This is the last in a series of mock client composite situations with suggestions on alternative ways to manage your finances, particularly during an economic slowdown Late this week a financial analyst on CNBC announced that for the seventh month in a row, US layoffs were outpacing hiring.

This has not occurred in the US in more than ten years. Along with that little nugget of coal, there has also been much written about the escalating levels of personal consumer debt, bad or non-performing loans carried by banks and little or no savings by more than 50 percent of the US population. US savings rate today is lower per capita than it was in the early 1950s.

Will the US Federal Reserve cut rates again, as predicted in mid-May; will it restore consumer confidence? It could.

Those burdened with personal debt may rush to re-finance their mortgage at a lower rate, consolidating credit card, and other debts into their home mortgage.

An adjustable rate mortgage in US today is less than six percent and because closing costs on refinancing are minimal, it is almost painless to refinance.

In some aspects, the refinancing process resembles the process here of a further charge. The big difference is that there is permanent reduction in the interest rate (fixed mortgage), plus the fact that the average US citizen does not live in a home more than an average of five to seven years. It is conceivable that these old debts could be rolled forever.

Why write so much about the US economy, many people say. What about Bermuda? The more commerce we Bermudians do with the US (and other countries) the less isolated we are, and the less isolated, the more we become subject to the same global market forces.

Recently, a US friend tried to book a flight here for a few days; the first prices quoted were $800-$900 dollars round trip. Two other US friends said, in sequence, one, they could not afford it this year because the down market had hurt their retail business and the second because he had suffered significant stock losses in the last eighteen months.

If US and other nearby global economy consumers feel poor, even if only on paper, they start cutting back on the extras. So, what will this mean for Bermuda? We may see a ripple effect; usually, a time lag of about six to nine months before a slowdown could be felt.

Not all of the US economic news is bad. Many US consumers adopt the ostrich syndrome, continuing to spend and ignore the bad news. However, when things slow, they happen quickly. We, in Bermuda, should use this lag time to set up a buffer of protection for our families.

SCENARIO THREE Enter our third case "WE ALWAYS PAY CASH FOR EVERYTHING'' We have been so lucky. We put our house, business, etc. up for sale and we sold it, no problem.

We always wanted a boat, or a larger home, or a convertible and we said, what the heck, we are worth it! So, we paid cash for the car and the boat. We have always worked for ourselves (self-employed) and thought we'd just get, you know, regular sort of jobs (we were so sick of all those hours working for ourselves), and find ourselves another house, a bit bigger, no problem.

In fact, we like one we saw a lot, and are putting in an offer. But when we started shopping around, the mortgage people at different places didn't seem too enthusiastic. We don't understand; they said that we might not qualify because our financial profile doesn't add up. We don't get it; we paid cash for everything that we wanted, even though it is a little tough getting by on our new monthly incomes.

REALITY CHECK What happened here? This nice hard-working couple have ended up in a traditional Bermudian position. No debts, little cash savings, lots of property, some of it rapidly depreciating non-collateral goods. Really, in a way, it is not their fault. For many years, Bermudian business establishments of all kinds emphasised paying off debts as quickly as possible. Jobs were plentiful; you could work two or three and speed the whole process up. Many people still would not have it any other way. They hate owing money! TIMES HAVE CHANGED But consider the situation above. This couple no longer have enough money (or the higher paying business jobs) to qualify for the mortgage they need and the down payment on a larger home; in fact, they may not even be able to duplicate the one they sold.

They own two very expensive pieces of property that depreciate immediately upon sale and leaving the lot (plus one rusts and the other grows barnacles).

Lending institutions may assign little value to boats and cars used for collateral, or none at all. They may now be in the position of having to liquidate some of these assets in a forced sale, taking what they can get, in order to get back into a decent real estate investment. Is that fair? Did they deserve to buy these `treats?' Of course, they did. Consumers buying goods and services drive our economy. If no one buys (or can afford to buy), what will happen to the retail seller? This in a nutshell causes a severe depression, such as the Great Depression (1929-1934) in the United States, and in Germany at the turn of the century where households used money to burn for stove fuel because it was worthless.

THERE IS A BETTER WAY When there are several complex transactions going on at once, in this case, the sale of a business, the sale of a home, and a change in job careers, it is paramount to sit down with all of these numbers and figure out where you are going, what you will need in the future, and run various sets of scenarios to see which will be the most beneficial, for the present AND DOWN THE ROAD.

It may not have occurred to this couple that in the sale of their business, they should have researched the following, at a minimum: What is it costing them in hard labour to run the business? Would it still be profitable if they hired a manager and became passive shareholders? Could they keep part of the business and sell the rest? Would it be just as easy to have a fire sale and close shop? Should they take an instalment sale mortgage, thus assuring them of a steady income, say for the next five years. If so, can they secure against decent collateral, such as a buyer's rental property? If they do a take back finance deal, will the new owner perpetuate their reputation? What happens if the business gets run into the ground and they have to foreclose? What will the legal costs be? You should always compare the future value of take the money now (and run) against accepting financing or against sale of only part of the business or other scenarios.

How do they feel emotionally about letting go this business they built from scratch? Are they skilled enough to find another decent job, or will they need several years of schooling and retraining? And in the United States, and other tax economies, what is the tax impact of this sale, and how can we best minimise the tax `hit?' Time and again (with accompanying kleenexes) while practising in the United States, I had the very unpleasant job of informing clients that their tax liability was huge. All because they did not take the time to plan for the sale, nor, did they feel that spending the money to work with a financial advisor was worth the cost.

Instead, Uncle Sam received far, far more (with no value-added).

HANG ONTO YOUR PRINCIPAL It may have been wiser to hold part of the business mortgage from the new buyer, to maintain a steady income stream until they `catch up' in their new careers as employees. By the same token, the proceeds of the home should have been placed in safe investment accounts, until they shopped around, found another home, negotiated the best deal, then thought about the boat and the snappy car, both of which should have been financed.

Why? Because they could have left those hard-earned proceeds intact, leveraged the value by borrowing against it, and still have had that greatly increased principal sum of money five years later.

SENSIBLE USE OF DEBT The sensible use of debt is extremely important today. It allows you to borrow against your property, your abilities and time. Some other factors that should always be in the equations are: What happens if one partner is made redundant? What unforeseen circumstances could cause the ultimate marital rupture, divorce? Exactly what will they be dividing? Now we are in crisis mode, hardly any liquid cash, renting rather than owning, and the remnants of their business productive lives tied up in two pieces of property that they might be too traumatised to even enjoy. What happens if you need to sell a boat when everyone else is, pardon the expression, `in the same boat'. Think you'll get much? This could be a painful lesson in not hedging your bets, and not thinking and planning for the future.

Note: These are made up composite cases (culled from many, many case histories over the years), they do not nor are they intended to remotely resemble anyone you have known or will know. I can assure you that the circumstances are real and are repeated again and again. Financial planning for your future gives you a road map to follow. Do it yourself, or find someone to help, but do it...

before you have a financial crisis. The outcome will be well worth it.

*** Martha Harris Myron CPA CFP is Bermudian, a Certified Financial Planner (holds NASD Series 7 and has a US tax background and is Program Director for the Financial Planning Association of Bermuda). Questions regarding this article may be sent to Email: marthamyron y northrock.bm Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or any other investments. Readers needing specific assistance should seek advice from an experienced professional financial advisor.