recreatingreality.com

If you are a regular reader, you are well aware that one of the foremost suggestions we have made is to get your financial house in order.  Again, while some have suggested that every household have 3, 6, or 8 months of income safely tucked away in a savings account, I have strongly suggested that every family should work toward having one full annual income in a safe place, liquid and easily accessible. 

One of the first ways to begin saving is to cut back on spending and eliminate credit card debt.  We have enslaved ourselves to the idea that buying is the “comfort food” of our country.  It now seems that we are beginning to wake up and smell the coffee, no longer Starbucks coffee.

It’s a sign of the times: Americans are pulling back on the debt they use to spend and fuel the economy, while their net worth is declining.

The government reported Thursday that household debt in the third quarter fell for the first time ever. Meanwhile, net worth dropped by the largest amount on record based on data going back to 1951.

Household debt fell by a seasonally adjusted $30 billion, or an annualized 0.8% in the third quarter to $13.91 trillion, according to the Federal Reserve’s flow of funds report.

Perhaps, our cutbacks cannot be attributed as much to good financial discipline as the rising rates of interest on our credit cards or the lowering of credit limits.

“Interest rates have shot rapidly higher in the last few months, and people are borrowing less because they don’t want expensive credit hanging over their heads,” said Michael Englund, chief economist for Action Economics. “The other component is the credit crunch, where qualified borrowers are unable to get credit.”

Just as we cut back on our gas consumption when the price at the pumps crossed some imaginary cost line, it seems that interest rates have crossed the line as well. 

With every adversity there is a seed of equivalent or greater benefit.  If there is one benefit that has come from our current financial crisis, it is that whether through choice or need we are recreating our realities everyday, and for the better.

Now is not the time to drop the ball.  Instead, now is the time to take advantage of the current situation to get our financial houses in order.  It is not going to be easy.  Overspending and irresponsible use of credit has become a habit across America.  This present crisis may teach us to be more fiscally responsible within the confines our our homes and families.

If you have not completed your family budget now is the time.  If you have not yet set your financial goals, there is no better time.  I refer the reader to previous posts that will help guide you through the process.