Most agree that 2008 will bring challenges in the financial world as we try to overcome the problems presented in 2007. Before I give my outlook, let me tell you what everyone needs to be doing during 2008.
1. Trust the Lord not only in the area of finances, but in every area of your life. As stewards we must remember that all our resources belong to God. (Psalm 24:1)
2. Don’t let all the negative financial information prevent you from generously supporting God’s work during the year. (2 Corinthians 8:1 – 9:15) Our giving is not based upon the financial outlook, but upon our commitment to support God’s work, no matter what the outlook.
3. Take time to plan. (Proverbs 21:5) I am convinced that most Americans spend little or no time evaluating and planning their finances. Take the time to sit down one evening for several hours and put together what I call a Money MAP. If you need a good resource to help you plan, check out our Money MAP Pack on our web site. Click here for ordering information.
4. Commit to get out of debt or to reduce your debt in 2008. No matter what the economic outlook, reducing or getting out of debt is always a great plan. However, in turbulent financial times, reducing your debt becomes significantly more important. (Proverbs 22:7)
5. Build up your cash reserves for financial emergencies and for investing. (Proverbs 6:6-7) If you are an investor, the best time to buy real estate or stocks is when prices are deflated. The more cash you have in reserve, the more purchases you can make when the prices are low.
6. Live within your God-given means. Don’t spend more than you are earning. This sounds like a simple concept, yet many Americans live on 110% of their income every year. (Proverbs 27:23-27)
7. Remain diversified. Keep a good mix of investments: cash, bonds, mutual funds, real estate, international funds, gold and silver. (Ecclesiastes 11:2)
I am not a prophet so I don’t know the future, but for what it is worth here is my 2008 outlook.
Interest rates: Lower
It is very obvious that the Federal Reserve is going to continue to lower interest rates during 2008. Why will they continue to lower rates? To avoid a recession. It is the job of the Federal Reserve to head off a recession OR to keep the economy from growing too fast. The best way they can control the economy is to increase or decrease interest rates.
Money Markets, CD and bond interest rates: Lower
As interest rates go down, so do interest rate returns for money markets, CDs and bonds. For example, if a person has $50,000 invested in a money market or CD and the interest rate is 5%, the interest earned during the year is $2,500. If interest rates drop to 2% the interest earned becomes $1,000. Those hurt the most by the decrease in interest rates are usually senior citizens living on interest from their CDs or money market accounts.
Stock Market: roller coaster ride
If you love the thrill of riding a roller coaster with its ups and downs you will love the stock market this year. Expect a wild ride in 2008. 2007 might be viewed as mild compared to the up and downs we might experience during 2008. I am not saying to get out of the market, but just be prepared for potentially some of the biggest single day gains and losses we have seen in a few years.
Sub-Prime Mortgages: problems will continue
The mortgage mess clean up has begun but it will take two years (or more) for us to move beyond the mess. Why two plus years? Two million sub-prime mortgages that are scheduled to reset interest rates will do so during the next two years. Rising interest rates helped to create the sub-prime mortgage problems, and falling interest rates will help. The government pulled together the major lenders that own 84% of the sub-prime mortgages. The group is called the Hope Now Allowance. Up to one million sub-prime mortgages might qualify to have their initial low interest rates frozen. Freezing the interest rate will potentially help one million homeowners avoid foreclosure during 2008. For more information to see if you qualify for relief under the Hope Now Allowance call 888-995-HOPE.
Mortgage Rates: lower
As the Fed continues to lower interest rates, mortgage rates will follow. So if you are looking to buy a home or refinance during 2008, this should be a great time to lock in a fixed mortgage rate. I am not sure how low rates will go, but they definitely will be lower than 2007 rates. It looks like interest rates will be falling during the first six month and maybe the entire year. If you presently have an adjustable rate mortgage (ARM), 2008 should be a good time to refinance and lock in a fixed rate.
Home Values: lower
Some estimate that we have a surplus of over 2 million homes on the market. About five million homes are for sale, and the norm is three million. Too many homes on the market result in falling prices. This is good news for buyers and bad news for sellers. Don’t expect the entire surplus to be sold off during 2008, but expect the surplus to remain due to potentially record breaking foreclosures during 2008. If you are looking to purchase a home to live in or for an investment you should be able to find great deals in 2008 and even into 2009.
Identity Theft: On rise
USA Today reported that over 162 million personal data records were lost or stolen during 2007. That is triple the number for 2006. To make sure your identity has not been stolen -- be sure you are receiving your free credit report from each of the three credit reporting bureaus. There is only one official web site to use. www.annualcreditreport.com All other sites are either trying to sell you something or a scam. Federal law requires that each credit report company provide you with one free report every 12 months. I recommend you order your first free report from the first company on the list in January, order the second report from the second company on the list in May and order the third report from the third company on the list in September. If you order all three at the same time you will have to wait 12 months before you can check your report again. Your goal is to be able to monitor your credit report for unauthorized activity all during the year.
Federal Budget: On rise
Expect continued deficit spending during 2008. It appears congress (Democratic or Republican) has no interest in balancing the budget. It does not matter if you are in favor of or against the war in Iraq, the war will add billions to our federal budget expenses and national debt during 2008.
Federal Debt: On rise
Presently our national debt is just over $9 trillion. If every man, woman and child in the U.S. were asked to pay their share of the U.S. National debt it would equal $30,000. That is $30,000 for each person or $120,000 for a family of four. Over the last 25 years our debt has been growing at a rate of 8.9%. If this trend continues our nation will owe approximately $14 trillion in 5 years and $21 trillion in just 10 years. Our nation is on an unsustainable path.
Credit Card Debt: higher
The average American family owes more than $10,000 in credit card debt that is never paid off from month to month. In hard financial times, families tend to use credit cards to help meet family needs. Since most believe that 2008 will bring challenging days, expect credit card debt to increase. Most American families are already stressed out financially and it will only get worse during 2008. Just for your information, the average American family had $1,500 in on-going credit card debt in 1990.
If your financial house is not in order, I trust that my realistic financial outlook will motivate you to make some changes during 2008. Keep the faith and never give up. Our ultimate trust and security is in God. Work hard to be a faithful manager over the resources God has entrusted to you. Invest hours not minutes in overseeing your financial resources. Help your friends and family members to put their financial house in order (if they need to). You will never go wrong in paying down your debt, living within your God given financial means and keeping your investments diversified.
For additional helpful articles during 2008, be sure to check our web site at www.foundationsforliving.org.
For resources to help you be a faithful money manager during 2008 visit our resource center at www.foundationsforliving.org and look for our Money MAP Pack. This resource will help you get on the right financial road.
© Copyright - 2008, Ethan Pope