Monday, March 23, 2009

A Hair of the Dog that Bit You

I've heard that saying, haven't you? It's used when someone wakes up with a hang-over, and a "friend" recommends they have another drink to deal with the results of their binging. "Have a hair of the dog that bit you" they might say.

That's the same type of ill-conceived advice I've heard from pundits who say that spending is the way out of this economic crisis. Let's do more of what got us into this mess! Have another round of debt! As a country, we've been binging for a long time. If we haven't been buying ever more expensive homes, we've been taking out home equity loans on the increased "value" of the residence we're in to fund "life style" expenses: vacations and trips, new cars, etc. It's all fun and games until someone gets hurt.

Maybe there does need to be more spending in the national economy. I don't operate on that level. I'm interested in my own personal economy. And your own personal economy. Is that the right thing for you to do--spend more, and more, and more?

I never thought it made sense to spend to the limit of your income. There is nothing like knowing you can turn to a nice nest egg when times are tough. And I'm not talking about the equity in my home, either. As we have seen from the recent real estate market, the value of an illiquid asset shrinks with demand. Nope, I'm talking about liquid and safe instruments that can be tapped when and if needed.

Funny thing about saving more--we have more power and control over our circumstances. This is true, I think, both individuall and as a society. If we can have 6 months of very liquid investments, we could weather getting laid off a lot better. When we as a society save more, then the banks would have more cash, and wouldn't need (as much of) a bail out. Maybe it's simplistic, but it makes sense to me.

Economic Responsibility to me means always living well with in your means. As a person. A family. A society. We can't help what the greater society does. It's habits are shaped by advertising and business interests that have a vested interest in their own income, not ours.

But we can follow through on economic responsibility with ourselves and our own families.

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