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Monday, May 9, 2016

Economic Depression and You



Anyone want to bet on the economy? Anyone?

Funny thing about economic downturns. The kinda sneak up on you. We tend to think the start of the last major depression coincided with the collapse of the stock market. While in hindsight that was a major turning point, the average Joe at the time didn't feel it. Some folks were impacted right off, but others didn't feel the pinch for a year, two years or even longer. A minority actually prospered.

Even most of those who lost big didn't get feel the full brunt of the downturn immediately. It took some time for savings to be exhausted and debt collectors to catch up. Some folks limped along for a while selling hard assets at fire sale prices. There are families who's tales of the depression are about how they had to let most of the servants go. Yeah, times were hard on them.

There are a couple of ways to deal with a downturn in one's economic situation. One is to limp along trying maintain as much of the old lifestyle as possible. Middle class people will probably try and do that by living on their credit cards. The idea is that when their situation improves they'll make good on all that debt.

Another method is to not wait for things to get better. Instead you assume things won't, at least for a long time. With that in mind a person's lifestyle is ruthlessly cut back. Expenses are reduced to reflect one's downsized income.

Personally, I've used both methods at the same time. That's not something I recommend, but I had some reason to expect a monetary settlement that would eventually cover most of the debt. While it worked for me, it was a near thing. The stress level is pretty high so if you can reduce your expenses and still live a reasonably comfortable life, that might be better.

Most people think they are in pretty good shape if they have the resources to survive a year. Yes, that's good, but economic depressions don't last just one year. If you can radically downsize maybe that cushion can last much longer. The time to prepare for a down turn is before it really impacts you.

On a personal level I was fortunate that I had my own well, some solar electric power, and a woodstove. Those resources were extremely useful. However, after four years I was about to lose the house for nonpayment of the mortgage and taxes. Even if the house had been paid off, I would have been unable to pay the taxes. That's something to keep in mind. They will take your house away and put it up for auction.

Now is a good time to figure out how to deal with a depression. It might be a world wide economic downturn or it could be something personal like a job loss, medical expenses, or other problems like legal issues.

Don't let your problems pile up. Have a plan. The last thing you want to do is ignore approaching disaster.

-Sixbears

12 comments:

  1. thanks. deep in debt and lots of medical issues here.
    age catches up with you.
    take sixbears advice and downsize now, pay off those credit cards.
    and pray for the rest of us who have to deal with the same mess.
    thanks.

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    1. I've some unexpected bills to clear up myself. I'm happy that I can do that right now and still live comfortably. Nothing ever seems to stay fixed. :)

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  2. So true - lots of people think that if the home is paid off, it's theirs. Your state really owns it, your land and your water if you don't pay for the privilege of living there through taxes.

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    1. Being on a lake is great, but I'm taxed pretty high because of it. NH has high property taxes because they have no sales or income tax.

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  3. Since my wife retired in December we have cut back where we can. We take day trips in the mountains instead of going out of the area and have really ratcheted back on bills where we can. It hasn't hurt our quality of life and preserves our resources.

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    1. Smart move. Staying ahead of any budget shortfall.

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  4. "...but economic depressions don't last just one year."

    True that. For my Father and his family the Great Depression lasted from 1930 to 1948, that is a long time to just get by. They were a farm family so they didn't starve but that is about the only thing that worked in their favor.

    Most folks I know have little or no savings, they live their lives one or two paydays away from the poor house.

    The next major depression and/or disaster should make for some real interesting times.

    -Moe

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    1. That's a long time indeed. It'll be rougher in some ways as hardly anybody lives on a farm and can't feed themselves.

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  5. I've been "economically depressed" for years. It ain't a lot of fun, but it DOES help you sort priorities.

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  6. Great post. You hit on one of the biggest problems I see when folks hit hard times. Normalcy bias and denial kick in and they aren't ready to let their old lifestyle go.

    It's hard to face the fact that things might not get better soon. As a whole, Americans are fairly optimistic people and we wait for the lucky break, divine intervention, the hero to win, etc.

    Sometimes, things just suck.

    The sooner you embrace the suck, the better.

    There is less downside in implementing emergency contingency plans early than not. If you downsize early in a depression, you can maximize your resources. If things get better earlier than expected, you can claw your way out quicker.

    As always though, easier said than done. It's hard to eat humble pie and accept that things have gotten beyond your control.

    Idaho Homesteader

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    1. Normalcy bias can be our biggest foe. It can kill.

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