Flying high or about to crash -- Revisited

Doug Horn

It has been a little over a year since I first wrote “Flying High or About to Crash.” Clearly, last January the economy and investor were in a different state of mind than they are today.

At that time, the markets were about to drop to new record lows, and trillions of dollars of wealth was soon to evaporate. Congress was still trying to take steps to float the economy and the financial system. Unemployment was heading to ten percent and above, and the American shopper was hiding at home.

While the New Year has passed, it is still time to consider many of the financial steps taken during this past year in light of the economy and income uncertainty or the loss of income, and see which new habits should be retained.

The U.S. is still in a recession and millions are still unemployed; however, the trend appears to have turned and the outlook is improving. Clearly it will take months if not longer to restore cash balances or reduce the additional debt load gained during the past year. But starting today to rebuild emergency funds or pay extra on the credit card balances will be a good start.

During this past year, I am certain everyone saw opportunities that were outstanding, whether it was the price of a piece of real estate or the stock value of some of the most widely known companies in America. The only way the opportunity was seized was if sufficient cash was in the reserves. It seems when times are good, most everyone is willing to spend all they make and then some to live a lifestyle just a little ahead of their means. Rather than purchase the new Chevy for $475 per month in a car note, it is often more desirable to lease for $450 per month the BMW or something similar. Purchasing creates wealth even though a vehicle is a depreciating asset, where leasing is renting and at the end of the lease there is nothing to show for the payments.

There are many steps that can be taken which will assist in building wealth rather than a lifestyle that has a larger appetite than there is income available to feed it. To do this, the old adage of waiting to purchase something until cash can be paid is far better than charging. For those with a life insurance policy with significant cash value, it may advisable to borrow a portion of that cash value to payoff credit cards or other debt. Of course, the amount being paid on the debt that was just paid off should be used to pay back the life insurance loan using similar interest rates. This way the interest is being paid to yourself (the policy) rather than to a bank.

Before taking this step, the costs should be confirmed and a discussion with the company or agent should take place to confirm the benefit. Also, establish a way to continue to pay premiums plus the loan repayment so the policy stays in force, and if principle and interest is paid, the policy values should not suffer.

Taking steps like this will improve your net worth, and when future economic growth abounds, instead of flying high, some of the gains can be set aside to take advantage of the eventual recession to follow.

For assistance with insurance, estate planning, and managing investments, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area.

To continue a personal quest for education, you can also view our learning center on our website, There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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