Quit blaming the economy and start protecting yourself already

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By Virginia O’Connor

Yes, we all agree that the economy isn’t the best right now, but enough of the blame game already. There is nothing that new in this financial crisis and some of us who have been around awhile have seen all this before. Remember the high interest balloon payment mortgages of the 1970s? I do, and I’m only in my 40s!

The old rules are now new again

When did it become not cool to save money and take a long-term interest in our own personal financial security? I don’t know, but we have to implement the old rules again if we’re going to make it. So, for those of you in the cheap seats who haven’t been paying attention before, here are some of the old rules to help you get started.

1 Housing prices are subjective, so you have to protect yourself.

• a Buy only what you can afford. This means a full monthly payment (that’s payment, insurance, taxes, and interest – or, your PITI) of no more than 1/3 of your gross monthly income.
• b Short-term fluctuations in housing prices cannot be controlled are best eliminated by carefully negotiating the purchase price and paying 20% down.
• c Get the lowest, fixed rate mortgage you can find and keep hunting until you find it.
• d Save money over the long term by investing in energy efficient appliances.
• e Improve your home’s energy savings in windows, doors, and roofing over time.

2 Start and build an emergency fund.

• a Get started, even with a small amount, and do it now.
• b Take a look at your monthly outgoing payments and figure out how much you’ll need for 3-6 months’ (some say up to 9!) worth of expenses in case you lose your job or are temporarily unable to earn income.
• c Now, go to your budget, set up an emergency fund, and start contributing to it every month.
• d Realize that you will be contributing to an emergency fund forever. You never know what expenses you will encounter, so do like the Boy Scouts do and Be Prepared.

3 Treat credit with great caution and specifically, stop rationalizing credit cards.

• a You don’t need credit cards as a safety net (remember your emergency fund?).
• b You don’t need credit cards for convenience (when was the last time you couldn’t use your debit card in the same situation?).
• c You don’t need credit cards to get the cash-back bonuses (this is a trick to keep you spending, haven’t you caught on to that by now?).
• d Debt is debt and when the money you owe outweighs your net worth, that’s bad. Period. So, take on new debt with great caution and pay it off with everything you’ve got.