Financial Planning Lessons for All

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It is a succinct statement on the state of the economy.

”The delay in a rebound of US home sales continues to surprise”. The Boston Federal Reserve Bank President is not the only one nonplussed. Interest rate cuts have not worked. Where is the fix for the economy? Get back to basics for a solution.

Things were fine until the tsunami of mortgage defaults. Banks and home owners have been hurt most. The collateral damage is colossal. This means that Credit Management is the panacea for our shared ills.

Loans are shared responsibilities. Neither borrower nor lender gains if credit is poorly managed. It is not a matter of the interest rate alone. The Equated Monthly Installment (EMI) consists of repayment of principal, as much as it does the interest.

The purpose of debt matters even more. Never use a loan to speculate. Gamble with your own surplus cash. That way, others do not get hurt if things do not pan out. Derivative trading is fine for bank executives in suits. You can also play with loose change in your savings. However, realty paid for through a bank loan can turn on you.

It is human to fall for consumer marketing by banks. Be firm and insist on refinance if you have been handed a pink slip. Admitting to a tort before you are caught works with banks. That does not mean that you will not have to make painful and humiliating sacrifices. Bankruptcy cannot be ruled out. Prepare to do time in a financial sense before you decide on sub-prime.

These are tales of grandparents in financial planning. They can work for you whether you are Bernanke or broke. It does not matter if you are in deep trouble already.

The United States will pull out of recession. It will win the war on inflation, even if results in other theaters look reversible to the General with most stars.

It is back to fundamentals guys.

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