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Discussion in 'General Personal Finance Discussions' started by LPH, Dec 28, 2012.

  1. LPH

    LPH Flight Director Flight Instructor

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    While reading Paul Krugman's editorial in the New York Times, I was fascinated by his use of the three eras of the industrial revolution described by Robert Gordon of Northwestern University. According to Dr. Gordon, the first era was driven by the steam engine, next was electricity, and finally the information age.

    Thinking of the current economic recessions in terms of eras within the industrial revolution is quite illuminating. First, we can appreciate the shifts of monies as technology drove society in a particular direction. Second, we can start to anticipate how to protect our own finances. Third, recognizing the information age is in its infancy can help guide businesses.

    Income inequality has risen sharply over the past few decades. Also, the likelihood of upward mobility has decreased in the United States. Therefore, these constraints should be considered in all personal finances.

    The take away is that wealth will be determined by your use of information.

    While growing up, it was not uncommon to hear about people taking out second mortgages to finance a vacation, pay off credit card debts, or buy a new car. Today, this is ill-advised. Real estate is no longer a hedge against the economy. The job raise is unlikely. The promotion is unlikely. Sorry to be pessimistic but try to be open to protecting your finances.

    However, there is one characteristic of the wealthy which can be useful to everyone - save money. Don't put this money at risk - via the stock market. Save the money via CDs and savings accounts. Heck - keep it in a safe in your own home.

    No. Interest will not accumulate. This is not the issue. The challenge is to keep the money available.

    After 6 months of your income is available in savings then start removing debts. This is very different advice from my usual position. For decades I would suggest to remove debts first then accumulate funds. Using the industrial revolution era viewpoint, though, it's important to see that money is shifting to the top. Therefore, try to keep some of that money.

    How much money should you keep back? First, add up all of your spending outside of housing, car payments, and insurance. Second, take 10% of that spending and start putting it immediately into a savings account. Take that percentage off the top. Above all, don't add to your debt load - do not buy anything new, or anything large and unnecessary.

    Best of luck and remember that cash is king. Save now. Visit the Original Blog Post
     

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