Things that make you go Hmmm
Here is something that I've been pondering lately. I am curious to hear your thoughts.
It seems that we are finally at a breaking point with this economy, and all of the Joe Sixpacks (I promise to never use that term again) of the world need to start making some changes. So let's say that Joe gets an economic stimulus check from the government, or a nice Christmas bonus from work, or maybe even gets a second job and starts pulling in some extra dough.
Let's assume that Joe is like many Americans, and has:
- significant credit card debt
- little or no savings
- inadequate retirement savings
- little or even negative equity in his home, thanks to the collapse of the RE market
How should Joe use this extra money? Let's say it's $1000, just for argument's sake.
Joe could apply the $1000 to his credit card bills. He's probably paying anywhere from 10-20% interest, so the $1000 reduction will save him $200+ a year and get him closer to paying it off once and for all. BUT, if the economy continues to tank and Joe loses his job, that cash will be long gone and he'll be relying on credit cards to get by.
Joe could put the $1000 into a savings account. Then the money will be available should he lose his job or have an emergency. BUT, he'll still be paying the 10-20% interest on those credit cards while only collecting 2 or 3% interest on the savings account.
Joe could also invest the money into the stock market. This might be a great time to invest, at least for those of us who don't need to sell for another 20+ years. Buying low today could be a great way to ensure a comfortable retirement with or without Social Security... that is, IF the economy rebounds. But if Joe puts the money in the stock market, he is essentially gambling with his money while ignoring the immediate financial situation that's staring him in the face - right? Or is he helping the economy by taking this leap of faith?
Joe could also apply that money against his mortgage. If he owes more than his house is worth, it may be beneficial to pay it down so that he'd have the option of selling his house if worse comes to worst.
If you were Joe's financial advisor, what would you suggest?
If Americans are eventually encouraged to get our personal financial matters under control, where do you think they'll ask people to start? Which of these options will most benefit the individual's financial health, and which options will most benefit the country's financial health?
Just curious. Opinions, please.
It seems that we are finally at a breaking point with this economy, and all of the Joe Sixpacks (I promise to never use that term again) of the world need to start making some changes. So let's say that Joe gets an economic stimulus check from the government, or a nice Christmas bonus from work, or maybe even gets a second job and starts pulling in some extra dough.
Let's assume that Joe is like many Americans, and has:
- significant credit card debt
- little or no savings
- inadequate retirement savings
- little or even negative equity in his home, thanks to the collapse of the RE market
How should Joe use this extra money? Let's say it's $1000, just for argument's sake.
Joe could apply the $1000 to his credit card bills. He's probably paying anywhere from 10-20% interest, so the $1000 reduction will save him $200+ a year and get him closer to paying it off once and for all. BUT, if the economy continues to tank and Joe loses his job, that cash will be long gone and he'll be relying on credit cards to get by.
Joe could put the $1000 into a savings account. Then the money will be available should he lose his job or have an emergency. BUT, he'll still be paying the 10-20% interest on those credit cards while only collecting 2 or 3% interest on the savings account.
Joe could also invest the money into the stock market. This might be a great time to invest, at least for those of us who don't need to sell for another 20+ years. Buying low today could be a great way to ensure a comfortable retirement with or without Social Security... that is, IF the economy rebounds. But if Joe puts the money in the stock market, he is essentially gambling with his money while ignoring the immediate financial situation that's staring him in the face - right? Or is he helping the economy by taking this leap of faith?
Joe could also apply that money against his mortgage. If he owes more than his house is worth, it may be beneficial to pay it down so that he'd have the option of selling his house if worse comes to worst.
If you were Joe's financial advisor, what would you suggest?
If Americans are eventually encouraged to get our personal financial matters under control, where do you think they'll ask people to start? Which of these options will most benefit the individual's financial health, and which options will most benefit the country's financial health?
Just curious. Opinions, please.