With the current economic crisis, everyone is looking to the government to save the day. There’s a lot of talk about the economic stimulus package in detail.
Everyone is blaming everyone else for the economic situation, but nobody is willing to accept personal responsibility. In the long run, you are the only one who has to pay the consequences for your personal finances. Do you have a plan to get through these tough economic times?
Many people have taken all their money out of the stock market and similar investments in order to prevent loss of value. But is keeping cash in the bank or burying it a safe alternative?
The US Treasury is printing more money in order to stimulate the economy. The administration is also borrowing trillions of non-existent dollars from future taxpayers to fund their stimulus package.
Most financial experts are warning that these actions will lead to inflation, so the money you have stashed away will likely be decreasing in value. You need to have a plan in place to protect yourself against the effects of inflation. Some ideas to consider:
- Determine how much liquidity you need to evaluate which strategies are best for you.
- Invest in real estate. Your own home can be your first investment.
- Buy gold or silver
- Buy Treasury Inflation Protected Securities (TIPS)
If you are saving for retirement and have a while to go, less liquid investments will have less risk. If you expect to need to move money around frequently, or are nearing retirement, more liquid investments are more suitable.
Investing in a home can be a good hedge against inflation. With the market close to bottoming out, it is safer having your money in equity in real estate than tucked away in a mattress. A home is not a liquid investment but housing costs are a necessary expense whether you are buying or renting.
As long as the value of your property doesn’t decrease faster than the dollar is losing value, you are better off. If your property does lose value, it will rebound and appreciate again over the long term.
I wouldn’t expect to see the dollar regain it’s value any time soon, with future generations working to pay off the massive national debt we are handing down to them.
As the value of the dollar drops, wages will have to increase to keep pace with inflation. If you are able to buy a house by borrowing today’s dollars and pay off the loan with tomorrow’s dollars your housing costs as a percentage of income will be much lower.
Another hedge against inflation is buying gold or silver. This has greater liquidity than real estate. It may involve some risk, but generally performs well against inflation. Be careful to deal only with reputable
TIPS (Treasury Inflation Protected Securities) can also be used to protect your savings against the effects of inflation. These securities are guaranteed by the US treasury and adjusted for changes in the Consumer Price Index (CPI). If held until maturity You are guaranteed to get either your original principal amount or the inflation adjusted principal, whichever is greater.
Any combination of these strategies can be used to make up your own economic stimulus package in detail. Just be sure you have some plan for the future.
If you haven’t started saving for the future, you should consider it now. The sooner you start building your nest egg, the easier it will be to create a sizable retirement fund.
Your first step may be to create a budget that includes a category for savings and investments. If you need help creating a budget, try Money Tree Budgeting Software. It will walk you through the process step by step.
Allen Davis
RealEstateSearchDirect.com
No comments yet.