Recession Survival Tip 1.

I was chatting to a local business owner this morning, about this recession thing. He told me he was repaying his debts as fast as he could, especially his mortgage.

I know that this is the current mantra, the current best practice, but I think it is insanely wrong here’s why.

At some point in the next few years each of us will run out of cash. (I did in January with some big one off expenses.) At that point, that small cashflow issue is the trigger for a huge range of consequences:

• you get evicted from your home;
• something bounces out of your cheque account and this stops any future credit stone dead;
• your car gets repossessed, which is also not good for your credit record;
• your child can’t go to school;
• you can’t get into a hospital;
• you can’t eat, …etc.

By repaying our debt (which is the sum of all our existing credit lines) we’re encouraging a future catastrophe. A few of my credit cards have recently written to me to reduce my limits! The better I am as a client the less they want to lend me because they’re so exposed to bad clients! How bizarre.

We’re repaying our debt in the expectation that our credit lines will remain in place. that’s not so. Our credit lines ride on a bankers whim, and there are far too many reasons for that whim to change – all of which have little to do with us.

Imagine the bank noticing an increase in defaults in Gauteng. You’re not a defaulter, but your bank pre-empts the situation by lowering limits for all folk in Gauteng. Suddenly you have less working capital than last week. You’re on the road to becoming a defaulter. Heck, the bank was right, and the clever fellow that spotted the trend gets himself a moerse bonus for saving the bank so much money!

All the Western Governments are pumping money into their economies as fast as they can. They’ve exhausted monetary policy. They openly admit that they do not know what they’re doing. Hint: Magabe has been trying it for the past few years, and it hasn’t been very successful.

In other words, expect to see inflation creeping up fast. If you owe money, that’s wonderful! It reduces the capital value of your debt. (Inflation is what makes the amount of money your dad paid for his house so laughable.)

Paying back your debts from today’s (uninflated) income is expensive. It trashes your personal credit lines, with no guarantee that they will be in place when you need them. It is another case of behaving ‘sensibly’ in unsensible times. (No matter how prudent you may have been saving for your pension these past 50 years, one year of banking misbehaviour, and consequent govt behaviour – and you’re as well off as someobody blowing coke up his nose for that same period. It occurs to me that if cash conservation is critical, then it makes sense to cancel every single debit order that you can.

The reasoning is simple. You have no control over incoming debit orders. If you do not have adequate funds in your account on the date that these things arrive, a few things happen: the bank bounces them, at significant charge;

• if the bank bounces them, your credit record takes a tumble;
• if the bank doesn’t bounce them, and you don’t have sufficient funds, the bank will charge you blood in penalties.

Let’s imagine that you cancel the incoming debit order and you choose to pay each one as it arrives (via e-mail, or in the post). In this case, if you have the funds, you pay. If you don’t, you don’t pay, and none of the above bad things happen.

If you pay late, the only bad thing that happens is that your supplier might charge some form of administrative fee. Is it conceivable that that fee could be as high as the penalties the bank is going to hit you with? I don’t think so.

Hell hath no stress like a debit order, whether expected or not, arriving when you have insufficient funds.