May 17th, 2009 — Economic crisis, Investing, Retirement, Self Directed IRA
I finally heard Suze Orman say it last night – to set up a self directed IRA rollover account with a discount brokerage so that YOU are in control of your funds. I don’t think you can get video of her broadcasts, I will keep looking for the link.
At the beginning of the downturn in mid-2008, she had some typical, conventional things to say, you know, the old “if you’re in the market for ten more years then stay put” crap, but she’s coming around. Now she is telling folks facing imminent retirement that they need self directed accounts and to set up 401K rollover accounts – and not leave them at the mercy of a former employer.
She also answered one caller, whose employer has stopped the match and who makes too much to contribute to a ROTH, telling her NOT to “keep putting in the max to your 401k”. Wow – she instead said do a non-tax deductible IRA, then roll it into a ROTH each year. Go Suze! BTW – so many money types say only put in up to the match, then go ROTH or otherwise – Jim Cramer, now Suze. Maybe some folks will get the message.
So what do you do? Open a self directed IRA or a 401k rollover account with a top rated discount broker. Learn to invest money in the markets. LEARN what works, for YOU. Don’t expect anyone to tell you the right thing to do. Then place your own investments. Today, you can even open a Roth 401k with a discount broker.
And while I”m at it – I’m passing this article around to all of my friends. The article, by Jeffrey Goldberg, is titled “Why I Fired My Broker” and it explains why you should too. Read it and understand why your employer’s 401k managers and financial advisors generally are a waste of your time.
Their job is to make money for their firm. Not protect you from downturns. As long as their losses aren’t as great as the losses in the index funds, they consider that a “win”.
There are many ways to invest money that are safer for the long term, but you will have to learn more about investing, learn more about the markets, and not just expect to park your money in a mutual fund somewhere and let it sit. This is not just a “down” market. This is potentially a stagnant market, with little or limited growth for years, even decades, to come. It requires a different understanding to be successful, as opposed to just waiting out a temporary downturn in a bull market as has happened in the past. You will have to learn the best way to invest money for yourself, and not rely solely on tee vee talking heads or even experienced financial planners to help you. Keep your $$ in a CD or high interest checking account so you have cash available when you need it.
Stay tuned here in the next few posts as I list some publications you really want to read. These will not give you the same old buy and hold bull – they will explain why the “advice” you’ve been getting has been skewed against you from the beginning. Start with Crash Proof, by Peter Schiff (the new edition, Crash Proof 2.0, is coming soon!).
Bottom line: Take advice from NO ONE. Not even us. And read outside the lines folks. Don’t take conventional wisdom for truth.
April 3rd, 2009 — Budgeting, Cash, Get Rich, Make Money
I first read the Robert Kiysaki Rich Dad, Poor Dad books nearly ten years ago. Reading those book taught me some great lessons, and opened my eyes in new ways to how to think about financial security and wealth. It’s taken me a long time to figure out how to apply it (teaching old dogs new tricks isn’t impossible, but it’s still damn hard!), but I’ve been teaching my 10-year old too, and he gets it right out of the gate. Economic downturn be damned – this is a good time to get your stuff in order and plan to grow rich with opportunities all around.
But of all the Rich Dad products, the one that turned my head the most was playing his game, Cash Flow 101. In this game, you attempt to gain eneough passive income to cover your expenses, all while bumping into those speed bumps of Life. You keep track on an actual financial balance sheet, and learn what it takes to get wealthy.
I learned something in playing that game, that I couldn’t have noticed in real life as it unfolds – how I approached risk, and money, and what would have to change if I wanted to make money and grow wealth. This game was a priceless lesson. It was a way to “model” behavior, just like “real” economists do, and see how different strategies and actions would pan out – without suffering the real financial losses that could occur, and building confidence in making seemingly risky decisions that actually are the path to great wealth.
If you’ve never played Cash Flow 101, it’s a real eye opener. There are also groups all around the country that get together to play periodically. Give it a shot – it’s a financial literacy education you can’t get anywhere else.
And at the very least – if you haven’t read his books – get your hands on Rich Dad, Poor Dad, at the library even if you are short for bucks. (I saw at Barnes & Noble a compilatoin of his first three books for under $15!) If you read Rich Dad’s Prophecy – he called everything that is happening now, and is likely to happen, except it was years ago. He recommends that you start a business (and a good way to get started today is with online business ideas), so that you control your future income and wealth. There are tons of great ideas to pursue in these books.
Another benefit of reading these books are to answer the difficult economic questions of today. People are asking: Should I be in stocks? Should I get out of the market? Should I buy bonds? Should I be investing in real estate? Have we hit a bottom? Believe it or not, the Rich Dad series helps you figure out how to answer these questions – for yourself. This is the kind of education people need to avoid being at the mercy of brokers, advisors, television “experts”, in a time of economic downturn, but also great opportunity. Start – or enhance – your personal finance literacy with these books and games.
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 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.
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.
