Thursday, April 23, 2009

Parameters for planning #2: debt, money

Do you own your own home free and clear? Is it the kind of place you need to be living in and is it in a good location? If the answer to any of these questions is no, consider putting it on the market now. Prices are not going to rise. Debt will become very difficult to service and you can expect these difficult conditions to arrive abruptly, leaving masses of people trying to exit the debt trap through a narrow opening. At that point prices will crash through the floor and even excellent properties will be left unsold because no-one will have the cash to bid.

We have confused credit with money. There has been a lot of credit around and that is what the industrial west has been living on. Credit cards, home equity loans, no cash down consumer purchases. This credit is what is going now and will vanish almost completely. We'll be left with money only and the shocking discovery that there's actually not very much of it.

Rent yourself a house and let someone else take the massive deflation hit which is coming. Even better, share it with friends and cut your outgoings right back.

Move your capital into things of value. Get rid of those collectables on eBay while you can still get something for them. How long is it since you even looked at those Star War figures or your Asian beer can collection anyway? Take the money and cruise round the outer suburbs where the mortgage stress is highest and the McMansions biggest, check out garage sales where unemployed builders are selling off high quality tools for a pittance and get yourself kitted out.

Learn skills while it's cheap. Learn to weld, do woodwork, sew and fix your own clothes. Do a first aid course and find out how to manage your own health care. Learn to service/fix your vehicles yourself. Go to Jaycar or Dick Smith, buy some electronic tools (soldering iron. multimeter, good screwdrivers and pliers) and build some kits. Save yourself a fortune in appliance purchase and repair! Make sure the house you rent has room for a vegie garden and get stuff growing! Get back control of your immediate environment.

It'll be different when we come out the other side of this in ten or fifteen years time. We'll all know the score by then and be back in some sort of routine. But the transition, which has already started, will be very difficult for us all. Armour yourself. Don't cling to false hope. Business As Usual will not return. Learn to surf the avalanche. Good luck.

Edit: today there's a great post by Amanda Kovattana on innovation and self-reliance—check it out

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