I know that talking about money and economics is quite the departure from my regular post topics. However, I have been so inspired by the book Aftershock (Wiley, 2011), that I wanted to share what I have learned.
This book resonated so deeply with me as Peter and I struggle to get our finances together. I read it last Thanksgiving. Actually my Dad was reading it and then I took it over and devoured it.
I am pretty lucky. I come from a financially blessed family. I am no Paris Hilton, not by any means, but I never lacked for anything. And honestly, I have also never lacked for anything I needed in my married, adult life. My parents have always financially been there for me, if we got into a pickle, and my husband earns a good living — they work him to death and he should be earning more, but I know it could be a lot worse.
Even though I am lucky in that way, from the moment I graduated college I was determined to become financially independent. I want to be in a place where I am not financially dependent on any man, whether it is my father or my husband. I am nowhere near where I thought I would be by 30, but I am on my way, and I have learned a lot about money and investing during the last 12 years since moving out on my own.
After reading the Aftershock, I emailed the authors and to see if I could get a private consultation and get more questions answered.
One of the authors, Cindy Spitzer, a mother of three teenagers, responded and was happy to give me a consultation in return for mentioning the book on this site, which was awesome, since I was going to promote it anyway!
I really wanted to share with you what I learned because I figure a lot of people are in the same shoes as we are. New parents, stressed to the max, trying the best they can to make the best financial decisions in order to protect the financial future of their family.
Once you have a kid, the realization of how much money it takes to raise a family can be very overwhelming. Before reading the book, I had a lot of anxiety about how we were going to make it all work. After reading the book and talking to Cindy, I feel like we have a solid plan in place.
The coming Aftershock economy will be an economy we have never seen before. The days of mindlessly putting money into a 401K and seeing a good return in 30 years is over.
Instead of rising investments, we are experiencing a series of popping bubbles, what the authors call a Bubblequake, which will be followed by a destructive aftershock causing a domino effect of economic problems around the world and serious financial challenges in our own families.
The days of buy-and-hold or “set it and forget it” investing are over. The current and future investment environment requires active management. That means if you have a 401K or a family trust, it is now going to require very, very diligent care. If you have substantial assets, you need to get yourself a damn good financial advisor, someone who understands the macroeconomic changes that are occurring and can help you protect your assets and even set you up for the potential profit from these dangerous times.
Here is Cindy’s advice, especially for young families like us:
- Cut spending and live within your means.
- If you can, get out of debt (other than your home mortgage).
- Refinance all adjustable-rate mortgages and other debts to low, fixed interest rate loans. As inflation and interest rates go up, you will be paying back these fixed-rate loans with cheaper and cheaper dollars.
- Unless you plan to stay in your current home for a decade or longer, you are better off selling you house now than trying to sell it later. Home prices are only going down, not up. So unless your house is your dream house that you never want to leave, SELL.
- Contribute no more to your 401K than is necessary to get the employer match, if that is an option. In this scenario, it’s free money, so even when the stock market crashes you will still be ahead.
- If possible, convert inactive 401Ks to IRAs so you can have more investment options. Most 401Ks don’t have many good choices.
- Do not save for college for your kids or invest in 529 plans. They won’t be worth much later. Focus on getting out of debt and building your savings.
- Build up an emergency cash fund to cover at least six six months’ worth of expenses.
- Buy gold. Yes, gold will eventually be a bubble, too, and will also eventually pop, but for many years gold has risen while the dollar declines and the stock market and other bubbles pop. Unless you have substantial assets and can afford to buy 10-ounce gold bars (currently at about $16,500 each), plus pay for protective storage in warehouse, you can just buy a safe for your home and begin buying one-ounce gold coins. Even if you cannot afford that now, you can just stash a little cash in an envelope from time to time and when you have enough go to your local coin shop and buy a gold coin or two. Even if it takes a year or longer to save up enough to buy just one gold coin, someday you are going to be very, very glad you did!
If you would like more information, you can buy or borrow the Aftershock book and visit the book website at www.aftershockeconomy.com, where you can sign up for a two-month free trial to receive their newsletter and live conference calls.
You can also contact Cindy Spitzer at (443) 980-7367 for a private consultation by telephone as I did, or find out more about active investment management based on the ideas in Aftershock.
Has anyone read this book? What ideas are you implementing first?