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 13th, 2009 — Investing
OK I’ve ranted quite a bit about getting out of mutual funds, and moving your 40(K) into cash. Now that we’re seeing a little upturn in the market, are you missing the big change in the market?
I doubt it. This blog is about saving cash – how to protect the money you have, save money when you can, and make money to keep building your wealth safely. So, if safety and wealth is what you’re after, jumping back in to a recessionary market after just a couple up days is really risky. Let’s look at the big picture here:
1. Although we’ve been fueling the economy with our buying for the past 10-30 years, Americans right now don’t have any more money, that is, we’re not getting any raises, we’re losing our jobs, we’re spending too much on healthcare and very other expense, and
2. We don’t know when we’ll have a lot of income in the future, it’s gonna take us years to pay off all our debt, (I don’t see anyone getting a 10%, 20% pay raise next year, do you?) and
3. We can’t get more credit even if we wanted to, and
3. We SURE don’t want any more debt, because that’s what got us in this mess, and that’s OK anyway,
SO…
4. How can you have “growth” stocks, or “value” stocks, when what makes them grow and be valuable is SALES? Who’s going to buy, to increase the profits from to make the market move up again?
So, when someone tells you to “buy a growth stock mutual fund”, you hopefully will understand that there isn’t going to be much “growth” until Americans are making more money from their jobs. Assuming they have one. You might want to consider learning how to buy stocks for beginners.
The fact is, it has been consumer debt that has been driving both the US economy and the entire global economy for many years, and now we just can’t afford it any more. How could it be anything other than a long time before the market comes back? You won’t find the answer to that on Carmen Wong, or
SquawkBox, or Mad Money.
Some things always will be needed, of course. For example: health care, which should get a big boost from the baby boomers’ aging and the stimulus; food; discount and warehouse stores like Wal-Mart or Target or Costco; some clothing maybe. Auto parts, but not autos. If you want to invest, you need to look around and think about what’s really needed, and what’s discretionary. But you aren’t going to find many mutual funds that give you that kind of choice.
There’s always the possibility that after we pay down our debt, and save some money, and have the cash for the big purchase we’ve been waiting for, then we might buy. Want to venture a guess how long that might take, for people to want to start buying again? When we see how nice it is though to have lots of money in our money market or mutual fund, and start seeing those four and five-digit numbers, it feels pretty good after years of not knowing how we were going to pay all our bills every month.
Paying down debt is not always a good idea either. For example, as I’ve said elsewhere here on the blog, if you spend all your extra cash paying down debt, but don’t have a decent sized emergency fund, what will you do for money if you lose your job? In this environment, it’s probably a good idea to pay the minimums on your bills, and put as much extra money as yo can into a money market or high interest online savings account. You won’t get a heck of a lot – maybe 2%- 3% – but it’s better than losing money for sure. You can put every extra dime into an emergency account, and then when things get better start using part of it to pay off your debt.
Some advisers like Dave Ramsey suggest getting a second or third (!) job to pay off debts. (Just ignore Dave Ramsey investing advice, he always recommends something that today does not exist: a “good growth stock mutual fund” - see above!) Not a bad idea to make more money. Your second job can fund your emergency savings just as easily. If you have trouble working outside the home, due to children or other issues, there are plenty of ways to make money online, using your computer, real ways to bring in some extra cash, even doing something like eBay online selling. For example, here are just a couple ideas I know of that are legitimate work at home business ideas, and can help bring in a little extra money, even if it’s only a couple hundred a month, that’s a car payment, or a grocery trip. So, if you want to make some extra cash, try these:
Today.com – easy enough to blog, and make some money, probably not get rich but extra cash can’t hurt!
BigCrumbs.com – you can save money when you buy, and if you get friends to sign up, you get even more savings. My extended family loves this one!
I’ll post a lot more about ways to make extra money, but for now – consider where you want to be in six months, or a year. Protect what you have now, by moving your money somewhere safe (unless you like taking a lot of risk). Then, cut your spending, save the extra, and start adding to it. Soon your emergency fund will look a lot healthier, and when the economy turns up, you’ll be ready to climb aboard.
November 17th, 2008 — Budgeting, Cash, Economic crisis, Investing, Retirement, Savings
I like Dave Ramsey. It was because of his book, Total Money Makeover, that I started using the envelope system, and actually now save some money each month. I think he’s being proven correct right now 
about being debt-free – and I’m working to get there myself.
But he’s still telling people to put their money in “quality index funds” so you can earn “14% over time” – WHAT?? There is NO truth to the 14% number (actually that’s the highest I’ve ever seen – 10%, 12% is the usual number). In this market, telling people to do this is a complete misrepresentation of what their specific, actual results may or may not be.
The simple fact is that any money put into index mutual funds 10 years ago are back where they were then. There has been NO increase in the last ten eyars – let alone 14%!! How many people will blindly do this based on his suggestion alone?
He is good with the “get out of debt” idea. But he should just plain stop telling people where to put their investment money. The whole “stick it in an index fund and sit back and enjoy the winnings” method is out the window. It never really was true, and today even less so, that this is the best way to invest.
Bottom line: If you don’t know anything about investing, stay out of the market. Don’t get your advice from people on tee vee. If you want to hire somone, you better know what the heck they are talking about, or you’ll get screwed, either intentionally or accidentally. If you don’t know and don’t want to know, then buy CDs. Anyone who invested in a 6% CD ten years ago would right now be far far ahead of anyone who had their $$ in the market.
October 11th, 2008 — Cash, Economic crisis, Savings, Sell Stuff
I’m not a finance expert, just a middle-class American watching the financial nightmare unfold in front of my eyes, and I’m deciding to do something about it. Putting more cash aside, taking steps to bring in more cash, and save, save, save is the goal. I don’t have a $$ 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.
September 26th, 2008 — Cash, Investing
For a while there, I started to think that we’d never need to see a paper bill again. We can use debit cards to access our banks, credit cards when we don’t have money in the bank, and just throw those pennies you get for change right onto the street.
Well, with this credit crisis, I think it’s time to start putting your cash in your pocket, and using it for everything instead of plastic. It might be time to start thinking in terms of a cash and barter economy.
I also think it’s time to get your money out of the bank. I mean, why mess around, just in case? I have no problem with saying this, since I keep hearing from bankers on tee vee about how the fundamental nature of baking is going to change anyway, and the way we think about it. All I know is, in times like this, it’s the little guy who is likely to have the most taken from him, and I don’t personally think the risk is worth keeping my money in some institution for a measley 2% or even 3%. OK so there’s inflation – but I am just saying it might be a good idea to keep your cash in hand, on the sidelines, and look for some kind of opportunity that is safer than a bank.
As for retirement funds, I moved mine out of the stock market last year. (I recommended the same thing to my coworkers but they just said “Oh that’s to much for me to think about”. I bet they’re thinking now!) I don’t like that it has to sit in any bank right now, but at least I’m invested in the same thing the Chinese are – Treasuries.
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