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Economy Not So Bright
By JD Bluefield | April 3, 2008
With the fall of Aloha still in discussion, another airline has now joined their ranks in bankruptcy. ATA Airlines wasn’t the first and won’t be the last company to go under in these worrisome times. Take these bankruptcies and the terrible housing market as signs of the times. I know as I write this, people will say I’m being pessimistic or negative, but I’m just telling it like it is, so hear me out.
During the past several years, we’ve experienced the lowest unemployment and loosest lending requirements in recent times, and thus many Americans were spending freely and empting they’re savings without thought of the repercussion. Americans are now saving less than ever before. The housing crisis and quick downturn have left many people and companies with little option but to declare bankruptcy or foreclosure. People who thought their jobs were secure and the free/cheap credit wave would last forever are now wiping out.
Living in Hawaii I constantly hear that, “were different than the mainland, it won’t get like that here, housing prices in Hawaii never goes down.” I’m sure this statement has also been repeated to no end in places like Los Angeles, Miami and every other boom-town. I got news for you, where do you think the tourist come from? In my opinion, the only reason Hawaii real-estate has not collapsed like those regions is the isolation factor. On the mainland, people can move further out for affordable housing. Not really possible when you live on an island.
Foreclosures are now increasing in the islands just like the mainland. 1,900 people just got laid off from Aloha Airlines. ATA just shutdown. The cost of basic necessities are rising quickly. So you can ignore the 500-pound gorilla in the room and go on like everything is okay, or you can prepare yourself ahead of time.
They say you should have an Emergecy Fun with enough savings to pay for at least 3 months of expenses (mortgage, car insurance, loans, etc). So figure out your monthly budget, then multiply that by whatever number you’d like to survive without a job.
Emergency Fund Example: $2077/month budget x 3 months = $6,231 Needed
Personally, I don’t think 3 months is nearly enough. Think about how easy/difficult it would be to get a job which pays enough to support your lifestyle. When people are losing their jobs, there are more people competing for less jobs. Basic economics. I think 6 months at the least, 12 months preferable. At around the 9 month mark, I also start calling it an F-U Fund, rather than an Emergency Fund. Why? Well, with an Emergency Fund you’re just trying to survive after getting fired from your job. With an F-U Fund you’re free too look around after you quit your job.
F-U Fund Example: $2077/month budget x 9months = $18,693 Needed.
Last, your F-U Fund should be in liquid, non-stock or realestate forms (cash, money market, CD’s). That last thing you want to do is sell stocks, IRA’s or Funds in a down market, especially for a loss.
Good luck and squirrel away those nuts!
Topics: Personal Finance, Savings |
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