If you have been following the ups and downs of the stock market for the past week, and the shutdown of the federal government, as well as prior lay-offs of autoworkers, you may come to the conclusion that following what the economy does to determine your own financial status, isn’t a good thing, and you are right. Following the economy to determine your financial status means that when the economy is up, your finances are up, and when the economy is down, your finances are down. I call that financial mirroring, where your personal finances mirror what the economy is doing at the moment. Financial mirroring is an emotionally and spiritually unsafe financial space to be in, as it’s emotionally nerve-wrecking, and can lead to financial ruin. Nothing is worse than to be on a financial high of acquiring this or that, only to have your entire financial world come crashing down. This was what happened in 1929-1933, in the Great Depression, when people lost jobs, businesses, and personal savings/investments when the stock market crashed and banks failed. Something similar happened in 2008 when many people lost their homes and jobs, when the banks and companies failed, in the Great Recession. These things happen because we do have a tendency to sign up for money traps, which sound good on the outside, but which upon further investigation, lead to financial instability.
The Debt Economy
One of the main reasons why personal finances tend to mirror what the economy is doing is because we live in a debt economy. Much of what we do in our modern society is financed by debt. The government, businesses, and corporations are all financed by debt money. The world is driven by worldly principles such “spend someone else’s money,” “buy now, pay later,” and so on. Basically, the principle is borrow, invest, and reap a financial windfall. A lot of people mirror those principles in their own lives, but as consumers. They borrow, buy, and reap tons of debt, paying much more for something than its original cost. Sometimes they borrow, ‘invest’ in shady business dealings which look good at the time, only to end up in financial ruin. While businesses may crash, and the owners walk away debt-free due to laws in place to protect their personal assets, the same isn’t true for consumers. You are going to bear the loss if you manage your money the same way as large corporations or even the government. While the US government can borrow money from tax payers, without paying it all back, ordinary consumers do not have that luxury; so mirroring what the economy is doing isn’t a good strategy for personal finances.
Consumer confidence in the economy is another reason why following what the economy does is a bad idea. Consumer confidence works like this. When we feel the economy is good, we tend to spend more, and when we feel the economy is bad, we tend to spend less. Please note I used the word “feel” as the gauge to the economy, because that is all it is. People will feel the economy is good, even when there are no upward changes their income. Their income is the same, but they go out and spend more, because they feel secure in their finances, even though everything is still the same. They feel secure because the outside indicators look good such as, increased employment, rising stock market, and increased corporate profits. They may even feel secure because of who is in political power. Political promises of more jobs and lower taxes tend to boost consumer confidence in the economy, and trigger spending. The problem however with consumer confidence based on external indicators is that the external indicators are just that – indicators. They do not mean your own financial situation is going to get better. Increased employment, rising stock market, and increased corporate profits do not mean more money is coming to you personally, unless you are investing in those things. Your consumer confidence should be based therefore on how your own financial portfolio is doing in the economy, rather on outside indicators which may have nothing to do with you directly. As a result of consumer confidence, many people go out and rack up more debt, and take out more loans, because they feel the economy will support their financial decisions, as long as the economy is good.
Economic Boom or Bust
The problem with placing your confidence in the economy, instead of your own financial portfolio, is that the economy is bound to fail, which is a divine universal law or spiritual principle. Economies go through cycles of boom vs bust. A boom in the economy is always followed by a bust, and a bust in the economy is usually followed by a boom, if the economy is left alone to self-correct. The bust is in itself an self-correction to overspending and too much debt, and leads to the shedding of debt, and a fresh start for the economy. This principle of boom and bust is based on the seven-year debt cycle which is explained more fully in my two books. Click here to purchase my books. Understanding the boom and bust cycle is key therefore in achieving financial stability in one’s own life. You do not want to be in a position where you are doing well, then have to start over from scratch again, because of a bust in the economy; and yet many people find themselves in those positions. The ideal thing is to increase your financial standing during the boom years, then during the bust years, hold your own with minimal loss. This may sound counter-intuitive, but scripture seems to suggest that during the boom years you save and accumulate, while during the bust years you spend what you have saved or accumulated. This is the total opposite to the world’s advice where you spend and rack up debt during boom times, and cut back on spending during a bust. Perhaps the world has it wrong and scripture has it right. Let us see. In the book of Genesis, chapters 41-47, we read about there being seven years of plenty, and seven years of famine, in the land of Egypt. Pharaoh commissioned Joseph with the task of storing up corn during the seven years of plenty, in preparation for the seven years of famine which was to come. Not only was Joseph able to supply the entire land of Egypt with corn during the famine, but he had more than enough to sell to foreigners who came into Egypt seeking food (Genesis 41: 57). In addition, in the seventh year of famine, Joseph was able to supply the people with seed to sow the land, and brought an end to the famine (Genesis 47: 23-24). What I take from this is that during times of abundance, I need to take advantage of the opportunities to increase my financial health by saving, investing and earning extra monies when available, so that I can have money to spend during times of scarcity, or a slow economy. This is truly the way to go if one is going to have financial stability in a tumultuous economic climate.
In conclusion then, watching the economy and mirroring your own financial decisions off the economy, can only lead to financial instability.