How To Stay Debt-free, Save Money and Buy All You Can Afford All The Times

When economic times turn tough, governments urge their citizens to spend. Economists think of citizens as "consumers" and rely on them to put their "disposable income" to work. By doing this they will support the economy, which translates into higher stock prices.

However, in times like early 2008, when consumers were reeling from the perfect storm of inflation, a global credit crunch, a global housing market in decline and concerns about stagflation, there is often a conflict with the governmental cry for consumers to spend. It's a bewildering scenario. What's the best course of action for a concerned consumer to take? The following strategies provide a road map for surviving economic downturns.

1. Do Not Buy What You Can Not Afford

We all want that designer sweater, leather handbag, or cute sports car, but most of us just can't afford to make the purchases. There's a simple solution to this dilemma. If you can't afford it, don't buy it. This is often the easiest point to understand, but it is one of the hardest to implement when all those goodies are staring you in the face and all your credit companies are telling you it's OK.

2. If You Can't Pay Cash, You Probably Can't Afford It

In our credit crazy world, amassing debt no longer carries a social stigma. Everybody has a car payment, a house payment and credit card payments. Well, remember what your mother said about everybody jumping off of a bridge? Just because "everybody" is doing it, doesn't make it a good idea. Buying something you can't afford now, especially when the economy is unsettled, can double the pain of paying later. For example, if you purchase a $450,000 home today and the market goes into a slump and devalues your home by $200,000, you will be paying the bank twice what the home has come to be worth. Just because it was easy to get the credit to buy that home, doesn't mean it was the right time for you to buy in.

3. Paying Interest on Anything Makes Somebody Else Rich

When you pay interest on a purchase, you are overpaying for that item for the luxury of getting to use it now. The simple act of paying interest means that the price you are paying to make the purchase is greater than the sale price of the item. You are giving away even more of your hard-earned money in order to own that item than the manufacturer thought the item was worth. For example, if you buy a car for $25,000 with a loan at 7% interest for five years, in the end, you will pay almost $30,000 for the car. Once you factor in depreciation, you're left with a very cheap car that cost you thousands more than it should have.

4. If You Are in Debt, stop Spending Money

Sometimes, such as when purchasing a home, the cost of the item is so great that you simply cannot afford to pay cash. This should be the exception rather than the rule. When it cannot be avoided, you need to close your purse and stop spending. Getting yourself further in debt doesn't help your financial situation. Making a realistic budget in this case is the key to success. Once you know how much you're actually spending on those daily trips to the grocery store and coffee shop, you'll be able to find room to cut costs realistically.

5. Don't Count on Somebody Else to Save You

In times of economic uncertainty, people often think the government will be able to help them, but unfortunately this is often the time when the government has the least amount of money and freedom to help its own citizens. In most cases, the government won't save you, so you'll have to save yourself. When the economy is in a downturn, you can't just look at what you are spending, you also need to look at where the money is coming from. Your employer is facing the same difficulties you are: trying to make bill payments, balancing the flow of capital, all while sales are slowing. Just like you, your employer will be looking to reduce its costs, which could be in the form of layoffs. You could be in big trouble if you haven't planned for this possibility. The plan here is to start saving now for that eventual rainy day, and prepare an emergency fund for yourself. If it is too late to start saving and you already need the money, many financial institutions will let you defer a payment or two if you prove you have a smart financial plan to eventually pull through.

When People Don't Spend

But wait! If we're all hanging on to our money rather than feeding the economy, what will happen? Will stock prices plummet? Will economic growth grind to a halt? Will we all be poor? No. For a real world example of this, let's take a look at Japan, where saving more than consuming has been commonplace in its people's history.

While being a net lender is a concept that the West abandoned some time after World War II, it continued to be practiced in Japan. During the mid-1970s, Reuters reports that Japanese consumers saved some 20% of their disposable incomes. During Japan's economic slump in the 1990s, the Nikkei 225 fell from a peak of 39,000 in 1989 to 16,000 in 1992. Gross domestic product growth averaged less than 1% per year, but personal savings remained in the double digits. Although the unemployment rate rose from less than 2.5% in 1990 to just under 5% in 2000, with an average of 3% percent according to the U.S. Department of Labor, it still remained lower than the rate in most industrialized nations. The net result? Japan remained a healthy, vibrant, wealthy country with a poorly performing stock market. If you've got savings and a smart financial plan, a weak market won't break you.

Live Now Like You Face Tough Times

These five strategies work equally well when times are good, so there is no need to wait until you are in trouble to start making smart decisions.Your lifestyle will be characterized by things you can actually afford, such as a house that won't get repossessed, a car that might not impress the neighbors but will still get you to work and back, and long, restful nights free from financial worries. It might not be the fairytale lifestyle of the rich and famous that corporate marketers having been trying sell you, but at least you won't have to worry about how to keep up on the payments for a lifestyle you can't afford.

InGodWeTrustFinancial: PersonalFinanceMoneyMatters Presents InGodWeTrustFinancial Basics

In God We Trust Financial Basics: Earning Money to Keep, Paying Down Debts, Saving for the Future, Diversifying and Investing

How do we, Americans, get into this financial mess?

All this mess over Fannie and Freddie and the housing crisis mask the real problem in this country - that's the fact that wages have not gone up for average Americans in a long, long time. The economy has been fueled by consumers spending their supposed home equity, while incomes have stagnated for all but those on the highest rungs of corporate America or pop culture. The average Americans do not know what it is like to have lots of discretionary income in a long time. They only work and earn enough money to make ends meet or to pay the bills. For sure, most would envy the large contracts offered and signed by a few athletes, rap moguls, musicians, and hip hop artists. That is why shows such as American Idol and America's Got Talent will continue to be popular. Lottery enters the mix too. They are a sure way to reach success in this country. All young kids dream about making it big in sports, music or some sort of entertainment industry. When they can not make it, they go to places such as Las Vegas, Florida and San Fernando Valley, Los Angeles to try to make it in alternative adult industries. By then, they may become disillusioned and deceived. Where is the power of hard work, saving and living within one's limits?

What has the recent real estate exuberance taught us as a nation?

During the real estate boom, people used their homes as piggy banks, tapping into their equity to pay off their car loans and their credit card debt and their student loan debt. With home prices dropping in most places (Riverside, California, Florida and Las Vegas, the home equity has dried up. Credit was easy to get and many people went for it. For sure, debts piled up. Now we are a nation of people in debt. We, Americans, are saddled by debts. We are at the mercy of foreign investors who continue to trust in our systems by lending and investing more money to our institutions. Yes, it is a global economy right now. It becomes more important for our leaders to reassure those foreigners who are seeing Americans snaking in long lines and making a run on their banks. God forbid these foreign investors, also fearing a crash, start to pull their money too! While this is going on at the financial institution level, everything is getting more expensive: food, gas, school supplies, textbooks, basic products, even movies are soaring in price. Unfortunately wages are not keeping up. So if people are struggling just to pay for the basics, what are they going to have left over to pay off their massive debt?

This bleak situation we have just described partly explains the foreclosure epidemic that has ravaged local neighborhoods. The brown grass that was once green and immaculate becomes common fixture in most neighborhoods. Show me a neighborhood, a community even the best and richest one, that has not had to deal with unsold houses whose for sale signs have been up for months and years.

Indeed, it is time to return to the basics. We need to manage our finances, save and diversify our funds. The good old days are long gone. The home equity cash register is long gone. In most cases, easy money led to waste and overspending. Credit card offers led to the indebtedness of the American individual. In most cases, they led to excess and overweight. It was a false sense of tranquility and wealth. The foundation was shaky, to begin with.

Now is the time to rethink our ways and start saving and spending what we have, but not what we do not have.

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What's the best way to Manage and Save Your money now?

What's the best way to Manage and Save Your money now?
The economy seems to be collapsing, the banks don't seem to be safe anymore and the market is falling.
Dollar cost averaging is the smartest long term strategy for these types of markets. Invest regularly and if you can do it every day. The markets are extremely volatile that it is important to invest as often as you can. DRIP programs are another good idea. Remember to diversify and do not operate from fear. Think about what you want to do in 5, 10, 15 or 20 years from now.

Diversification is the key to any good plan. Manage your money in accordance with your long-term needs, goals, and objectives. Where you put your money ought to be a reflection of your plan. Banks and credit unions serve a purpose. Do not make them the center of your plan.

Each individual situation is different, so I would highly recommend going to www.fdic.gov and using the Electronic Deposit Insurance Estimator, or EDIE, to figure out exactly how much of your money will be protected. Or you can always talk to your bank manager.

If a bank fails how long would it take for you to get your money through the FDIC?

How to Deal with Banks Failing: FDIC Knowledge and Resources

" According to the FDIC, there's no cookie cutter way these failures unfold. But if you've got $100,000 or less, there really should not be much of a disruption to your ability to get access to that money, if at all. Generally, the FDIC will either get some other institution to operate that bank or the agency will do so itself. So you should be able to use the ATM or write checks. Look at IndyMac. The bank failed on Friday. People could still get their money out through the weekend. The only thing that wasn't working was online banking, and I believe that was fixed by Monday.

Now, if you've got some uninsured money in a failed bank, that's a much different story. You could end up waiting a very long time to recover anything above that $100,000 limit and you might not be able to recover it all. The FDIC will have to liquidate the bank's assets. If there's cash left over after they deal with expenses and leave some money in reserves (which they are required to do), they will start paying out dividends to creditors and depositors. As I said, that could take years. "

But remember, do not panic if you don't have anything beyond that $100,000. And if you've got more than $100,000 and really want to be safe, spread it out over a couple of banks.

Savings Account and CD:

It's not $100,000 in any one account. The FDIC insures $100,000 PER depositor PER insured savings association. So you can have $50,000 in a savings account and $50,000 in a CD in one bank, and you will be fine. No matter what happens to that bank, your money will be safe.

What is a DRIP Program?
A Drip program is an acronym for a dividend reinvestment program. This type of investment strategy can be any dollar cost averaging program or systematic investment program