Compelling Economic Reasons Why Playing It Safe Isn’t Working in Today’s Economy
The economy – it’s on everyone’s mind. Even though there are bright spots, and even boom conditions – North Dakota, anyone? – for the most part, economic challenge is the reality. In the U.S., the Los Angeles Times reports the outlook is grim even for those who are employed:
Employers announced 115,730 planned job cuts last month, more than double August’s total of 51,114, according to the report from consultants Challenger, Gray & Christmas, Inc. The figure was the highest since April 2009 when 132,590 layoffs were announced.
The conditions that affect these statistics are like the stagnant air that gets trapped in the L.A. County basin from time to time. With the mountain ranges blocking the way, westerly winds that would normally dissipate pollutants are ineffective, and the suffocating mass of smog descends and lingers, choking and compromising the health of anyone who breathes. When will it end and what can be done?
John P. Hussman, whose investment funds are positioned for “long term returns while managing risk,” explains why the economy is stifled, and will be further compromised by increasing lack of demand:
. . .all of us are presently benefiting from the continued demand for default-free securities (specifically, U.S. base money and Treasury debt – which I do continue to view as default-free). It is only that demand that has allowed inflation to remain low despite the massive expansion of government liabilities far exceeding GDP growth, and of misallocated credit that has produced losses rather than surplus output. The overhang of mortgage obligations and sovereign debt, matched neither by current value nor future output, is an extraordinary threat. First, it contributes to keeping resources idle, because it forces consumers and whole nations to remain on a path of austerity and debt reduction rather than spending. At the same time, it prevents businesses from hiring, because they know that demand is not forthcoming. Finally, to the extent that we pursue policies that use public subsidies and money creation to make that debt whole instead of restructuring it, we can expect inflationary pressure in the back half of this decade, because the amount of credit created is not commensurate with the amount of productive capacity that has resulted from it.
When the forecast calls for job cuts and conditions prevent other businesses from hiring, employees are doubly vulnerable, and the unemployed have ever-dwindling recourse. This overwhelming status exacerbates daily stress and keeps people awake at night with worry.
What does this mean to you? No matter what your circumstances, you need a Plan B. Now more than ever, resourcefulness is the name of the game. If these indicators are correct, it will be increasingly more difficult to depend upon previously dependable employment, and if you are looking for a job it’s going to be even harder to get one.
When the going gets tough, the tough start a business.
Starting a business is one of the best things you can do to leverage uncertainty, even if you’re currently employed. This statement may seem counterintuitive, but it’s true. There’s risk involved, to be sure, but if you can get to the point where a side business is routinely providing you with supplementary income, you’re less vulnerable should a layoff come. If you’re currently unemployed, you know how hard it is to find another job. Why wouldn’t you be hustling up some income with a business venture of some sort?
Sean Ogle, writing on How to Live the High Life in Bali (I know!), raises two points. 1) Everything is More Attainable Than You Think and 2) Being Resourceful Will Go a Long Way:
Why don’t most people get to live out their wildest dreams? Quite simply put: they don’t try. It either seems to be too much work, or they don’t believe it’s possible, so they don’t try at all. Since most people won’t try, there’s that much opportunity for the person who does.
Some people think being a business owner is something they can’t do. Hussman says they already are without realizing it: “. . .even people who earn income from a paycheck are entrepreneurs in the sense that they are in the business of selling labor services.”
Others, who justify keeping their job because it’s a “reasonable commute,” don’t realize how much it costs to keep it:
…this misconception about what is a reasonable commute is probably the biggest thing that is keeping most people in the US and Canada poor.
38 miles/day x IRS estimate of $0.51/mile = $19/day
40 minutes of mixed to high traffic during rush hour sync’ed workday hours = 80 minutes per day = one extra work day each work week to commute
A couple with an equivalent commute would incur costs of approximately $125,000 over ten years, plus spend about 1.3 working years worth of time.
What’s your hourly rate? The least expensive rate I charge for certain services is $50. If a working year at my pay rate is 52 weeks (remember, I am not an hourly employee, I am billing for services/time which I actually work as opposed to have to be at an office) averaging 15 hours per week, a very conservative estimate of the value of my time spent commuting in the above scenario would be around $50,000. (52 weeks x 15 hrs/wk x $50 x 1.3)
Over a ten year period, the same professional couple in the above scenario, each using my conservative estimate of time value, would have incurred just under a quarter million dollars expense – a fairly decent house or condo in many real estate markets. Think about that the next time you’re sitting in traffic!
Further, if you care about the environment and your community, consider this:
72% of Los Angeles County commuters drove alone for an average of 28.8 minutes one way. Of those, 82% used a car, truck or van.
So this slightly higher than average usage would equate to a greater financial deficit over the same ten year period, although the actual mileage driven would be less due to higher levels of traffic/slower speeds. The overall impact on the economy should be considered, as the loss of productivity equates to diminished tax revenues from source sectors. Commuting not only cuts into your personal time and ability to accumulate wealth, but precludes you from consumer behavior.
Today, Pete and I commute approximately 20 feet (well, 50 if you count going downstairs to brew or refill coffee in the kitchen) to our home office, or if we’re traveling, our office fits into a rolling piece of luggage. More and more people are figuring out that work is going to be something you do, rather than someplace you go. Freedom is a bigger game than power, say Mavericks at Work. If you’re putting a Plan B in place, you’re probably going to work it from home as a side hustle, too. Imagine saying goodbye to the expense and hassle of going to work!
Given the fact that traditional retirement isn’t in the cards for today’s workers – the Bureau of Labor Statistics has found the number of Americans working over the age of 65 has risen about 58% over the last decade – as we age, work that complements our physical capabilities is going to be necessary. We are amazed at the number of people we still encounter for whom the thought of using a computer is terrifying because they’re unfamiliar with it. Get a grip! If you know how to get online, you can learn to make money. And if you don’t know, you’ve got to understand there is more at stake than not keeping up with friends and family on Facebook.
All of a sudden, putting some time and effort into a Plan B doesn’t seem so risky.
We’ve been working steadily for over four years on our own version of Plan B. It hasn’t been easy. Four years is what it took me to earn a college degree back in the day. A Plan B can be a similar commitment. At certain points, we’ve each worked the equivalent of two jobs getting things to where we are today. We decided that multiple income streams were less dangerous than having all our eggs in one basket, and we set up a structure to enable these variable sources of revenue. Four years in, it’s working.
Did we make mistakes along the way? Sure. Did some of the stuff we tried fail to pan out? You betcha. But, other activities have gained traction, and we’re paying the bills. We’ve simplified our lifestyle and reduced our daily overhead, allowing us to do and pay for the things we want, rather than the things we have to maintain. We still work hard whether we’re at home or when we’re traveling, but it seems more like fun. And because it seems like fun, some think we don’t work hard at all!
People say to us all the time: “Wow, we wish we could live the way you do.” What they don’t realize is that they can. They can let go of needing to keep up with the Joneses, downsize their lifestyle, work long hours in front of a computer screen, design a business that supports their objectives and work on it with discipline and consistency. There’s nothing magical about it, although perhaps loving your life may seem like a magical thing when you feel stuck in circumstances that you think are out of your control.
There are two ways humans respond to stress: fight or flight. Nowadays, the flight from economic stress is more metaphorical; we retreat inward. We get depressed, turn into couch potatoes, feel defeated, drink more alcohol, get cynical, passive and negative. The fighters against economic uncertainty are the ones who take action, creating their own change out of the circumstances, responding with optimism, enthusiasm and resourcefulness.
We know what we’re doing about all these things. We’re working our Plan B and it’s working for us. What are you doing?
- HUSSMAN: The Recession Is Still Coming, And The Europe Mess Has Barely Gotten Started (businessinsider.com)
- The True Cost of Commuting [Commute] (lifehacker.com)
- What Is Your Take Home Hourly Wage? (wealthartisan.com)
- RELIANCE (passingthru.com)
- FINDING VALUE IN UNCERTAINTY (passingthru.com)