March 19th, 2009 — Budgeting, Credit Cards, Debt, Economic crisis, Pay For College, Retirement, Save Gas, Savings
Part II
Continued from yesterday…
In yesterday’s post, I started with some basic ideas for how to survive a depression. The signs aren’t looking good yet (despite what some tee vee shows want you to believe.) Think we’re headed for a depression? Having trouble keeping your head above financial water? To survive a depression, you’ll need as many resources as you can muster – money saved, skills learned, low expenses. We’re just starting here with some options for you to start putting even a little bit of cash away, and build a financial base on which to stand…Here are some ideas to deal with basic financial issues facing many people today.
Tough Decisions For Many Families
As a result of the financial turmoil, there are plenty of families which will be torn between putting aside money for retirement, and saving for college for their children’s college education. Many parents now paying for private school in grades K-12 are now rethinking that decision. As for college costs, they keep rising, and enrollment in local community colleges is skyrocketing. Yet do parents always have to pay for college? If high school age children are encouraged to do everything they can to apply for all available grants, treating it almost like a part time job, they may find that there is cash available. In addition, holding down a part time job or two in the summer can give teens a way to afford school. When parents give up financial security in their old age in favor of paying tuition today, that is probably a far bigger danger than the impact on their children of having to attend a community college instead of a major private university.
There are plenty of state colleges that are priced under $20,000 per year for state residents, including tuition, fees, books, and room and board. A part time job that pays $10-15 an hour can cover a large portion of that amount. Community colleges are far less, especially if the student lives at home for a year or two.
The biggest takeaway however is that students should treat any kind of college loan as an absolute last resort. The last thing a student needs, or a parent, is another pile of debt in an economy like this, which could be sluggish for a decade or more. Getting real about your finances is the only way to protect yourself in a depression – and that means that the American “but I want it NOW” attitude has got to change in favor of a prudent, smart, long-term wealth-protection strategy.
Saving as much as possible, getting a job, and spending time researching grant money, as well as attending an affordable school, is a good, Depression-defense strategy. Parents should just keep socking away as much as possible for retirement.
How About Vacations?
As of this writing, airlines are lowering costs as gas prices have come down and people are staying home in droves to save money. Vacations while of course wonderful, are a casualty of reductions in credit spending. How many vacations have you taken that were paid for in full with cash? Avoiding credit card debt can mean avoiding expensive vacations.
Yet there are plenty of options. Home swaps are one; there are agencies online that help you find a family interested in a trade. There are campgrounds with modern cabins, and hotel discount websites. Cheap travel websites about, including last minute travel deals, discount airfares, discount cruises and cheap hotels. Cutting the length of your stay is an option too. Visiting relatives or renting a vacation home together with friends is another way to keep costs down.
Why not explore locations closer to home too? Big cities like New York and San Francisco can be expensive, but history and sightseeing abound in out of the way locations like
Easton, Pennsylvania (a couple hours from New York City), or off the beaten track locations like St. Augustine, Florida, or Bethlehem, Pennsylvania, or medium-sized cities like Memphis, Austin, or Minneapolis-St. Paul. Get out into nature by exploring one of our greatest national treasures: the
National Park Service system.
If you’re taking a driving holiday, you might consider going a shorter distance. Anyone with an RV is still taking a hit on fuel costs, but consider staying longer at one location instead of more mileage.
Spend Less for Entertainment
Do you really have to cut back on entertainment jut because your budget is cut back? Not really. There are really hundreds of things you can do, for less. One website, GoCityKids, offers lists of things to do, free and paid, for dozens of locations around the country. Public libraries are now swamped with requests for movie rentals, music rentals, and the old-fashioned book. Many municipal and college libraries show films to the public. Schools, colleges and local orchestras offer free concerts. Some communities sell discount tickets to events like theater and concerts, along with movie and museum tickets.
Start a game night, movie night, potluck night with friends, or a neighborhood wine tasting. There are more ways to connect with your community than you probably knew – and it can enrich your experience of where you live.
Are We Addicted to Debt?
There’s a lot of finger-pointing out there about who caused the current economic crisis. It’s likely that we all had a part. Clearly, the warning flags have been up for some time, as Americans’ saving rate went negative (we borrow more than we earn in income) and we just kept spending money we didn’t have.
With life spans increasing, you’ll need more money to retire in any type of comfort level. If you start getting on track now, you can protect your retirement, rebuild what you might have lost, and avoid getting sucked in to the casino we call Wall Street. One important way is to break your debt addiction by getting rid of credit cards. Pay them off; cut them up. Will it hurt your FICO score? Who cares? You want to move away from a debt-oriented way of thinking, which FICO encourages. And if you bank cuts your credit line, that will hurt your FICO too, without your agreement! Having money in the bank and learning to live within your means is a better strategy than building up a credit-borrowing score to borrow more in the future. It’s time to break your addiction now!
Do you want to be 75 years old and having to work to pay off your credit card debt and rent? I didn’t think so.
When Will It Get Better?
Everything in our world is cyclical. It might take ten years to start to see improvements, or a return to personal wealth that we saw a mere one or two years ago. but in the mean time, you will be able to build a much stronger foundation than you had before, and learn more about being a good neighbor, and how to build real wealth and not just borrow money to have the image of wealth.
To survive a depression, you’ll need to seriously cut costs, and increase the money you do have, as well as skills that make you marketable or which you can barter or use to maintain your home, vehicle, lifestyle. But belt tightening doesn’t have to be painful, if you find creative ways to enjoy life instead of just buying more and bigger stuff. You can instead save money, build real wealth and pay down debt. That way, when “good times” return, you’ll already be there.
March 18th, 2009 — Economic crisis, Investing, Mutual Funds
For the first time since the 1930′s, people everywhere around the world are experiencing a severe economic contraction, a recession which some believe will go into a depression. Everyone’s quality of life is being affected, and will probably continue to be affected, for some time. The big question is, how to survive a depression: what do you need to do to protect your savings, your retirement, your job, and make sure you have some solid footing somewhere.
The first step is to get a view of what’s happening out there. We’re busy, we’re scared – but you have to stay informed. If you haven’t already, start reading, watch informative tee vee (if you can find it: we recommend Bloomberg or in a pinch, CNN, but skip CNBC altogether). Read the web, follow the money.
Of all the experts being trotted out to talk on television about when to start investing again, I haven’t seen any who have said, Now’s the time. In fact, they say the opposite: Things are too shaky, too sketchy, the profits just aren’t there. So let’s forget the stock market for now. Hopefully, your money, or what’s left of it, is in a money market, a cash vehicle, under your mattress, or a high interest online savings account where you can at least earn a couple percent while yo figure out what else to do.
Will The Economy Will Improve?
Well of course the economy is always in transition – but get ready for an economy where things could plateau for a very long time. Prices could fall in a deflationary environment, but for the short run, it won’t matter, if we don’t have available cash to buy with. So, one step you can take is to hope for the best but prepare for the worst.
Start finding ways to cut back, and live on less, and if you are working, then stash the difference in a high interest savings account. Most of these are online savings accounts, with HSBC or ING Direct. You’re not alone, as many families are cutting back, or doing without, just to make ends meet.
Nearly every family has two working parents. Now adults are taking on more than one job apiece. Find a way to make extra money online, or start a side business, to bring in some extra cash, even if it’s only a little, like selling things on
eBay, or
Craigslist. Given that companies lay off employees as their profits go south, it’s a good idea to get ready with emergency funds in case you lose your job, and if you’ve already lost your job, more ideas appear below.
How To Save on Gas As Prices Climb
While not so high right now, many economists say gas prices will keep rising partly due to less availability, production cuts, and weather storms causing gas to climb. Or, speculators could easily drive the price up again as they did in 2008 which led to $4 a gallon gas.
Even though as of this post, gas prices aren’t that bad, the likelihood is that forces will work to keep prices from falling very far either. Oil producing countries won’t lose much money before cutting production. To save money on gas is pretty easy: Drive less! Or, drive a more efficient car. Combine trips, walk, bike, or just don’t drive around just for fun. Carpool to work, skip the mall, and you’ll save money almost automatically.
The Looming Food Crisis
Food prices are relatively low right now, but a big problem is that weather patterns are more unstable. In addition, ethanol production has caused corn prices to rise. In 2008, there were food riots when this caused high prices around the world, including Mexico and Pakistan.
Oil prices, weather, and futures speculation can all cause prices to rise suddenly. Two good ways to combat food price hikes, as well as save money are (1) grow your own, and (2) buy less processed food and (3) eat less meat. Guess what? Coupons are not the way to go! Coupons offer very bad return on investment. For hours of time, ou may save $3, $4 or maybe even $10, but if you spend 3 hours “couponing“, that means you got paid $3.30 an hour! Not worth it. Not to mention, most coupons are for salty, fatty, processed foods with less nutritional value than what you can make yourself.
So, start a garden, even if it’s a small container garden. Look for local farmer’s markets. And at your grocery store, buy “around the edges” where the produce, dairy and fresh food is. Reduce your purchases of processed food. And make one or two meals a week meatless, like pizza, rice dishes, beans or tofu. It’s really not that time consuming to whip up a wonderful quick dinner, that’s healthy and affordable.
Particular to groceries, try comparing price per pound for items across the board. For example, eggs are about $1.50 per pound, and tofu is about $2 a pound. The nutritional value is greater than frozen meals that cost $3-4 for a 9 oz. serving. Compare, shop smart and save.
Where To Find Fun Money
So if you’re broke, or just trying to save, does that mean you can’t have fun? No! As far as I’m concerned, eating “beans and rice, rice and beans” like Dave Ramsey says, is bull-bleep. There are plenty of
easy ways to save money. If you’re budgeting, just include one or two fun things in your budget. For example, we spent a weekend away by getting amazing airfares and hotel prices using sites like Priceline, and “raised” extra money by selling stuff on eBay to cover our purchase. We shopped hard, budgeted and saved up, and had a great time! You can do the same. Go out to dinner using coupons from Resturants.com, where you can buy $25 gift certificates for $10. Have a fancy potluck supper with friends. There are many ways to have a good time on a budget.
Discretionay income was always a joke anyway – since we all just used credit cards to buy our fun stuff! Real “discretionary” income is cash you really have that’s extra that you set aside not for paying bills, but to enjoy life. So what Dave Ramsey, if it takes me an extra six months to pay off my credit card!
Still, Try To Get Rid Of Credit Card Debt
Americans are said to have between $4,000 and $8,000 avergae credit card balances. We’ve had a
spending addiction for decades, and its coming home to roost. Plus, now that the credit card banks are hurting, they’re jacking up fees and interest rates, cutting credit lines – who needs it!? Personally, I’ve lived without credit cards for more than a year. It sometimes is hard to want to buy something, and not have the cash – but it sure feels good at the end of the month to NOT have that bill! Anything thaty’s not on my monthly budget, I don’t really need anyway.
Paying off debt should come after putting aside emergency money. You don’t want to be paying more than the minimum on your credit cards if you then lose your job an have no cashs aved up! So, better to put aside 3-6 months of income into savings, and then pay more than the minium on your cards.
Of course it practically goes without saying, don’t apply for more credit cards. Store cards, gas cards, al are relaly tempting when yo uhave no ready cash. But it’s part of the lerning process we’re going through – how to live within our means. When you live within your means, that’s great, but then you can start spendign less on your epxenses than you earn – and that money goes toward your welath! Better that it go to your own family’s wealth than the wealth of Bank of America’s credit card arm.
Remember that credit card offers like rebates, air miles or cash back all increase prices for everyone, and 80% of those “benefits” are never used. No matter what, you should use plastic only when necessary and not to support a lifestyle. don’t fal lfor the trap that the more you spend the more you’ll get back.
Help From Government Stimulus?
We are, most of us anyway, now the recipients of reduced taxes thanks to the stimulus plan. This will account for a few bucks each paycheck, but hey, every little but helps. Just dont’ use this s a reasonnot to stick to you r budget - you might consier putting it instead into your 401(K) or an IRA to make it work for your future.
Remember, saving even $10 a week is $520 a year, and that’s real money!
Tomorrow we’ll post the rest of this list of ideas about how to survive a depression, so stay tuned.
March 7th, 2009 — Bonds, Cash, Economic crisis, Investing, Money market, Retirement
Here are just a few questions you won’t see asked or answered on the so-called money shows on television:
1. What if this is a depression? What if it’s not a short term bear market? What happens to my retirement money? Where should I put my money in a depression? Do you have any idea? (Remember – It took them a year to call a recession – only 12 months late… but we knew it, common sense told us.)
2. If 12-15% of Americans are out of a job (both those on unemploymnet and those who have run out of unemployment benefits and have just stopped looking), an unspecified percentage have part-time work that need full time work, and those of us with a job have no idea whether we might lose or keep the one we have, and none of us want to spend our money and we can’t get any credit, and even if we did, we probably won’t get our hand caught in that tiger trap again, tell me where will the profits come from so that big companies will make money, and start a new “bull” market? Or even an “up” market?
3. If you can move your money right now into an investment vehicle that will at least earn 2%, 3% or 4%, why shouldn’t I do that while I wait for the market to get better? (Don’t just tell me not to do it, tell me WHY. And then tell me why it’s OK to lose another 20% while I wait for the market to turn. And if you tell me again about what the market has earned “historically”, I will kick your ass. I am not stupid, I have a calculator…)
4. If you lose 20% YTD in your investment account, your new lower balance wil have to return 25% to get back to square 1. (For example: a loss of 20% off of $5,000 leaves yo with $4,000. But to make back $1000 on $4,000 is a jump of 25%.) So when they tell you to wait for the market to “come back” – how far will it have to increase to just get back to where you started?
5. What if the markets stay depressed for another ten years? And there is no climb like we’ve seen the past 30 years? We have already lost enough in the market to erase teh last 12 years of gains. So, should you believe them when they tell you to take a 20 year time horizon?
6. If you take your money out of the market, put your money in CDs or inflation adjusted bonds, or government bonds, or other more reliable vehicles, the huge Wall Street behemoth – financial advisors, mutual fund companies, television talk show hosts – they don’t make any money. Need I say more.
March 4th, 2009 — 401k rollover, Cash, Economic crisis, ETFs, Investing, Money market, Mutual Funds, Retirement, Savings, Self Directed IRA, stocks
I can’t believe I’m still hearing it: Someone on CNBC just this morning said, Oh, don’t take your money out now, you’ve lost too much!! Yeah, great, wait for Dow 5000. There are still plenty of financial experts saying that’s possible before it’s all over.
Guess what? The tee vee “experts” were saying that in November ’08 too, so if you listened - to CNN or CNBC or FOX or XYZ - tell me, where are you now?
I’ll say it again: in a volatile market, why not get out of mutual funds, at least with part of your money, and put it somewhere you can make a little, and wait for things to turn? I would rather make 2% in a savings account for a year than lose another 10% in a stock fund.
Some ideas:
- For investment accounts: Get out of the dang index funds – they include too many companies that are at risk. If you aren’t willing to learn to invest stock so that you can confidently buy individual stocks or ETFs, then put your money in a CD. If your financial adviser is still losing you money, don’t be afraid to move your account. Anyone advising you to stay put is going to lose you more money. IMHO.
- For a retirement account: If you get a company match, meet it with your 401(K) contributions, but NO MORE. Then take that money and invest in insured money market funds or “inflation fighter” funds – avoid the index funds! They are for later, probably not this year, but maybe next, not until you are confident the market is again moving in the right direction.
- If you have a 401(K) right now, you are likely down 30-40%. But don’t take it all out of your retirement account – you’ll get slammed yet again with fees and penalties. Reallocate within your 401k to whatever funds are closest to cash, Treasuries or A rated bonds – ask your plan administrator. (NOTE: This is not 100% safe either however in a credit freeze.)
- If you lose or leave your job, immediatly switch your retirement account to a 401k rollover – as well as funds you haven’t rolled over from previous jobs – roll them into self directed IRA accounts, using a discount brokerage. DO NOT ROLL OVER TO YOUR NEW COMPANY – or your investment options will be severely limited to mostly stock index funds! In a self-directed fund, you can invest in ETFs for commodities, metals, shorts, and a wide variety of other funds. We like Scottrade as well as TradeKing for to discount brokers. (Not affiliate links! We just like them!)
- For non investment money, get your hands on as much cash as you can, and put it into an insured money market fund. Hold off doing anything until you (1) spend time to learn to invest stock so that “what to do” is not a crap shoot, (2) understand why your 401K was so risky to begin with, and (3) find good ideas about where to look for solid returns, including experts who have a track record you can believe.
Now you’ll have to start to learn to invest money. There are places to make money, maybe not in a 401k but if you also open a Roth IRA or other account, you can make up for that outside your job. And if you get laid off, you can roll the money into your self-directed account.
There are places to be making money now, but you have to feel comfortable you know what you’re doing, and be comfortable with a degree of risk that we haven’t been trained to accept. But the rewards in this market, and for the next few years, will only come with more risks. If you aren’t comfortable with that, then you need to stay safe in cash or similar vehicles.
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