Looking Out to 2010: Economy and Personal Finance

2010 has arrived like a high-speed train. What will the upcoming year bring? How will outside forces influence our personal decision-making and make things harder or easier to accomplish?

To answer that question, I have a very special treat for you today.

I’ve lined up a set of great bloggers and financial writers to help me with this post, so you’re going to get a wide variety of viewpoints on the same subject–your money in 2010.

I asked everyone that participated the same three questions. They were:

  • What can the average person expect from their money in 2010?
  • How will the economy change/affect individuals in 2010?
  • What are the best actions for people to take in 2010 to further their financial security?

The responses were as varied as the bloggers who contributed. There’s bound to be something here that you will find useful. Without much ado, let’s get started:

Matt Jabs/Debt Free Adventure

Matt is the founder of Debt Free Adventure, and a thirty-something IT manager by day. His blog focuses on getting rid of debt using biblical principles. Here’s what Matt had to say:

2010 will be “The Year of the Saver!” It has become fashionable to save money again. Emergency funding has replaced lattes and the trend will not be changing again anytime soon. Get out of debt and get on board the saving train. Remember these words: budget your money, save your money, spend less than you earn. Period. If you follow this advice in 2010, I promise you will improve your financial picture. Not sure how to get started? Check out how I did by reading my Debt Free Adventure.

Jim Wang/Bargaineering

Jim is the creator of Bargaineering, a five-year old personal finance blog, which makes him a legend in the space.🙂 Jim’s blogging philosophy is that no matter how much money you have, the key is doing what you love and spending time with those you love. Here are Jim’s thoughts on the new year:

What can the average person expect from their money in 2010? I think what people are experiencing today will persist through 2010. We need to continue tightening our belts, continue to be creative in how we spend our money, and generally be smarter with the dollars we do spend. The stock market will do whatever it will do, savers will continue to see low interest rates (though I expect them to rise as the Fed begins increasing interest rates) but we shouldn’t let that dissuade us from doing what’s financially prudent.

How will the economy change/affect individuals in 2010? Savers will continue to be punished for not spending more of their money and putting it back into the economy. The one or two percent that we get today on our savings accounts will be the norm for probably the next year or so. I hope my prediction is wrong but I doubt it. Rates will begin to creep up as the year progresses but it’ll be a few years before we see the 5% of a few years ago.

What are the best actions for people to take in 2010 to further their financial security? The sharp downturn really exposed the financial fragility of a lot of households. No household handles major job loss well, but the ones with hearty emergency funds and good contingency plans will handle it better than ones without it. The years of a strong economy, powered by many things including cheap credit, hid the mistakes many people were making in their finances. I think people need to bolster their emergency funds, take a look at their portfolios, and get their financial house truly in order.

Jason/Redeeming Riches

Jason is the founder of Redeeming Riches, a personal finance blog with a mission “to think biblically and practically about our money so we can redeem back the misguided views that wealth leads to happiness; restore the way we handle our finances to become the stewards God has called us to be; and also renew the correct perspective that God himself is the source of lasting joy.” Jason had the following thoughts:

What can the average person expect from their money in 2010? In my opinion, the average person will need to lower their expectations for 2010. I don’t think the markets will continue to rise at the clip they have been, cash will still pay a pretty low amount (until the Fed really starts raising rates, which doesn’t seem likely early on) and folks will still need to look at their income vs. expenses and figure out some ways to cut back and make it work.

How will the economy change/affect individuals in 2010? I think the economy will affect individuals in much the same way that 2009 did. What I mean is that 2009 brought to us a reality check of sorts. People began to really question their financial stability and their plans, which is a good thing. They started asking questions like, “how much is enough in an emergency fund?”, “how do I get out of debt faster?”, and “what are some areas I can cut expenses?”. These are all great questions to ask, and I think there will continue to be more introspection for the average consumer.

What are the best actions for people to take in 2010 to further their financial security? Think of your finances like building a house. My wife and I are currently in this process and the first thing we did was pick out a plan. The next thing that happened was the foundation was laid. In reality, the best actions to take in 2010 are the same every year and it begins with a personal plan. Sit down early in the new year and write down two or three things you’d like to accomplish for 2010. Don’t write down a 10 or 20 item list because you and I both know it’s near impossible to focus on that many items at once. Once the plan is in place, the foundation can be laid. A good foundation in personal finance is having a good handle on cash flow and also having a good cash reserve/emergency fund. The other thing I would suggest is continue to knock out as much debt as possible. Get rid of those cards, wipe out that car payment, knock out those pesky school loans. Anything you can do to improve net worth in 2010 will be a great thing!

Kathryn Katz/Consolidated Credit Counseling Services

Kathryn Katz is a Certified Personal Finance Counselor and works for Consolidated Credit Counseling Services, a non-profit credit counseling agency that helps consumers in financial distress. Here’s what Kathryn thinks:

The recession is over but the negative impact of this economic downturn is going to take years to recover. There are 15.4 million American workers unemployed, and job openings haven’t increased over the last seven months. There are indications that the recent recession has had profound, deep-rooted changes in consumer spending habits, and their lack of spending may inhibit companies from expansion. Consumer credit continues to fall, as consumers try to pay down debt or default on accounts that they can no longer afford. Since consumer spending accounts for approximately 70% of the American economy, we’re not going to see a true recovery until unemployment rate decreases and consumers feel that their finances are more stable.

Recommendations: The best thing you can do in this current economic market is to spend frugally, avoid debt and increase your savings. Many of the reforms from the Credit CARD Act of 2009 will not go into effect until February 2010. In the early part of 2010, make sure to review your credit card statements carefully and be on the watch for any additional changes in your lending terms. Don’t quit your job unless you have another one lined up. Carefully research any large purchases.

Studenomist/Studenomics

The Studenomist runs Studenomics.com, a blog focused on the unique challenges of money in the college and post-grad years. The Studenomist rejects boilerplate advice given by the media and misguided friends, seeking instead to provide an open forum for discussion at Studenomics about money and other student issues. Here’s what the Studenomist thinks about 2010:

What can the average person expect from their money in 2010? Money will not come easy. It’s easy to swipe a credit card and spend money but that challenging part is earning more money. The question you need to ask yourself going forward is- how can I earn more money?

How will the economy change/affect individuals in 2010? I think individuals will realize that there is no such thing as a job for life. At the end of the day we all work for ME Inc. Always keep your options open and make sure that you are learning. Take courses on the side, learn from others, and always ask for advice.

What are the best actions for people to take in 2010 to further their financial security? To know where your money is going. It’s easy to get lazy and hire a financial planner to do all of the work for you. The reality is that nobody will ever care about your money as much as you do. You work hard for your money so make sure it’s going in the right places. This doesn’t mean that you have to take some boring finance course and drink a large coffee just to stay awake. Take a lazy Sunday afternoon and use it to research your current and new potential investment vehicles.

Adam Baker/Man vs. Debt

Adam Baker, or “Baker” for short, is the fantastic writer behind Man vs. Debt. Along with his wife and daughter, he gave up living the typical “American dream” last year, and moved halfway across the world to New Zealand. Baker and the family are currently traveling to Thailand for the next leg of their journey. Here’s what Baker thinks:

What can the average person expect from their money in 2010? They can expect whatever results they take steps to bring about. I think people are worrying too much about the ‘economy’. Focusing on the macro-level like this does little good for our personal finances.

How will the economy change/affect individuals in 2010? The biggest impact [the economy will] have on the average person is psychological. Don’t make radical shifts with your money, especially in emotional reaction to any news. Continue to employ time-tested and trusted financial advice.

What are the best actions for people to take in 2010 to further their financial security? Continue to take logical steps to take control of what you can. Build a small emergency fund, aggressively attack your debt, spruce up your resume, slash your expenses, and begin to form a back-up plan if you have any chance of losing your employment. Make these changes proactively!

Sam/Financial Samurai

Sam is the founder, editor, and main writer of Financial Samurai. He believes in achieving financial independence sooner, rather than later. Visit his site and slice through money’s mysteries! Here’s what Sam had to say:

2010 is going to be a great year for the job seeker. Companies always over-fire during the downturn, and now have to over-hire in the upturn given the rebound in corporate revenue. There’s been two years of pent up demand to change jobs since nobody could go anywhere last year. A job market frenzy is on the horizon and those who are unemployed will find new opportunities that were once closed!

Despite this devastating downturn, there is only a small, small change in consumer behavior. The nation’s saving rate doesn’t surpass 5% as people revert back to their old ways of binge spending. With almost 2 billion credit cards in America, it’s just still too easy for someone to get credit and spend more than they should. Ironically, with a return of irresponsible spending, corporate profits continue to rebound further, and the S&P ends the year close to 1,300.

Inflation stays benign, and therefore interest rates and borrowing costs remain low. The 10-year treasury yield stays below 4% and the Fed doesn’t rush to raise the Fed Funds rate. Housing sales continue to rebound, and more than a third of American cities see year over year price rebounds. As investors realize that rental yields in many hard hit places are reaching 10%, rental properties get scooped up at a brisk pace, lowering rental yields/cap rates by several percentage points.

The actions for 2010 to achieve financial security are the same actions every year: max out your 401k, don’t use credit cards if you can’t pay them off in full every month, save at least 15% of your gross income, and continue to spend less than you earn. The direction continues to be up for 2010. Now it all depends on you as to how high you want to go!

J. Money/Budgets are Sexy

J. Money is the 20-something anonymous blogger behind Budgets are Sexy, one of the most entertaining personal finance blogs in the space. He tries to keep things spicy and fresh using his unique writing style.🙂 Here’s J. Money’s opinion on the new year:

2010 is going to be AWESOME.  Who knows what the economy will bring, but to be honest it doesn’t really matter.  What matters is YOU.  What are YOU going to do to secure your financial freedom?  Cut your debt in half?  Save up $1,000 in an Emergency Fund? Finally get that budget on track?  Don’t think 2010 will be any different from 2009 and 2005 – it still requires you to pay attention and focus on your game plan.  And being here to read this means you’re already on it!  So good job😉

Now, write down a few things you’d like to accomplish this year.  When you’re done, write down the steps it’s going to take to GET there.  Hoping and wishing make you all happy and warm inside, but it doesn’t do squat for your finances!  If you truly want to change the way your money’s flowing, you’ve gotta start doing things different.  So this year, make a promise that you’ll be a financial rock star!  Personal finance really isn’t that hard – it’s the motivation and taking action that kicks your ass.

Len Penzo/LenPenzo.com

Len blogs about money at Len Penzo Dot Com, a personal finance blog focused on personal responsibility. Len’s writing is always a hoot (in a good way!). Here’s what Len thinks:

The Great Recession may have come to an end, but don’t be fooled into thinking that the US or world economy is now in terrific health. It’s not. The recent modest growth in the US GDP that finally reversed four consecutive quarters of contraction is an illusion propped up by trillions of dollars in bailouts and government deficit spending enabled by The Fed’s ability to create money out of thin air. Instead of letting creative destruction unwind the excesses caused during the dot Com and housing bubbles, we continue on, expanding government, and letting our politicians pass massive entitlement programs and dubious fiscal stimulus bills.

So where is the inflation? It’s being held at bay right now only because in order to shore up their cash reserves, banks continue to hoard most of the money being sent their way by the Fed. This reduces the velocity of the money in circulation which, in turn, has so far offset the increased money supply. Eventually, the velocity of money will increase and then inflation will take hold. It has to.

Do I think inflation will raise its ugly head in 2010? I don’t know, but when it does come, we’re going to pay dearly for it. The sad irony of all this is that those of us who have spent the last decade or two being fiscally responsible, living within our means and saving diligent for our retirements will be penalized the most as inflation erodes the purchasing power of our soon-to-be worthless dollars tucked away in our retirement and other savings accounts.

It’s the debtors and those who failed to live within their means who will make out like bandits before this is all over. When it comes to high inflation, the bigger the debtor, the higher the reward.

Don’t think the biggest debtor of them all, the United States Government, doesn’t know that.

Patrick/Cash Money Life

Patrick writes about personal finance and career topics at Cash Money Life and military money topics at Military Finance Network. Patrick had this to say about the upcoming year:

I don’t have a crystal ball, but I imagine 2010 will bring with it some of the same struggles we saw in 2009 – including volatile markets, unemployment and tight credit. But I don’t think it will be all doom and gloom. I also think there will be a lot of opportunity in 2010, and having healthy finances will help put you in a better position to prosper. What does this mean for the average individual? It means that even though the overall economy is out of your control, how you prepare for it and respond to it is up to you.

In my opinion, the best way to prepare is to build an emergency fund, increase your credit score by paying down any existing debt and not taking on new debt, and by practicing sound financial habits such as spending less than you earn. If you have already reached these milestones, then you are one step ahead of the game and should consider investing for retirement by contributing to a 401k at work or opening a Roth IRA. Now is the best time to get your financial house in order, perhaps more than any other time before.

My Thoughts

Finally, I’d like to share my own thoughts on what 2010 will bring, based on the three questions I asked of everyone else.

What can the average person expect from their money in 2010? The average person will be very focused on their money in 2010. Whether we don’t have enough of it, or have plenty, money has taken center stage in social circles and the media. We’re being bombarded with mixed messages and have to sort through the mess to find what really works. Sticking to sound principles and believing your gut will be very important this year.

How will the economy change/affect individuals in 2010? I think the worst of the economic downturn is over, but it will take years to recover. Overall, I think those invested in the stock market can expect modest returns, and the job market will strengthen in the coming year with some re-hiring to be expected. A big unknown that remains to be seen is the current administration’s policy-setting and how that will affect us (through taxes, impact on health insurance, etc.).

What are the best actions for people to take in 2010 to further their financial security? The same things that people have always done to get ahead financially, irrespective of economic conditions. Spend less. Save more. Invest and learn as much as you can about financial management. Follow tried and true principles.

*Answers may have been edited for spelling and consistency.

Missed Out?

What a fantastic set of answers and a lot to think about as we start 2010 with a bang!

If you missed out on participating, no worries…you have the entire comments section as your playground! Share your own thoughts on the three questions I asked. Here they are again:

  • What can the average person expect from their money in 2010?
  • How will the economy change/affect individuals in 2010?
  • What are the best actions for people to take in 2010 to further their financial security?

I look forward to what you have to say!

Photo by C.P. Storm

25 thoughts on “Looking Out to 2010: Economy and Personal Finance

  1. Pingback: Personal Finance Buzz
  2. I think the average person can expect to earn low rates on cash savings, but I worry that some may give up and decide to enter the stock market at just the wrong time.

    I think that the economy will look much improved for at least the first part of 2010, but the problems that led us astray are merely hibernating under a mountain of printed money and will at some point resurface. You cannot roll a horse bun in sugar and call it a donut.

    In answer to the 3rd question, I can’t do any better than the bloggers quoted here: 1. Build an emergency fund.
    2. Pay down debt.
    3. Be careful with the stock/bond markets. Control what you can – your own money.
    .-= 2 Cents´s last post: 6 Remedies For a Debt Hangover =-.

    1. Yes, it does seem like the problems that existed for a long time surfaced with the recession, but we are trying even harder to make them invisible again.

      A sustainable solution is the only right solution…

    1. Thanks Jason, for the great comment and for participating!🙂 Personal responsibility is very key–we can blame anyone we’d like, but in the end, the change starts at home whenever we decide that it does.

  3. Once again, I find myself saying “Amen!” to what Baker has to say, “They can expect whatever results they take steps to bring about. I think people are worrying too much about the ‘economy’. Focusing on the macro-level like this does little good for our personal finances.”

    Yes, plenty of folks have had their worlds turned upside down, but the fact remains that the vast majority of us have not. Yet there seems to be a pandemic of fear permeating every aspect of our financial lives. I hope that in 2010, folks pay less attention to the fear mongering and more attention to the reality of their financial situations and the fact that we can each do more, regardless of the greater economic climate, to ensure our financial security.
    .-= ConsciouslyFrugal´s last post: Happy New Year! =-.

    1. I agree that we are all in control of our own financial destiny, but I do think that the economy plays a bigger role than most care to admit.

      It’s largely because of the economy that people are losing jobs, losing their home value (even those who bought responsibly), etc…

      At the same time, there’s not much we can do about the economy in broader terms. The only change we can effect is at our personal level, so that’s indeed where the focus should be.

  4. Great compilation of opinions here Wojciech! What I find fascinating is how consistent the opinions are, to remain cautious, but to focus on a personal game plan first and foremost. That should always be the plan anyway, as rules of good finance don’t change much from year to year or even with the ups and downs of the economy.

    The comment that stands out most is Jim Wang with “The stock market will do whatever it will do”. I think stock market crystal ball gazers miss this point. The stock market isn’t subject to our desires or interpretations and caution is always the order of the day. We can all make or save a fortune just heeding that bit of advice.
    .-= Kevin@OutOfYourRut´s last post: 7 Ways to Improve the Success of Your New Business =-.

    1. I also found that fascinating, down to a few people using the exact same phrases. I think we’re reading too much of each other’s stuff sometimes!!🙂

      You make a good point about the stock market, especially since lately the market seems to be doing things that contradict where the rest of the economy is headed. At least that’s the perception, anyway…

    1. Yeah, that was definitely the most fun part of the exercise.🙂 Have a good year yourself, my friend.

    1. I think it will be a mixed year. I do see foreclosures continuing for the near future, but I think many people will find themselves back and work and able to afford groceries again. One small piece of the puzzle at a time, I think we can piece the economy back together and have that positive energy transfer into our own finances.

  5. Terrific job, Wojo! The collective wisdom of the prediction posts are always better than one based on a sole opinion.

    It was an honor to be included with some of my favorite pf bloggers – especially that Penzo guy. 😉

    One point I would like to make is that it DOES make sense to at least pay attention to what goes on with the economy on a macro-level when it comes to managing our personal finances. Macro-economic trends can help you in the decision-making process when it comes to whether its time to buy a home (e.g., are interest rates expected to rise or fall?, is the market in the middle of a speculative frenzy?) – that’s just one example, but there are others.

    Len
    Len Penzo dot Com
    .-= Len Penzo´s last post: The Best of the Best in Money and Personal Finance #10 =-.

    1. That’s one of the best examples out there, and I’m glad you brought it up. We can be as “ready” as can be to buy a home, but if the economic conditions aren’t right, we shouldn’t pull the trigger. That’s the theory, anyway…🙂

    1. I don’t know that it’s necessarily a college thing, because a lot of my generation (Y) thinks that way. I think the more interesting thing to see will be how that affects the rest of the job market and corporations as we grow older and enter the ranks of employees.

  6. Very interesting reading everyone’s opinions. I think everyone mentioned something along the lines of “taking matters into your own hands,” which is probably the most important thing anyone can do right now.

    I love Baker’s attitude and I agree with most of it. The only thing I would add is that while you don’t need to focus on the economy, it can still affect you through interest rates, investments, and possibly via job loss if your company cuts back. But I definitely believe in his main point: you need to set goals and work toward achieving them.
    .-= Patrick´s last post: Cloth Diapers vs. Disposable Diapers =-.

    1. Agreed 100%, on the fact that many of us are thinking along very similar lines, and that while we can’t control the economy, we need to be respectful of its influence.

  7. Wow, great list. It seems like most are still a little skeptical about 2010 and playing a lot of defense. Glad to see everyone is on the same page by echoing that your finances start with you, not the economy in general.

    Personally if the economy does turn in 2010 I wouldn’t see how it would even change my life that much. My spending habits, investing methods, and way I work wouldn’t really change. I think 2009 taught me, and a lot of people around the world, that flexibility and frugal living are ways to ride out storms and be free to do the things that matter most – the ones that don’t cost money.
    .-= Ryan @ Planting Dollars´s last post: How to Win Through Quitting =-.

    1. You’re absolutely right–we’ve definitely learned the importance of preparation when it comes to riding out this storm. Most who either over-extended or were caught unprepared are really hurting right now.

  8. One of the things I’m trying to do is increase my productivity, that way 2 hours spent working on side hustle income will bring in more. I think this is going to be a large and beneficial approach for 2010.

    Godspeed all.
    .-= Matt Jabs´s last post: Our Financial Goals for 2010 =-.

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