http://www.harvard-magazine.com/on-line/010682.html

The Middle Class on the Precipice
Rising financial risks for American families
by Elizabeth Warren
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So where did their money go? It went to the basics. The real increases in family spending are for the items that make a family middle class and keep them safe (housing, health insurance), that educate their children (pre-school and college), and that let them earn a living (transportation, childcare, and taxes).

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It’s interesting that the author in this summary includes taxes as part of the basics.  It’s also interesting that there is no action plan for how to get out of this mess.

I’d suggest to those at risk:

(1) Increased awareness of the risks. Having been caught unaware in my life, I know that wake up call is a real slap in hte face.

(2) Knowledge is power. Know where every dime goes. Put every nickle to work. Cash management will be rewarded. Do people have any idea what their current run rate is? What is the minimum cash burn if nothing was coming in? What is the life boat run rate? It’s amazing how many people don’t even have these concepts in their vocabulary.

(3) An emergency fund suitable for your risk level. A year’s worth of run rate, invested in short term certificates, is probably the minimum. The size of the fund has to be adjusted for age. Over forty? Getting a job is twice as hard as under. Over fifty? Four times as hard. Over sixty? Forget it. Corporate Amerika doesn’t want you.

(4)  Cut expenses to the bone like the ww2 generation did. Manage long term mortgage debt like an investment portfolio. Minimize the amount you’re paying. Notice – I didn’t say take cash and pay it off like some radio talk show hosts advise. One raving looney said sell the house to pay it off. That might be correct in SPECIFIC cases, but not as a general rule. A home mortgage is like sleeping in your bank. Following his strategy, you might wind up paying more in taxes and have nothing to fall back on. To be free and clear and debt free? not sure tht’s the best advice for everyone. But also, if you have an adjustable, then you have a problem.

(5) Simplify.

(6) Develop alternate earning streams, skills, and investments. (An investment is something that gives you a return.)