Recession Lessons: 3 New Money Rules

The McMansion-owning, designer-bag toting, new-Mercedes-driving consumer is, well, so 2006. These days, faced with scary job prospects, fat credit card bills (that Louis Vuitton tote wasn�t even worth it, was it?!) and houses worth much less than we paid for them, the American consumer looks a lot different than she used to. In fact, she�s living by a whole new set of rules (or, at least, she should be). Here�s a look at what they are:

New Rule #1

Old Rule: Save 3 – 6 months worth of income in your �emergency fund�
New Rule: Save 8 – 12 months worth of income in your �emergency fund�
Back when jobs were plentiful and it was easy to tap into your home equity for cash, you could get away with having an �emergency fund� — money you�d use in case something happened, like you lost your job or had to fix the roof, that had just three to six months worth of income in it. “Now, that�s not enough,” says Elle Kaplan, the CEO of Lexion Capital Management. �You need at least eight months to a year.”
That�s because unemployment is still high and layoffs are common, so you may need a larger cushion. �Desperation can foil a job search,� she adds. “You don�t want to have to take a job that could hurt your career trajectory simply because you don�t have the money to keep searching for a better opportunity.”

New Rule #2

Old Rule: Go to grad school
New Rule: Do a cost-benefit analysis before taking on any school debt
Just a few years ago, it was common to head to grad school when you couldn�t decide on a career path after graduation, or you just simply hated the job you ended up with. These days, jumping into grad school is risky because you will likely take on tens of thousands of dollars in student loan debt and not be able to land a job that pays well.
�You have to ask yourself: does this make sense financially?� says Suki Shah, co-founder of career-s! earch we bsite, GetHired.com. As a general rule of thumb, you shouldn�t take on more debt than what you expect your starting salary to be, experts say. For example, if your starting salary is $50,000, don�t take on more than $50,000 in debt.
“It�s also important to look at the job market for the job you hope to get,” Shah says. �Are people getting jobs in that industry?� These days, you may be better off taking a professional development course in the field you want to move into or going to school part-time. Doing so will minimize the amount of debt you�ll have to take on.

New Rule #3

Old Rule: Buy a home
New Rule: Consider renting
A few years ago, everyone from personal finance gurus to Joe-schmo were screaming, �Buy, buy, buy!� from their overpriced rooftops. �Pre-2007, a lot of people were buying as big of a house as they could afford and then trying to flip it,� says Brian Conroy, a financial planner at Savant Capital Management.
But the tune has changed completely — to the point that in many cases, it�s simply better to rent than to buy. “It�s usually only a good idea to buy if you plan to stay in the house for a least five to ten years,” says Kaplan. �You have to expect slow appreciation.” Even then, it�s important to do your homework on everything from pricing to location to construction quality.

Gingrich: U.S. should reconsider gold standard

NEW YORK (CNNMoney) -- Republican presidential candidate Newt Gingrich is calling for the United States to think about returning to the gold standard.
Speaking at a foreign policy forum in South Carolina on Tuesday, Gingrich advocated a "commission on gold to look at the whole concept of how do we get back to hard money."
Gingrich, a former Speaker of the House, has spoken in favor of a "hard money" policy in the past, but these were his strongest comments to support reinstating the gold standard.
Gingrich would model his "gold commission" after one put in place after Ronald Reagan was elected, when the nation was battling double-digit inflation. But even then, the commission overwhelmingly rejected the idea of a return to the gold standard.
One of only two members of the 17-member commission to endorse a return to the gold standard was Ron Paul, one of Gingrich's rivals for the GOP nomination.
The United States first moved away from the gold standard, under which the dollar was backed by the nation's gold reserves, in 1933, and dropped it altogether in 1971. Despite support for its return by some on the political right, few mainstream economists support its reinstatement.

Local currencies: 'In the U.S. we don't trust'

Chief among the problems is that with a dollar pegged to gold, U.S. goods could become uncompetitive on the global markets compared to goods priced in euros or yen.
The return to a gold standard is a central point in the campaign of Paul, a Congressman from Texas who also advocates abolishing the Federal Reserve.
In his comments Tuesday, Gingrich also spoke sharply against the Fed, saying it should focus on keeping prices in check, dropping the dual mandate of job growth and fighting inflation.
"We need to say to the Federal Reserve: Your only job is to maintain the stability of the dollar because we want a dollar to be worth thirty years from now what it is worth now," he said. &q! uot;Hard money is a discipline. It means you can't inflate away your difficulties."
The Fed has become a major target of Republicans in the last year. Republican congressional leaders wrote to the Fed in September asking it to not take any additional steps to help spur the economy.
Other leading Republicans have echoed Gingrich's call to end the Fed's dual mandate. Texas Gov. Rick Perry, another presidential candidate, even suggested Fed Chairman Ben Bernanke might be guilty of treason if the Fed moved to buy more Treasuries in an attempt to spur greater growth.