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IS IT TIME TO BUY?

I have had this question posed to me several times a day for the last two weeks. My first response to the question has been “is it time to buy what?

I have had calls about gold, about the stock market, and about real estate. I have had calls about new cars, used cars, and vacation homes as well. Most of these questions have been prompted by the activity depicted in the chart below: the Dow Jones Industrial Average movement over the last 60 days. The way I see it, everyone is actually asking is the financial crisis over? The articles I write for this space are a collection of my opinions and my outlook for the economy. From that perspective, I will answer the real question very emphatically: no, the financial crisis is not over! However, I will hasten to add that on a case by case basis, depending on your specific financial position and how you have been impacted by the crisis, it may be time to buy some of the things mentioned above.

We are in the midst of an economic cycle that was in formation for at least the last 5 years. The easy money posture of the Fed, the excessive government deficit spending, the biggest “bubble” in housing prices in US history, and the accumulation of personal debt at record levels by our fellow Americans all contributed to the devastating collapse in the financial markets. Yes there were abuses on Wall Street as there were abuses on Main Street; nonetheless, we are where we are and our best focus from this point forward is on the future. In order to insure the best focus, we first need to take long hard look at our personal financial condition. Only then can we answer the question “is it time to buy?

Over the years, the more notable financial advisors and economic gurus have collectively advised that each family "maintain at least six months living expenses in an insured savings account." This has been and remains great advice. However, it does not help those who have not prepared for this cycle. In most instances people hit hardest by this crisis are not in a position to stash away six months living expenses at this point in time. So the personal financial review to which I refer must start with a look at our budgets. What budget, you ask? Therein lays the fundamental financial problem facing many people today. We must have an accurate picture of our revenues and expenses on a monthly basis, alongside a picture of our savings on hand and at least an outline of our future financial goals and aspirations. This is the information required to begin a personal financial plan. The revenues and expenses are fairly easy to establish: look at the monthly pay stub(s) alongside the check register which details to whom and for how much we write checks on a regular basis. Let’s not forget the checks we write only twice a year: homeowners’ insurance, auto insurance, tuition bills, etc.

There are computer programs that will structure this information for you, although a school notebook and a sharp pencil will certainly get you started. After laying out our revenue and expected expenses, we will get the first picture of our financial condition. If we have savings set aside for home repair and maintenance, college education costs, vacation planning, retirement, etc., we list those amounts in a separate section to get a picture of our defenses and our future planning. Sometimes this very simple effort is a most revealing exercise which leads to some major changes in how we live, work and spend. At the very least, you will have hard numbers in front of you which are necessary to make the decisions regarding whether it is “time to buy.” I have always had the motto to “pay myself first” referring to setting aside to savings whatever amount possible on the most frequent basis. Most of us have received a small increase in “take home” pay recently, as new withholding tax tables have gone into effect. This is money we did not have a month ago…if possible put it all away into savings! It will become vividly clear after the brief budgeting exercise as to where we stand financially. I am certain that most of us have some picture of our financial health. However, I assure you that once you put it down on paper if you have not already done so, you may be amazed at what you see.

After obtaining a clear picture of our financial health, we are much better armed to take advantage of buying opportunities as they present themselves. As to what to buy, jump back to paragraph three and read "..outline of our future financial goals and aspirations." After we have taken stock of our financial health, it is time to look forward toward the goals we have set. I have always used professional advice to help me sort out various opportunities and risks. Knowing my financial health first, I have then been comfortable seeking input from BCU Investment Advisors, various investment banks, and several colleagues who specialize in financial planning. As enticing as the above chart may be, there are many factors that need to be considered in our personal financial planning. Slow and steady wins the race, so take the time to really know your financial position before asking whether “is it time to buy?”

©Patrick J. Catania 2009
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.

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