The answer is "yes." We don't have to wait for financial reform. We don't have to wait for the Consumer Financial Protection Bureau to come to the rescue. Meaningful change can begin today and it starts by taking on every day and every dollar as though it makes a difference, because it does.
Everyone should have a plain old fashioned savings account that can serve as a safety net if we have a setback. There actually was a long stretch of time in recent American history where our country had a 10 percent personal savings rate and the economy was humming. Before the onset of The Great Recession our personal savings rate bordered on zero leaving us no margin for error. Many of us ignored the need for a savings account because we had a false sense of wealth. We actually bought into the concept that our homes and our securities were worth more than they really were. We didn't need to worry about a job loss or a medical setback because we could have easily covered our expenses by tapping into our home equity. That theory doesn't hold true today, so it's time to rethink our Plan B. The old Plan B was completely flawed anyway; this is actually a perfect time to regroup by setting up a savings plan. Baby steps are fine, but ultimately it's a worthwhile goal to save at least 10 percent of our net income as a safety net on top of what we might be setting aside in a retirement fund.
Why? Because we need to abandon the concept of tapping into our home equity or our retirement accounts for anything other than a dire emergency. Remember the bank ads that encouraged us to "live richly"? The subliminal message was actually, "be stupid." Now we know that we need to be informed consumers which includes understanding how much money we can spend after setting aside a certain amount of money towards savings each month. We should have never bought into the idea that we should "tap into our home equity" for a better lifestyle. How odd that it became old-fashioned to own our homes outright. We can survive almost any economic downturn if we aren't saddled with debt.
It's also time to understand that we are living in a world of borrower beware. The old 28/36 rule should be brought back to life. No more than 28 percent of our income should go toward housing and no more than 36 percent of our income should go toward debt of any kind including student loans and housing. The states where housing costs exceeded 50 percent of our income are the same states facing the highest rates of foreclosures.
It's time for personal accountability and personal responsibility. We need to understand down to the day how much money we can spend without going into debt. Sure, consumer spending drives our economy. But we shouldn't have an economy built on the backs of people who can't afford it.
The bottom line is that we can all spend more money than we have, but we shouldn't.