Everyone keeps talking about inflation and recessions and how terrible it’s going to be for everyone. I don’t understand any of it, but I do want to know what I can expect over the next couple of decades.
I used my savings as a down payment on a house, last year. The house is not worth as much as it was then, but I got a fixed rate traditional mortgage that I can afford. However, because of this payment, it’s now pretty hard (impossible) to contribute significantly to a savings or investment fund.
The company I work for has granted me stock options that are now much less valuable than two years ago. I haven’t excercised these options yet, but no matter what happens to the stock price, my options buying price will stay the same. Can I expect the company stock to go back up to where it was 2 years ago, anytime soon?
My wife and I have jobs that we’re extremely unlikely to lose due to shifts in the economy. We’re very stable there, but I was hoping to take a student loan out and spend the next year training for my “dream” job that might be a lot harder to get. Is that a bad idea? Are jobs really going to be that much harder to get?
So what does all of this economic stuff mean for average people like me?
If you could guarantee what was going to happen in the future, you could make yourself rich (either by selling short, or long). Since know one can say for sure what’s going to happen, you should just live your life in the conservative way you have been, and enjoy yourself.
Long term trends all but guarantee your house will be worth more money than what you paid for it, but it’ll take a while. How long is anyone’s guess, but within 10 years is almost certain based on past patterns.
Your company stock price is partly dependent on larger trends (the entire market tanked today), and individual performance (how well your company runs its business). Much harder to predict without knowing the company, and even if we did know it’s still an educated guess at best.
Well, some are predicting widespread inflation. Dollar’s tanking and the feds pumping money into the market. If that happens, your house purchase will feel good as your payment will stay the same and your savings (if you hadn’t bought the house) would’ve been worth much less.
Otheres are predicting deflation, particualrly with housing prices. In that case, you’ll be kicking yourself when you see how much more house you could’ve bought for less money. (BTW, I bought in January, probably right at the peak, bleh). You might be underwater on your mortgage (owe more than the house is worth) for a while but if you can stay put, it’ll eventually even out. (can take quite a while, if it’s as bad as Japan in the 90’s, it could take over 10 years or so).
Personally, I’m betting on deflation. Money isn’t as easy to get and there so many things connected with the housing market that are also gonna start tanking (realtors, brokers, furniture stores, household appliances, construction, boats, new cars, the list is pretty long) that I think we’ll see some pretty hard times ahead.
Your personal housing fortunes may be headed up and down, and there does seem to be a big trend in dropping house prices that isn’t over yet. But having a fixed mortgage rate and stable jobs insulates you pretty well from those things.
House ownership, the American Dream, is heavily subsidized by not taxing mortgage interest and in some other ways. If you’re in the USA, you are benefitting greatly from this political institution.
While it is hard to really know, I bet you should pursue your education and career goals, and just be somewhat cautious and thoughtful before each big step. Maybe you should be nervous if you want to stretch for a second mortgage to pay for education, and then when you finish, leave the stable job for a less stable one that pays less. But if you’re talking 10 or 20 thou and you don’t have to leave your stable job for a while, you’re probably fine!
Just asking, but does your job have some sort of educational reimbursement plan?
If you can afford it, I have never believed that training for your “dream job” is a bad idea. Sure, it might not happen, but it sure as heck might and the only way you could take advantage of the opportunity is to be prepared for it.
Even if nothing career-wise happens, and if you can afford it, I have never believed that continuing education, expanding your mind and horizons is a bad idea. (I know, this last belongs in IMHO, sorry)
“Are jobs really going to be that much harder to get?” In 5, 10, 20 years from now, who can really say? Some will, some won’t. Trying to predict the future is a very iffy proposition. Things flip-flop. Who knows?
As long as you plan, and consistently live below your means, it is unlikely that you will come to a bad end.
I really think most people should take a personal finances course as well as learn basic accounting and economics.
Inflation is the increase in the price of goods, relative to income. So, for example, if inflation rises 5% (which is high) and you get a 2% raise, you can effectively purchase 3% less stuff than you could last year. Or in other words, your salary has effectively dropped 3% in real terms.
Recessions are a natural part of the economic cycle and are characterized by a reduction in the nations real Gross Domestic Product for some period of time. In simple terms, we as a nation are producing less stuff.
In practical terms, what inflation and recession means to you is that you will have to cut back on your purchases. Your employer may also be affected and might even have layoffs causing you to lose your job. So as a contingency you may want t save as much as possible, update your resume and identify any skill gaps you might want to fill as wll as develop your professional network.
You also want to be aware of the fact that inflation can eat into your savings. If inflation rises 5% and your savings acount provides you with 2% interest, it is as if you lost 3% of your savings. Generally you want to find investments that offer a return that beats inflation.
That certainly sucks, however you still gain the utility of actually living in the house. You should be fine, provided you can afford your monthly payments. Also, you might want to try refinancing.
Depends on your company, the industry it is in and how much the price has dropped. Obviously if we knew the answer, none of us would work for a living.
That is an incredibly bad idea. First of all, its always better to havea job when you are looking for a job. It makes you more valuable to employers and gives you more flexibility in accepting the right offer.
Second, you never know what the job situation will be in a year in your dream job.
Finally, there is an opportunity cost in leaving the work force for a year. You’re usually better off taking evening and weekend classes for a little longer.
It depends though. If you have an opportunity to go to Harvard Business School, it might be worth taking the two years off.
Not much really. You have no control or influence over macroeconomic forces. All you can really do is live within your means and try to make sound financial decisions - save, avoid bad debt, develop yourself professionally.
