This article shows investor sentiments on what happens with the instigation of carbon tax in certain parts of our economy. Investors are pulling out of these polluting power stations. Does that also mean international investors will withdraw out of our economy? Here, Transfeld takes a $12.2M hit. Carbon tax: <a href="http://www.theage.com.au/business/transfields-122m-loy-yang-hit-over-carbon-tax-20110817-1iy5o.html">http://www.theage.com.au/business/transfields-122m-loy-yang-hit-over-carbon-tax-20110817-1iy5o.html</a> Are we to believe that there will be virtually no impact on the economy? One thing is for sure. If listed companies start showing losses on the stock market, investors will get nervous. Speculators can also start shorting shares. Investors can be a fickle lot and pull out. They do so with the littlest of tremors as was seen just a few weeks ago. The economy can go bad real quick. Spending can drop quickly as confidence falls. This can impact on small businesses and jobs all around. The question is not whether these are polluters or not. It is not whether carbon tax and other regulations smother businesses like Bluescope Steel. All this will happen and some will contend it has to happen to preserve our environment. At this point it is more about what happens next to the economy and how we brace for the financial impact. We need to be talking about jobs being lost, mortgages repayments and putting food on our table for our family. Lessons learnt the hard way by many in the first GFC are really relevant here. That is what it’s really about. There are things we cannot do anything about. In extreme cases, when all jobs are lost or your customer base vapourises, there is not much you can do to influence these two outcomes. However, the result to each individual can be very different. Imagine two guys, John and Herbert. John has multiple investment property and is betting big on capital gains to retire. His savings account does not have much as reducing interest repayments is more appealing. This puts pressure on his lifestyle to be contained i.e. he is not a big spender and is used to living that way. Enter, Herbert the magnificent. The latter has a somewhat healthy bank account but spends more on his lifestyle. The crisis hits and leaves one without a job another without a business. The first loses everything and owes the bank so much that he files for bankruptcy. Luckily, he was not used to living a brash lifestyle, so he adapts fairly quickly but now lives day by day. The houses are gone and so are the dreams of retiring early. Gutting. The second one keeps all his money but after a few months, the drop in lifestyle is dramatic as the bank account dries up without any income. The first lesson here, is not to live beyond our means. Early retirement is not affordable to all of us. Neither is a lavish lifestyle. Beyond the obvious, there are more things we can do. The following is a strategy to get back on your feet when this does happen: One needs a healthy bank account or other stashes of readily available cash. Economists are saying that people are saving and impacting the economy. Granted that if everyone did that, the economy would come to a grinding halt. However, this blog is about MY readers. Not everyone is my reader – so if you are here, follow my advice and save up. Sorry for being selfish. Usually we feel guilty by spending too much. If you are one of those rare ones that feel guilty about not spending and “doing your bit for the economy”, please think about it this way if it helps. It actually helps the economy to stabilise where risk and return are normal versus everyone’s exaggerated exuberance about a shiny future. Let me ask you this, how would you feel if you had a year’s salaries in savings? Just the thought feels good, doesn’t it? That is as simple as it gets. If you lost your job or your business, that gives you a whole year to get back on your feet. Now imagine losing your job, with all your money tied up in your investments and mortgage. What will you do when you lose your job and the next mortgage repayment is due? It can and will happen. One needs to be positive. The way to do that is to surround yourself with all things positive. There are blogs just on how to be positive. Most of them are good. You have positive friends, cull the negative ones. There is always a positive side to anything that happens during the day. Try two days of finishing every thought with something positive. Don’t think this is corny. Try it before you knock it and see how you feel. It builds a dam of positive outlook. When the excrement hits the fan, the positive one gets back on his feet much quicker. I have tried it myself and I have seen others too. I did it for 7 days. If you want to do it together, shoot me an email, Maverick, I’ll be your wingman! End of part 1. Want more? "Part deux" deals with contacts and family support as a way to mitigate your financial risks in a downturn.