I hope you’re spending less than you’re making, so that you have some money left over.
In normal times, you could add to your financial strength by putting money in the bank or the stock market. That still might work, but I wouldn’t rely on it entirely.
One of my banks recently notified me that it was cutting my money market interest rate to 0.15 percent. That means if I keep $8,000 in my account for a month, they will pay me, you guessed it, one dollar in interest. If I were a multimillionaire reckless enough to keep $2 million in the bank, they would pay me a whopping $250 at the end of the month. Even a multimillionaire could go hungry trying to live off the interest on their money.
It’s not like the bank really wants my money, is it? But it’s not really the bank’s fault. Interest rates generally follow the interest rates set by the Federal Reserve Bank, which just decided 2 percent was too high for one of their reference interest rates, and cut it to 1.5 percent. Savings rates traditionally run about 2 percent less than the Fed’s rates, so the bank can pay its expenses — but that would be negative one half percent. So the bank is actually doing me a favor by paying me a little over a seventh of a percent in interest.
My money is safe in the bank — safe from burglars, that is. But how safe is it really? Not very — because of inflation, bank failures, a near-broke FDIC, and a near-broke U.S. Treasury. More about that another day.
And the stock market — Wall Street seems to be in the process of shutting down and moving out as fast as it can go, so right now, the less said about stocks, the better.
You’ll probably still want to keep some of your money in the bank, and put some of it in the stock market after it hits bottom, but it is more important now to keep a little money at home, and to start buying things you are sure to need in the near future.
I don’t want you to rush out and stock up on three months’ worth of supplies this morning, because if everyone did that all at once, the supermarkets would be stripped bare and there would be a nationwide panic. But if you have the money, gradually start accumulating a few month’s worth of supplies. Get an extra bottle of mouthwash, a box of laundry detergent, some toilet paper. The next time, bring home some extra canned vegetables, pasta, flour, beans, and rice.
When you store food for a period of time, remember that you have to protect it from rodents and insects. This means keeping it in solid containers. Don’t accumulate more than you really have room for. Don’t stock up at all if you are getting ready to move.
In normal times, stocking up like this is something I would never recommend. But I am not sure these are normal times.
Stocking up serves two purposes. First, it guards against the calamity that would hit if you lost your paycheck, savings, and credit accounts simultaneously. In normal times, there would no reason to worry about that happening. Over the next two years, it absolutely will happen to a few unlucky people, and if things go badly, to more than a few people.
Second, stocking up is a hedge against inflation. In inflationary times, buying things a little sooner is like buying them at a discount. When prices are likely to go up month after month, and unlikely to go down, you pay less if you buy this month than if you wait till next month.
And these are inflationary times. The Wall Street bailout plan and the subsequent initiatives that have come out of Washington are almost all inflationary by nature. Other countries that have undertaken similar deficit spending binges have seen inflation rates of 80 percent or 500 percent. The U.S. economy is stronger than those countries were. Still, we could see inflation of 20 to 50 percent a year, more than anyone has ever experienced in the United States. Even if inflation is “only” 8 percent a year, that still makes buying things in advance, if you do it right, better than money in the bank.
It is a rare economic time when food in the cupboard is a surer investment than money in the bank. In my opinion, you should still have some money in the bank. But it is just as important to make sure you have food in the cupboard.