How Political Perspectives Change Your Money Choices

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Is the United States headed in the right direction? Is it headed in as poor of a direction as many prognosticators like to say that it is?

You’re going to get as many answers to that question as there are grains of sand on a typical beach. Some people will agree completely with a certain prognosticator. Others will shout “DOOM!” from the rooftops. Still others will say, “Bah, it’s not so bad” (I tend to be in this latter group, mostly because I think fear itself reinforces and blows problems out of proportion).

Who’s right? Who knows? No one is psychic. No one can tell us what the future will bring with absolute certainty. However, we all have our opinions and we all have our own sense of where the nation is headed.

This perspective guides us in a lot of ways. It can guide us to where we get our information. It can guide us to the social groups we participate in.

Yes, it can also guide us with regards to what we do with our money.

Money Choices If You’re Negative
Here are some of the financial decisions you might make if you believe the economy is headed in a terrible direction.

Make minimum debt payments on all fixed rate debts. If you believe the dollar is going to enter a period of rapid inflation or devaluation, then you should want to delay your payments for as long as possible so you’re making your later payments with dollars that aren’t worth very much. Instead, channel those dollars into the things below.

Invest in tangible goods. Items that you can hold in your hands are always good investments during a downturn. Invest in land and in housing. Have plenty of food on hand. Improve your residence so that you’re less reliant on external services through things such as solar power, wind power, heating created by fuel you produce yourself, and so on.

Invest in international stocks and currencies. If you believe the U.S. is headed for disaster, it’s not a bad idea to buy the currencies of nations you believe will ride out this situation as well as the stocks of companies that will survive it.

Money Choices If You’re Positive
On the other hand, if you believe the economy is on solid footing, you might want to consider these things.

Pay off your debts as quickly as possible. Debts are simply money leaks. As the economy rebounds, you want to be on the firmest financial footing you can be so that you can take advantage of the abundance of work and entrepreneurial opportunities that a rebounding economy provides. The stronger your personal cash flow, the better.

Invest in yourself. Hand in hand with paying off your debts is making sure that you have all the skills you need to succeed in this growing economy. More education might be on the table, for one. Attending conferences (and actually using them) is another route to success.

Invest in domestic stocks. If the economy is heading towards a healthy rebound, stocks have nowhere to go but up. A bet on the rebound of America is a bet on the workers and the companies of America.

My Solution? Diversify!
Although some of the moves listed above are better in certain economic situations, none of them are ever a bad idea (assuming, of course, you’re not channeling your money into frivolous spending). Being self-sustaining is always good, as is having a good skill set for the marketplace. A diversity of investments is always a good idea, so consider a balance of international and domestic stocks in your retirement accounts.

You can, of course, use your political beliefs to narrow down what you do with your money, but diversification means that you’re not exposed to total failure no matter what happens.

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15 thoughts on “How Political Perspectives Change Your Money Choices

  1. “fear itself reinforces and blows problems out of proportion”

    I think this is true. Consumer sentiment is at historic lows, but consumer spending is actually up. Negativity seems to breed more negativity!

  2. “Money Choices If You’re Negative”
    “Invest in land and in housing.”

    How is this good if you’re negative? As things decline, housing seems to suffer the most. I would put this under Postitive category. As the economy recovers, housing may lead the way as it fell the most.

  3. Trent, I would be interested in your explanation of how someone could analyze the nation’s financial data and trends and be anything other than extremely pessimistic.

  4. Maybe I’m being fearful. I refinanced from a 30 year to a 15 year @ 4.875% 2 years ago wanting to pay my mortgage down aggressively. Now I’m not sure if that is a good idea. I want to refinance again to another 15 year loan, 1.75% lower than my current loan.

    Refinancing again will drop my monthly payments by ~$180, but will extend the loan 2.5 years (inflation would be on my side?). Interest savings will be a couple thousand more than closing costs so nothing compelling other than the drop (~20%) in monthly mortgage payments.

    I’m torn between staying with my current loan, or refinancing and saving the difference. It would make being able to cover the mortgage with rental income easier if I needed to move and rent it out.

  5. I would describe these as economic, not political, views. Political views are what to do about the situation. Anyway, I live in Australia and am increasing my investments in US dollars just because they are so cheap…

  6. What I took away from this a truth that applies not only if you’re pessimistic about the nation, but about your own financial situation. I was previously in a dead-end job in an industry that has been declining for years. I felt hopeless and therefore was not proactive with my money. Today, in a different job and industry, my financial situation is better mainly because I see that there is hope, and positive change is possible if I work at it.

  7. #4AMYK – there is a plenty to be concerned about, but among other things:

    1) The pace of deleveraging has rapidly slowed (US households BANKED a record 711 BILLION in the last 12 months…
    2) Fed Senior officers report loosening credit
    3) For the first time in 5 years economy is adding construction jobs
    4) Housing starts may seem to have found a floor
    5) Interest rates @ record lows
    6) Companies sitting on record amounts of cash and PE ratios very low
    7) Stock market is up 80% off its lows
    8) Public sentiment is very low. The public INVARIABLY mistimes market sentiment. Put it this way, if you were to buy stocks when sentiment is high in the long haul you would get crushed. If you were to buy when sentiment is extremely high, you do pretty well. {Buy low, sell high).

    Many many other pieces of data. It is easy to get scared, that is all the media shows. Again, plenty of problems, but the world will be going on.

  8. “…. I think fear itself reinforces and blows problems out of proportion).” Easy to say in your current situation with wife having cushy government job with generous health benefits, 10 weeks vacation in summer, week at Christmas, week at Easter and your good fortune in coming up with an idea which was perfect in timing and interest to a segment of the public. Try walking in the shoes of people made redundant and sending out hundreds of resumes without a call back, no health care, and maybe all those bloggers out there with perhaps 17 readers each. Part of your success is good planning (wife found a job, what if there are too many teachers and she didn’t get work?) and your sticking to writing your blog, but part is luck of the draw and you drew lucky. With 20 million (or more) Americans out of work or under employed, it is hard to see how our President’s desire to reward the unions with hundreds of billions of dollars which we do not have will improve the situation. If you and your wife were in debt, would you increase your spending to make the situation better? The same is true for our coutnry. If I was taxed less (my money not confiscated at gunpoint to pay for those who don’t have money) I would then work harder, work longer, earn and spend more money, contributing more to the economy. I refuse to do so, too many in the wagon and too few pulling, already. When my taxes are lowered I will work more, earn more, and contribute more, but certainly not until after the 2012 elections.

  9. Good job, Trent, writing a politically toned yet fair and balanced post.

    If I was taxed less (my money not confiscated at gunpoint to pay for those who don’t have money) I would then work harder, work longer, earn and spend more money, contributing more to the economy.
    The only part of that statement that could be considered to definitely happen is that you would earn (bring home) more money.

  10. #10 Todo es bien

    You mention some good points about our current situation, but none of the offsets. For example, taxes – I used to be able to make a pretty good estimate of what my tax bill would be each year, and mid-year I would update it, and change my withholding if it looked like I would be coming up short. It has been years since I could do that. Congress is always mucking about with our tax rates – sometimes even backdating changes in January to the previous year (see Clinton’s first term, first year!). If I can’t figure it out, with an MBA in finance and working in the industry, I doubt that many small business owners can either. If they don’t know what the tax ramifications are of hiring someone might be, they will hold back. Short-term fixes, tax credits for one year, all of those impermanent changes to the tax code will never do as much as a sensible tax code that Congress just leaves alone for a few years!!

  11. @#14 Agree with Snowy Heron – the total tax code needs an overhaul. I’d like to see that that the most someone could get back is what they put in. Poverty level working poor get a pass (in=out), but if you don’t work you get $0.

    I end up tweaking the state refund even more than the feds. Kansas taxes never line up with the feds ever! I get a fed refund about equal to my state bill almost every year. Weird.

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