by Randy Dyess
“What about the other functions of government? Social security, health care, food stamps,” Kelly said thinking about their parents who had long ago retired and lived off of social security and Medicare.
“All that will be gone. Most of those systems are almost bankrupt today. When the depression hits, those things will stop as will most pensions. People believe their pensions are protected, but they are not. The company can go out of business, or even sell itself, and the pension can go up in smoke. Same thing with government handouts, they are not guaranteed and people are going to be on their own. Families will have to come back together and help take care of their own like they use to, or like the Amish and other religious groups do today.”
“Can’t we warn everyone so they can prepare too?” Kelly said as she was trying to grasp any straw that came around.
“Would either one of us have believed this just a few months ago if someone tried to warn us? We would have laughed at them and called them idiots or kooks. If fact, there are people trying to warn us about all of this on the internet today. They are called idiots, kooks, nuts, and just about everything else the media can come up with to make them seem like flakes. There are even a few rich people preparing for some meltdown and telling others, but they are being ignored as well. Even a few congressmen have stated they are prepping for a meltdown. No one takes them seriously. They just give them a few minutes of air time now and then and then completely ignore what we are being warned about.”
“Yeah, you’re right. I usually roll my eyes and circled my ear with my finger. I always think they are crazier than that homeless guy who stands at the corner of Main and Maple each weekend and shouts the world is ending. I think he knows something more than everyone else does at this point,” Kelly smiled
“I was the same before I started doing all this research. Should we look him up and ask him what he knows?” Mark said. “I would have laughed at anyone who tried to convince me of what we are discussing and made it a point to avoid them in the future. I don’t think most people are ready to hear this or even want to hear it. They are too conditioned by the media and government to think anything bad would never happen to America. They would just think some genius or some government program would come along with a plan and make everything better without any pain on their part.”
“I thought the same way a few hours ago,” Kelly said. “Now I wonder if there is anything we can do to ride this out or our fate is living under a bridge, hunting rats for food,”
“Maybe it will. But, remember, we both think it is coming and have time to prepare as much as we can before it hits.”
“Do you know when this will happen?” Kelly asked.
“Not really. Soon I think, but I don’t know exactly when. I have been doing research on economic indicators and think I can track the meltdown. I am hoping these indicators will give us enough warning so we can adjust our plan if we think things will fall apart before the next three years. I hope they will even show us if things get better. I don’t think that will happen because of the fuel shortage, but I can hope. I do think because of the amount of time it will take to redo our lifestyles for less energy usage, America is not going to be prepared. I don’t see any major effort by our government to move past oil as the main fuel source. They give out sound bites about the other forms of energy, but I don’t see them spending trillions of dollars on alternative energy research. They are spending trillions on the wars we are fighting today to secure more oil sources. Given what I know today, I can’t tell when the crash is going to happen, how bad the crash will be, or how long it will last. I can tell you I believe the economy will meltdown and it will be within the next three to five years. ”
“What economic indicators?” Kelly asked going back to their earlier conversation.
After Kelly asked about economic indicators, Mark spent the rest of the day explaining what he had learned about various economic indicators. He walked Kelly through the reports he had built off of a simple spreadsheet he had on his laptop. He showed her the various indicators economists and stock market investors deemed important to show the health of. Mark showed her how many of the numbers were getting worse according to the few years of data he had gathered. Unemployment was going up, wages were going down. Oil, gasoline, and natural gas prices were starting to move at a greater uphill rate than a few years before.
Mark showed Kelly how he had started tracking his own consumer prices and how those prices were going up over the short time he had been tracking them. The thing Mark wanted to stress to Kelly was not that the numbers were getting worse each month, but the numbers were getting worse by a larger percentage every month. It isn’t that an additional 1% of Americans are unemployed this month compared to three months ago the problem is the rate of change had risen. The rate wasn’t a .1% or .2% rate of change anymore, the rate was .3% or .4% now and those numbers added up quickly.
“I see what you mean now,” Kelly looked at Mark. “After seeing what you have been tracking and how you went back a few years and trended things out, I can see why you are more worried than I am. This paints a pretty bad picture of things, doesn’t it?”
“Yeah. I’m at a loss on trying to figure out the response we need to do. It would be much easier if I had a deadline to work against. Something like ‘You now have thirty months left before the price of gas will go up to $20 a gallon – Are you prepared?’ I don’t have anything like that. I do not know how to prep for what I think is going to happen and still live what everyone would call a ‘normal’ life before it happens. I’m not ready to dump everything and hide out in a cave in the mountains waiting for the world to end. I’m not there and I hope I never am, but I know we have to do something dramatic.”
“Well, we don’t have to change everything all at once do we? We can start making changes we know will have a positive impact no matter what happens. We can start by preparing for the one thing both of us now agree on,” Kelly stated.
“What’s that?” Mark asked.
“The fact you will lose your job and my job may or may not go away, but I’ll have to take a pay cut. I think we need to plan on trying to live on half of what we make today as soon as possible and go from there on whatever else may happen. If we can get our living expenses down, it will give us extra money while we are both fully employed to move in other directions if we need.”
“OK. Why don’t we go pick up the kids and spend the rest of the day with them? We can back-burner this until tomorrow morning. That is if we can sleep at all after this.”
Chapter 7
After dropping the kids off at school the next morning, Mark and Kelly settled back into the dining room. Mark started outlining what he thought they should do in the short and long terms to prepare for the economic troubles ahead. “Let’s setup some baselines,” Mark started off the conversation. “No matter what happens, we both now believe my job is probably gone and yours may be in jeopardy.”
“Agreed,” Kelly said after taking a sip of coffee. “I also agree with you the next round of jobs we get will be at salaries which will be about 50% of what we make today.”
“Correct,” Mark took over. “Another thing we both agree on is the economy will start to crash in the future due to the ongoing fuel shortage. Neither one of us can determine when and how bad the meltdown will be, but we both think it will happen within three to five years. I think we can probably agree it’s closer to five years than it is ten years.”
“I don’t like to think about all this, but I’ll agree to all of those things as well,” Kelly said. “So what are we going to do?”
“I think the best thing to do in the short run would be to get our finances in check. Do we even know how much we spend each month?” Mark asked while looking at Kelly. “I know I don’t think about the cost of anything, when I want something I whip out a card and buy it. Not only do I not care how much anything costs most times, I don’t care how much credit I have on the card. It always goes through and g
ets paid somehow. I’m not sure how much we owe on anything. I know we refinanced a few times, but how much do we actually owe on our house?”
“I don’t know. All of our bills are on auto pay from the bank account and I have never worried about them either. They always seem to be paid and we don’t ever seem to get any overdraft or past due notices,” Kelly said. Kelly thought for a moment and then looked at Mark and said, “You know what? When we set up our bank accounts and all our credit cards we did the online stuff. I bet if we go to each account’s web site all we will need to do is print out a transaction listing, balance due, and anything else we might find. These should help us put together a listing of everything we owe.”
“Hey, that should work. You take the bank accounts and I’ll take the credit cards. We can each go online and try to figure out how we spend our money and how much we owe on everything. Let’s start by creating a pile of credit cards from each of our wallets. Once we get all the credit cards in one pile, bank debit cards in another, we can create a list of most of our accounts. We can use the list to figure out how much we owe on all of the accounts and how much we spend each month on various items. Once we get the bank accounts printed out, we can look at each one of them. Figuring out any payments we are missing might take some time, but it should be a great place to start.”
Mark and Kelly both got out their wallets and pulled out every bank card and credit card they had between them. They also dug through their desks looking for any information they might have on various bank, credit card, and loan accounts. Kelly remembered she also had a copy of the cards she had given each set of parents so they could buy whatever the girls needed. After a few hours of pulling out paperwork, calling card companies, and going online, they felt as if they had a good handle on all of their accounts. They could begin working through the printouts and downloads. Several times, one of them spotted something they had missed before. They would spend a few minutes tracking the account down to get a list of transactions and balances for the account. Most of the accounts had online reports. A few had to be dug out of Mark’s “I’ll open it and read it later” letter pile. This pile had gotten large since he never seemed to have the time to open or read any of those letters. They worked for several hours and Mark and Kelly had a pile of printouts going back twelve months for each account they might find. What they saw when they were working on gathering the information started to worry them. They worked for the rest of the morning and most of the afternoon trying to get a handle on what they owed and how much they spent each month.
After working through the large pile they created during the day, Mark was able to sum up everything they owed and spent money on each month. “Do you realize even though we make over $300,000 a year, we spend more than we bring in?”
“What do you mean?” Kelly asked with a disbelieving look on her face.
“It seems we spend everything from our paychecks and borrow money for our trips. We borrowed $40,000 alone against the house when we took everyone on the trip to Europe last year. I mean it was fun, but $40,000?”
“Really!” Kelly exclaimed, “I didn’t think we spent that much. How did we come even close to that?”
“Well, the first class tickets alone took up $15,000. The rest was for the fancy hotels and all the food and wine we drank.”
“What does the rest of it say?”
Mark went on to list their debts, “$90,000 in total credit card debt. $30,000 left on the trip loan. $60,000 for the furniture. $495,000 left on the house. $20,000 on various loans for odds and ends. This means our total debt comes to $695,000 which is basically five years of take-home pay.”
Kelly blinked a few times and looked at Mark, “We still owe $495,000 on the house? We only paid $550,000 for it and that was ten years ago.”
“I know. It’s because of all those times we refinanced to get extra money for trips and junk we probably didn’t even need.”
“Shot ourselves in the foot, didn’t we? I don’t even remember some of those trips because I spent most of them keeping track of work or lying around in the spa. Did everyone else at least have fun?”
“You’re asking me? I spent those trips at the golf course so I could relax away from everyone else. We’d have to ask our parents if the girls had fun. They were the ones taking them around to everything and making sure they were enjoying themselves.”
“What else did you figure out?” Kelly wanted to know.
“Well, we bring home about $13,500 each month after taxes, retirement, insurance, and other misc. Of that, we spend about $3,000 a month on luxuries. Our utilities, home owner’s association dues, and taxes add up to around another $1,500. We spend around another $1,000 on the kid’s activities. We also spend about $1,500 eating out each month. The rest of the money goes to house payment and paying the minimum amount required all those other debts. “
“Any good news?” Kelly asked.
“Surprisingly yes, we both max out our 401Ks each year and with the stock purchase plans at our companies, we have quite a bit of stock in our accounts.”
“So what do you propose? I mean how are we ever going to pay off all those debts when we spend everything we make?”
Mark thought for a minute. “Since I don’t think Plains will be around in another few years and I think your company will have a hard time making it the next few years as well. Why don’t we sell all of our stocks? I know we meant for those stocks to send the kids to school and for retirement, but it looks like we will be selling them long before that. If we wait any longer they may not be worth anything if the companies start having financial issues. Why not sell them now? “
“What do you mean, ‘Becomes worthless’ if the company goes through a bankruptcy? Your stock wasn’t worthless after the last Plains bankruptcy,” Kelly said.
“That’s because they reorganized. If they had gone out of business, the stocks become worthless. There is not enough money after the liquidation sale to pay off all debts and give any to the stock holders. Especially if Plains goes out of business because of a fuel shortage and no one wants to buy any of the planes or routes. My stocks would be worthless and I wouldn’t get anything for them even if I could sell them.”
“What about the stock in my company?” Kelly wondered.
“If your company does what I think it will, they will start closing down restaurants which lose money or do not make enough money to risk keeping them open. The first few times they do this the stock may go up in price. After the first round or two of closings, the price of the stock will plummet as investors start to believe the company is going out of business. In the long run, we might both end up with stock that is worthless. I know we spent a lot of money buying it in the first place and may even lose money on it if we sold it today. If we don’t sell it and both companies go out of business, how much would we have in the future versus if we sold it today?”
“And if the economy turns around?” Kelly asked, still not sure if she was ready to commit to this or not.
“Then we use all the money we save after paying off our debts to start over. It’s not like we are too old and can’t start again. In this scenario, we go ahead and pay off everything today. Never allow ourselves to get into this situation again. We should use the extra money to pay for the kids to go to school. We should also have enough to still invest some for retirement. Getting rid of all our debt should allow us to put money in the bank and if we think the economy is starting to recover, we buy stocks back. When the economy is starting to recover, it’s often a great time to reinvest since stocks. But I think we both don’t believe I’m wrong and the economy will start to improve in the next few years. I might be a few years early in selling out, but I doubt I’m completely wrong in my beliefs after the research I have been doing.”
“Yeah, I know. It just goes against my training to believe you. It means I don’t believe in my country anymore and my leaders are either lying to me or they may be clueless. Which bothers me more,” Kelly said wi
th a sad look on her face. “What about our 401ks? Are we closing them down as well?”
“We can, but we will have to pay a big penalty to do that. Not only would we have to pay the maximum tax rate, we also will be slapped with a 10% penalty. I think we can shut them down for certain reasons without paying the penalty, but each one of us would have to lose our jobs or something like that. I think by then it would be too late to even get anything out of them because the stock market would be so bad. I don’t know if we are there yet.”
“So if we sold all stocks outside of our 401ks, what would that give us?” Kelly asked.
“I don’t know. Let me spend the rest of the afternoon trying to figure out a rough number. I think we should go ahead and issue the sell orders and see what we come up with. It shouldn’t take the brokers long to sell the stocks and we should get the final numbers as soon as we put in most of the orders. The sell orders should be completed in a few hours and we can start the transfer of the money to our bank accounts. The taxes will be the big unknown, but I think I can set aside 15% for taxes. That should cover the worst-case tax scenario we made a profit on everything we sold. If taxes are less, it gives us some extra in our accounts to pay bills for a little longer if things go south. The money might even come in handy if I lose my job earlier than expected and need additional money to live on while I find another job. We might even be able to keep most of the money once the final tax paperwork is finished. We might find out we actually lost money on our stocks and not made profits which would lower the taxes.”
Mark started to bring up each individual stock account he had and issue online orders to sell everything. The orders were still processing when he and Kelly left to get the kids from school. He made a note to check them in the morning and start the process to move the money to the bank accounts. Even though this was important to them, he didn’t want to go back to old habits and ignore Cheyenne and Dakota. Working on their financial problems could easily be done after the girls went to bed or even the next day.
