Some tips for young players on navigating the economic downturn.
In October, a group of enterprising protestors took to Wall St, New York with a large cardboard sign saying: “Jump! You fuckers”. That is the heartening thing about an economic crisis. Amid the endless reams of dreary mind-numbing newspaper ‘doom and gloom’ analysis, there is still room for black comedy.
Those suffering a bad case of the credit crunch blues should remember not only to retain a sense of humour – but also that every cloud has its silver lining. Even in recession, there is an ‘up-side’. Indeed, one way of viewing an economic downturn is as nothing more alarming than the ASX’s annual stocktake sale with rock bottom bargains to be had on every floor. Canny investors survive by turning adversity to their advantage. So look, learn, and benefit from a bearish market.
A critical factor to keep in mind is that in rough economic times, more than ever, the golden equation to wealth creation remains: Budget, Save and Invest. Not forgetting to avoid excessive borrowing. The present sick state of the world’s markets only serves to remind us all that Thou Should Never Put On The Credit Card Today What Tomorrow’s Pay-packet Cannot Pay Off.
Tony Bates – a former head of Macquarie Bank’s Private Banking division turned founder and director of BluePoint Consulting in North Sydney – says “the best advice someone like me who is halfway into his career can give to someone starting out is start good savings habits early. Begin by cancelling your credit card and taking out a DEBIT Visa card.” Next, identify your financial goals and open accounts for them (for example Home Saving Account; Holiday Savings Account; Christmas Account etc…). Set up automatic payments into these accounts so you aren’t tempted between paydays. “Only buy stuff with cash you already have,” adds Tony.
Some other tips on making your wallet go further over the next 12 months include:
DO:
- Buy a first home – real estate prices are heading seriously south – plus there’s the $14 K first home buyers bonus (rising to $21 K for those who purchase a newly constructed home). However, one of the biggest lessons from the present economic turbulence is that credit needs cash flow. So don’t jump into such a major investment unless you can meet the financial obligations.
- Buy Macquarie Bank shares for $20 knowing your parents paid over $90 for them last year.
- Pick up a baby boomer bargain on Ebay. Recessions are notorious for sending boomers into a tailspin and they are selling all their surplus toys, from the BMW 4WD to the holiday shack. In extreme cases of boomer malaise, even the trophy house complete with third wife is up for grabs. Tony warns that “boomers might have stopped spending their kids’ inheritance – but they are now selling it. Get in early for the best bargains.”
- Grab a cheap travel deal. If you are in a recession immune industry – young guns in liquidation and insolvency come to mind – you might still be in line for an end-of-year bonus. Amazing deals abound. For example: Fiji is now offering $999 for four days (airfares and food included); the five-star Mövenpick Resort at Phuket is offering six nights for $1140 per person twin share, while a range of Club Med destinations are offering second person stay free. Hit the web for more deals.
- Switch your super fund to high growth. “You’ve got 40 years of roller coaster rides before you can touch it,” says Tony.
DO NOT:
- Plan a career in banking.
- Have children if you were relying on using ABC Learning Child Care centres. Then again your baby boomer parents might be begging for some extra cash in these hard times when bread can be difficult to come by. Hello Nanny Grandpa. Remind them that $5 an hour was good money during the Great Depression.
- Open your wallet for anything that’s not at least 25% off and preferably marked down by 40%. Retailers are desperate. Feel really bad for them as you shamelessly ban shops that refuse to discount on the brink of a recession. That is just downright impolite.
- Buy anything imported. Our dollar has plummeted – that clingy French number is now even exxier than the Kit Willow dress. So buy Aussie.
REASONS TO KEEP GETTING OUT OF BED EACH DAY:
* Fuel prices have recently dropped by 30% (from $1.60 per litre to $1.15).
* Mortgage and credit costs are down by 20% and falling (from 9.5% to 7.5%).
* Unemployment is still at its lowest levels in a generation.
* Election tax cuts came in on July 1. That’s $14 a week still left in the pocket for an average income earner of $50 000.a year.
* The Rudd Government is writing $10 billion worth of cheques before Christmas. Says Tony. “I’ve never seen so much stimulus thrown at an economy that’s still growing.”
In times of credit crisis the best thing to do is save and only spend what you have, don’t spend something now and pay it next month because it will cost you more and get you into very bad habits. Credit cards are easy to get and when there’s one in your wallet the temptation is there to you use it. Credit cards have more of a downside as if you miss a payment on your credit card it goes on your credit rating which affects loans and mortgage borrowing. When getting a mortgage save up as much as you can and put as much deposit as possible to get a good interest rate as it shows the bank you are committed by putting more of your own money.