Entries from October 2008 ↓

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The first time I read about the problems inherent in 401(K)s, it was reading Rich Dad’s Guide To Investing by Robert Kiyosaki.  Whatever else you think of him, his discussions of how the tax laws were written and rewritten to benefit the rich and not the middle or lower classes are invaluable, as well as his concern over why 401(k)s don’t work for the vast majority of people.  (Pick it up for a couple bucks used, and while you’re at it read Rich Dad’s Prophecy too for a real hair raiser…)

Here is an article today in the Washington Post saying the same thing, (although where were these articles  five, six ten years ago…)

Jim Cramer too has ALWAYS said to only put into your retirement account what your employer matches.  Beyond that, use a ROTH or some other self-managed vehicle where you can invest in individual stocks, bonds, CDs or investmetns that YOU control, not the ubiquitous index fund or “diversified” global funds.

You may argue with some of the recommendations of these writters, but the underlying logic makes sense, and is borne out by the results in the real world for the vast  majority of people.  It’s worth taking a step back and looking at the big picture.

I have some links and ideas I’m in the process of compiling, from financial types who recommend where to invest now, if at all.  Also some additional ideas for finding cash.  Here’s one for today:

- Get rid of gas cards, which have extremely high interest rates.  Pay cash, and start carpooling once a week or more. Just be sure to bank the savings.  Sounds trivial like most of htese savings tips, but they add up, and in changing your lifestyle you’ll become more financially sound.

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Companies can only prosper when there are customers, and if customers have no cash and their credit is taken away, they can’t buy.  Where do corporate profits and growth come from if there are no buyers?  (Other than the illusory “productivity increases” – which does not equal “profitability”.)

A friend asked me yesterday what to do: In her retirement account, she’s lost all of her gains over the past 5 years plus lost 15% of her principal (not including fees).   She asked, should she sell all her funds and invest only in money market funds?

My question to her: Do you really think the market will perform well enough in the next 2-3 years to not only “win”  your 15% back but earn more for you?   Do you want to learn enough about stocks and investing to take control of your own money to make that happen, and not to just take your broker’s word about “asset allocation” and what to do with your investment? (It didn’t help that her accounts are with a big-name brokerage making ridiculous fees for buying 6 funds that essentially trade all the same stocks…)

Both of her answers were no.  Given that, she decided.

She is selling her funds, and putting them into money market accounts for now, until she can learn more about buying bonds and CDs inside her retirement account, or, until it looks like the market is actually rebounding somehow.  She HATES the market, HATES stocks.  Not everyone should be in mutual funds in their 401(K).  The myths of defined benefit plans is hurting a lot of people. She got in because people told her that “historically the stock market returns 11%” or pick your favorite number.  That historical number has NOTHING to do with what anyone can or will earn. It was never a sure thing, as so many are finding out right now.

Remember: I know nothing about investing, I’m not a professional, and have no idea what anyone should do with their money. Ever.

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I’m not a finance expert, just a middle-class American watching the financial nightmare unfold in front of my eyes, and I’m deciding to do something about it.  Putting more cash aside, taking steps to bring in more cash, and save, save, save is the goal. I don’t have a $$ amount I’m trying to reach – yet – instead, the idea is to make sure that whatever happens, I’m not broke.

This is not about “personal finance’ or what to do with your retirement, or how to get out of debt. This is way more basic:  about having money in hand, or tradeable/sellable skills, or whatever is needed, to survive a massive economic blowout – and if the blowout doesn’t happen, I don’t think I’ll complain in that case either!

Here’s what I’m talking about:

- Figuring out how to save as much as possible, by buying less (or nothing), getting deals, and conserving.

- Finding best places to put the cash so it’s relatively sage – that is, the best rates on savings accounts, specific investments, other ideas. (Hint: This means NOT mean paying off credit cards first!)

- Making extra money – the fast kind, not the job kind; I’m not talking about overnight millionaires or anything, just ways to get a couple hundred (or maybe more!) coming in each week?

I think this crash is just the start.  Stocks may not come back because the wages and jobs aren’t there that are needed to fund consumption without credit.  We won’t have income because as customers we’re too broke to buy. It’s a vicious circle, and without credit no one’s going anywhere.

So, in the mean time, the goal is to keep cash coming in, prevent it from going out, and and do whatever it takes to protect your finances.  Inflation is going to be the next bugaboo, but one thing at a time for now!  I’m working on a list of ideas I’ll post here.

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Right now, you want to be in CASH. Saving cash, stashing cash.  i’ve moved my cash from a large national bank to a smaller, local bank with ZERO exposure to anything Wall Street and a higher reliability rating.  You can find out how your bank stacks up at Bankrate’s Safe & Sound Ratings. More bank closings are coming though, some say numbering in the hundreds.

Now that the FDIC is insuring deposits up to $250,000 (temporarily, through December 31, 2009), it’s feeling a little safer out there, but still – could the Feds handle a run on banks?  If you’re concerned about safety, keeping your cash in a savings account that pays .025% isn’t all that much better than keeping it under your mattress.  And who wants to be standing in line when they close the doors?

Some financial talking heads like Jim Cramer are saying keep anything you need for the next five years in CASH.  My suggestion is, keep anything you bring in in the next two years in cash too!  Unless you like gambling, what would be the point of putting your money into the market right now?  The market hasn’t hit bottom yet, and having cash when it does look like it’s finally pulling up is the best position to be in.

We’ll be posting ways to find as much cash as you can as fast as you can, by tweaking your budget, saving, and making more money.

• Calculating Your Bank’s Health

Want to start piling up cash?  For anything you need in the next 5 years, some are advocating that you start saving you cash.  Maybe for beyond 5 years!

Here are some ways to slash your budget and start putting aside cash out of your next paycheck.

Cut these from your budget NOW!:

- Entertainment expenses: movies out, dining out, fast food, expensive vacations in favor of closer/shorter/less costly.  Use the library for movies, video, music, and much more than just books.

- Lunch at the office: take your lunch and save $200+ a month.  Try a potluck once a week with several co-workers for something different.

- Fuel costs: start carpooling, cut the number of trips you take each week, put the kids on a bus or bike instead of chauffering. Driving 55 saves 25-30% of fuel burned by your engine as driving 70 MPH or more.

- Your electric bill: Shut off lights. Switch to CFLs, which save over the long run. Use cold water for laundry, take shorter showers. Turn down thermostat in winter, turn up AC in summer.

- Cable - save $100s a month! Watch on the Internet!

- Try the thrift store. Yes really. We have been buying new and like-new brand-name designer women’s clothing for under $5 per item.  Not to mention other household items – a boy’s  bike, brand new, for less than half price.

- Buy food in bulk, buy it now for the year. Seen the way prices have jumped 10%, 15%, even 25% on items over the past six months?  Clear away some room in the basement or a closet and stock up.

Post a comment with your best ideas for saving IMMEDIATELY!

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