. Good on you for at least having the sense to stop playing at the rigged Wall Street casino. So now what do you do with all that loot? Well, if you deposit it in a savings account at one of the shaky big banks like Bank of America, Citigroup or Wells Fargo, it could also be very much at risk. “But what about the FDIC deposit insurance?” I hear you asking. Well, as I wrote recently on my blog, the Deposit Insurance Fund is currently carrying a positive balance of around a measly $4 billion, even though the total amount of insured deposits at those three banks alone is $1.8 trillion. If one or all three of those banks fail, it would likely be months at a minimum before you would be able to access any money you had deposited with them, assuming you are EVER reimbursed.
5). Take Out Student Loans – On my blog, I’ve written several posts about Leslie, a 23-year-old woman with a Master’s Degree, a six-figure student loan debt, and no job prospects. Leslie and her live-in boyfriend survive on his $10-dollar-an-hour retail job and food stamps. She’s been participating in the Occupy Wall Street protests, but sadly, despite her opposition to America’s imperial wars, she has decided to join the military in order to pay off her debt. By doing so she has deferred her dreams of getting married, buying a house, starting a family and planning for retirement. Leslie’s situation is hardly unique, and it should be obvious by now that a college degree, particularly one you have to place yourself deeply in debt to obtain, is no longer a guaranteed ticket to do any of those things.
6). Count on Your Pension to Be There When You Retire – As I have reported on my blog, the financial condition of the Pension Benefit Guarantee Corporation (PBGC), the little known federal agency that backstops private pension plans should the companies that have them go bankrupt, is even worse than the FDIC. The PBGC is currently running about $23 billion in the red, and yet the cumulative pension deficit of America’s largest corporations is over half-a-trillion dollars. Worse yet, it was also reported recently that the federal government pension plan for its own retirees is underfunded by a staggering $5 trillion. Not to be outdone, the state and local government pension plans around the country are also in a huge collective hole. Whether you are employed in either the public or private sector, if you are more than a decade from retirement you should assume you’ll likely never see one thin dime of your promised pension.
7). Count on Receiving Social Security Benefits – Like the FDIC and the PBGC, the Social Security Administration is effectively broke. The alleged $2.6 trillion social security “trust fund,” supposedly built up from many years of the program running a surplus, is a cruel lie. The trust fund contains U.S. Treasury securities, which means that any deficit in payroll tax collections has to be made up by selling those securities—directly adding to the already-insane levels of federal deficit spending. The annual surpluses in the program have already disappeared because a large number of Baby Boomers have joined the rolls in recent years, and that was even before our so-called “leaders” decided to increase the financial strain on the system by lowering payroll taxes from 6.2% to 4.2% this year in a desperate bid to stimulate the economy.
8). Run Up Your Credit Card Bills – this one seems pretty obvious, and if you are reading this essay I gather you are probably the kind of person who is already wary of taking on debt at the usurious rates charged by the credit card companies. Unfortunately, as working and middle class incomes have stagnated in recent years, many people have turned to the plastic to try and keep up the appearance of prosperity. These are people who are still employed, but are finding that their incomes are not keeping up with the rapid rise in basic expenses such as food and energy. Instead of readjusting their lifestyles to reflect reality, they use the cards to keep on buying massive amounts of stuff they don’t need because hey, they “work hard” and they “deserve it.” It is true that credit card debit is unsecured, but if you were to become unemployed, would you really want a massive debt default on your record to be considered by future potential employers at a time when there is cutthroat competition for even the crappiest jobs?
9). Listen to a Financial Adviser – My wife’s employer recently had a financial adviser-type come in to the office and speak to the employees about planning their financial futures. My wife was appalled to hear the man actually repeat the tired old housing bubble-era mantra that people who pay off their mortgages early are foolish because that money would be much better off invested in the stock market. This is someone who actually gets paid to spew such claptrap. Ten years ago, most financial advisers would no doubt have been horrified had you told them you were going to invest in precious metals rather than the stocks. Had you done so, you would have quadrupled your money, whereas the stock market remains mired near the levels it first attained back in 2000.
10). Have Children While Being Unaware of What the Future Likely Holds – I am not one of those misanthropes who says that since the world is just now adding its seven billionth human that no one has any business having children. If you are aware of the issues I’ve written about above, and you are planning to become a parent with your eyes wide open, then that is your choice and I wish you the best of luck. Most people, however, have no idea what’s coming. They have no clue that they are bringing their children into a world where not only are they going to be worse off than they themselves were, but they are very likely going to endure much pain and suffering at some point. This is particularly true because most parents are raising their children to function within an economic growth model that is already dead. It’s a zombie—the body just doesn’t know enough to stop twitching yet. Young people who have been raised to expect that they will always possess the latest electronic gadgets, and if they dutifully attend their classes and don’t rock the boat they can go to work in some cubicle and be able to afford all of the same things that their parents had are going to be in for the rudest generational awakening ever seen in human history.