Prediction: Housing Bubble Bursts, Bear Stearns $2 a Share, Fed Bails Out Investment Banks

March 20, 2008

If I’d have written that prediction several years ago I’d probably have received a lot of heat for making such impossible claims.  Of course, it is impossible to see into the future but I think it is possible and wise to think about what the future might hold based on a little common sense.

When money was flowing freely and the credit bubble was building, I can recall thinking that it wasn’t possible for things to go on like that forever.  I remember hearing a radio spot a few years ago about a family that “needed” to upgrade into a newer/bigger home but couldn’t afford the payments on a 30 year fixed mortgage.  They were “fortunate” enough to learn about adjustable rate mortgages from their bank and used an ARM to pay for a new home.

I wonder where that family is now?  I hope for their sake they figured something out but I imagine they’re no longer in the house they upgraded to.  I remember as I listened to the broadcast thinking something like, What are these people doing? Don’t they realize if they can’t afford the home now, borrowing with an ARM isn’t going to solve that problem? It just plays with the numbers a little bit and buys them a few years in the home until they’ll be forced to leave.

What this reminds me of is that common sense is the most valuable asset you can have in your financial portfolio. Just because you can get an adjustable rate mortgage, 4 credit cards, and a 72 month car loan doesn’t mean you should.  Sure, everyone else may be doing it and they might seem fine now but if it doesn’t make sense, don’t do it!

I think most people are guilty of this to some degree.  My family lives in a nicer home than we need to and have nicer things than we need, and I consider us pretty good with money.  A lot of people I know are way worse than us and we’re nowhere near perfect.

If I had to make a prediction about the future of our economy, it would be that anyone who hasn’t had a good common sense slap from the current economic conditions is going to be in a world of financial hurt over the next decade.  I know it’s not real specific, pretty general, but I think it’s a pretty accurate prediction.  Use common sense when spending your money or you’ll go broke!


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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