All of us have been grappling with this situation and are caught in the 'official definition' as opposed to 'what we feel is reality'. At the end of the day, I believe that we have sectors that are in full recession, others that are entering recession, and finally a third that are not in a recession. The government stats reports that the economy (US GDP) is expanding at a 1.9% average annual rate. And it takes the National Bureau of Economic Research–the official arbiter of when and if the U.S. economy is in recession–between 6 month to 18 months after a downturn begins to label it as a recession. So, no matter what, we are only going to find out (officially) recession or not, almost 'after the fact'. This has been the case, and will be the case for the foreseeable future when it comes to US Recessions. Other countries might look at it differently!
The market of jobs still has 94.5% people employed......By any measurement, that does not bode well to call this a doom and gloom, or call this an on-coming depression. When that number goes weaker, I will change views, but 94.5% people employed is a huge number. Of course, you may ask 94.5% of 'what total number'. People that are unemployed beyond 26 weeks are not even counted in this stat (I am pretty sure of this). People who move to open some consulting business, home-based-business, sell real-estate or candles or make-up product are not counted in that number, even though at one point in time they were part of the overall economy, overall employment-measurement and part of a healthy job market.
In reality, layoffs are hitting more industries than just home, construction and home-improvement. Home prices keep spiraling lower in certain areas, whilst in others they have stabilized. They have stabilized simply cause it is home-buying-season. As soon as we have Sep-Oct-Nov roll around, things will start slowing. Lawyers, Home Improvement Contractors and Home Inspectors have told me that there was a 40% cut in their business this summer, esp. when markets are supposed to be hot and demanding. The credit turmoil in the financial system has been spreading, most recently reaching the insurance and credit card market. Consumers are still strapped for cash due to the higher energy and food prices, and 'transportation costs' being slapped on the bottom line of every non-consumer purchase, which then gets eventually passed on to consumers. Of course, due to the weak dollar the one engine that keeps on humming is the Export market. This is almost a savior of our current economy.
The ironic part of everything when it comes to recessions is that government rushes to publish a GDP forecast, which then gets revised later, and even later, it gets revised again. With these 2-3 revisions, the fun-fare associated with the announcement is mainly there with the 1st number, with the other revisions pretty well ignored by Wall Street. That is true until some chief economist or fed-watcher starts publishing in a report that gets widely publicized by CNBC, CNN, FOX, BusinessWeek, Times or MarketWatch.com story.
Finally, if it smells like the bottom of the economy, then we will see Barrons, Times, Business Week, Wall Street Journal, Money, FT and other major publishers put out headlines......Once you see most of them with those headlines, we know it is the bottom.
At that point, what should we do? Capitalize on it and start doing ETF purchases, Dollar Cost Averaging into great funds and also pulling money from the sidelines and jumping into the 'fast moving sectors' . I am underlying here that I am not saying get into the dogs (worst performers). Washington Mutual is under $5, and has more value in the land of its bank locations (hot corner locations) than the goodwill in the business. But, how many cockroaches does it still have hidden in its closests is the biggest question that even the CEOs/CFOs/CIOs don't know......
So, until then......Stay safely on the sidelines, not investing any new money.
Saturday, August 9, 2008
Friday, August 1, 2008
From Live Royally, Spend Smartly.....Jul 21st,2008
Folks, we have all experienced a rise in price of everything from bread, cereal, fruits, vegetables, movies, airlines, cars, car-rental, hotels, vacations, fuel, shipping, postage etc......Not much that anyone can do about the rise except:
1. Break the mold, and aggressively shop where you have never shopped before. What does that mean? Have you bought a book online? Have you bought a gift through eBay? Have you shopped at the Vegetable-Fruit-Markets instead of the big chain stores? What About Me> I am experiencing a deflationary environment with my aggressive shopping techniques, even though it takes a bit more time to search, shop and find.
2. Break the mold, and open up credit card accounts that offer "free money". This includes Discover, Chase, Citibank, American Express and other big institutions. I am not even close to recommending to go deeper in debt, but actually trying to get you to get new credit cards, get free money if you charge one time or $100 or $500 in first x months. In addition, get 0% APR if you credit is good so that you can transfer any balances from your old debt. After you are done with the card, close the card and wait for the next offer. What About Me> I have been opening and closing Credit Cards and experiencing a deflationary environment with my aggressive moves by getting 10K ThankYouPoints that get me $100 of free gasoline cards, even though it takes a bit more time to search, shop and find.
3. Break the mold, and open bank accounts that offer $25 free, to $125 free, to $250 free (getting rare) with a deposit amount of $25 to $100. Close the account after 3-6 months, and then wait for the next offer. What About Me> My wife just received $125 for a Chase account that she opened with $100, and before I close it, I will have her refer me to get $25 referral fee, and I will get $125 for opening the account.
4. Break the mold, and start collecting stuff that you do NOT use at home, of a decent value. Wireless Mouse that you do not use anymore that is still in great condition, and can be sold on eBay/Craigslist/Amazon/etc for $10 to $50. Laptop charger/adaptor that you do no need anymore since you just upgraded your laptop, or have a spare that you do not use anymore. Unlocked cell phone, novels, study-guides, text-books, Computer Games, PS2 Games etc. What About Me> Just sold my old memory for $98, all of my 3 spare adaptors of my old laptop for $60, and some books for $28. Getting ready to sell some PS2 games and Game Boy DS games on eBay.
5. Break the mold, and look at the credit cards that you have and replace them with the ones that offer you 5% cash for purchases at Gas Stations, Drug Store and Groceries. Read the terms carefully (words like upto will be critical). Also, make sure they do not class the Sam's Gas Station as a regular store (and not a gas station). What About Me> My wife and I have been using the 5% cards which nets us a pretty penny since our average credit card usage per year is $30K, and we carry ZERO balance on our cards.
6. Break the mold, and start aggressively shopping for CD rates so as to build a small ladder. What About Me> I am no where close to retirement, but have been dealing with a bank that will match ANY rate in Chicagoland for the term I choose. This makes my job a LOT easier, and keep my personal information protected by keeping the accounts only at one bank.
7. Break the mold, and start aggressively saving money for yourself and your significant other. This simply translates to sacrifice. Avoiding the dumping of products from the 'easy to grab locations near checkout', or 'buying that expensive coffee', or 'going out to lunch everyday' or 'buying 32 oz gulp drinks' or 'getting groceries from gas station convenient stores' or 'whatever.....'. We are Americans that show that we do NOT have time, but have MONEY. It is really the opposite. We have ample time and should go the extra mile to avoid those 'high margin purchases', and stick that money in a kitty for the future. We are our own worst enemy in stealing our own future from ourselves, but spending 'tomorrow's money today'. What About Me> No way.....Never. We have been drinking water at McDonalds/Burger-King/Taco-Bell/TGIF/Bennigans/etc restaurants for 10+ years now, and just recently, America has caught on to the craze of drinking water. Can you imagine the number of $1 and $2.50 worth of drink-money that is sitting in our pockets!
America, it's time to Sit down and Compute the quarters/dollars like the Indian, Chinese, Koreans, Japanese and many other countries are doing today. That is precisely why their savings rates (in their nation) are in double digits, and ours barely approaches a positive number!!!!!
Hope that this helps you go 'hmmmmmmm'......What About Mua?
Enjoy That Weekend (but watch that wallet!)
Thursday, July 31, 2008
10 Habits to Develop for Financial Stability and Success
So, we have talked about setting goals......But, just like any goal, getting your finances stable and becoming financially successful requires the development of good financial habits. I’ve been researching this topic extensively in the last few years in my quest to eliminate debt, increase my savings and increase financial security for my family. I’ll talk more about these habits individually, but wanted to list them in a summary (I know, but I’m a compulsive list-maker).
Here they are, in no particular order:
- Make savings automagical. This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account). Don’t even think about this transaction — just make sure it happens, each and every payday.
- Control your impulse spending. The biggest problem for many of us. Impulse spending, on eating out and shopping and online purchases, is a big drain on our finances, the biggest budget breaker for many, and a sure way to be in dire financial straits. See Monitor Your Impulse Spending for more tips.
- Evaluate your expenses, and live frugally. If you’ve never tracked your expenses, try the One Month Challenge. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary. See How I Save Money for more. Also read 30 ways to save $1 a day.
- Invest in your future. If you’re young, you probably don’t think about retirement much. But it’s important. Even if you think you can always plan for retirement later, do it now. The growth of your investments over time will be amazing if you start in your 20s. Start by increasing your 401(k) to the maximum of your company’s match, if that’s available to you. After that, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
- Keep your family secure. The first step is to save for an emergency fund, so that if anything happens, you’ve got the money. If you have a spouse and/or dependents, you should definitely get life insurance and make a will — as soon as possible! Also research other insurance, such as homeowner’s or renter’s insurance.
- Eliminate and avoid debt. If you’ve got credit cards, personal loans, or other such debt, you need to start a debt elimination plan. List out your debts and arrange them in order from smallest balance at the top to largest at the bottom. Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better). When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt. Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts. This could take several years, but it’s a very rewarding process, and very necessary.
- Use the envelope system. This is a simple system to keep track of how much money you have for spending. Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes. That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.
- Pay bills immediately, or automagically. One good habit is to pay bills as soon as they come in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of.
- Read about personal finances. The more you educate yourself, the better your finances will be.
- Look to grow your net worth. Do whatever you can to improve your net worth, either by reducing your debt, increasing your savings, or increasing your income, or all of the above. Look for new ways to make money, or to get paid more for what you do. Over the course of months, if you calculate your net worth each month, you’ll see it grow. And that feels great.
Here is a 12 Step Process to Get Out of Debt......
Courtesy of Zen Habits.
Debt is a major problem for a lot of people these days. It has been a problem similar to drinking, drugs, smoking, eating etc, but there is not AAA for it, until recently. The problem is, even if they know they want to get out of it, they have a hard time figuring out how to start.
If you fit this description, this 12-Step program spells it out for you.
Now, there isn’t one way to get out of debt, and the best program should be tailored to each person’s individual situation. But if you feel like you just don’t know how to begin, this program is designed to give you a sort of guide — one that should be adjusted to fit your financial situation.
It’s aimed not at people who have their finances together and are just trying to pay off a credit card or two. It’s aimed at those who have trouble finding any extra money to pay off debts, who seem to find themselves getting deeper and deeper into debt, and don’t know how to stop it. In other words, it’s a bit of an emergency program.
Disclaimer: I’m not a financial advisor, and if you are in need of one, I suggest you find a qualified advisor. My only qualification is that I’ve made great strides in getting my finances under control, in starting an emergency fund, in paying all my bills on time, in not getting further into debt, and in eliminating my debt (I should be done by the end of this year). This program is based on my experiences, and on the large number of books and websites I’ve read.
The Zen Habits 12-Step Get-Out-of-Debt Program
- Acknowledge the problem. The first step is admitting you have a problem. The first week, all you have to do is say to yourself, “I have a problem with debt. I got into this because I spend money I don’t have. But I believe that there’s a way out, and I can do this. I can control my spending, make a plan, and slowly get out of debt.” That’s a major step. Now set aside just 30-60 minutes a week to deal with your finances — make it a set day and time, and don’t let yourself miss this appointment.
- Stop digging. If you’re in a hole, the first step is to stop digging, and that’s what you’re going to do this second week. For 30 days, see if you can stop any non-essential spending. If you have a major problem with credit cards, cut them up. If you’re not so bad with credit cards, at least put them away and don’t buy stuff online for one month. What’s essential? Obviously your bills, housing, auto, gas, groceries … that kind of stuff. Non-essential? Clothing, CDs, DVDs, books, magazines, gadgets … you know what I mean. Just 30 days. After that, you can decide how much to spend on these things.
- Make small cutbacks. This third week, take a look at things you normally buy and see if you can cut out a few of them, or spend less on them. Groceries? See if you can buy house brands instead of name brands. Coffee? Make it yourself at home instead of buying out. Lunch? Try packing it to work instead of eating out. Add up what your cutbacks will save you this month.
- Start an emergency fund. This fourth week, set up a savings account, if you don’t have one already, for an emergency fund. Now take the amount you saved in Step 3 (and even in Step 2 if you think you can make them last for awhile) and set up a regular automatic deposit from your checking to this emergency fund savings account for this amount. It’s important that before you start paying off debt, you have at least a small emergency fund. Aim for $1,000 at first, and you can grow that later. The reason: if unexpected expenses come up, and you don’t have an emergency fund, you will skip your debt payments to pay for the unexpected expenses. The emergency fund protects your debt payments.
- Take inventory. OK, this is a step that we don’t like to take. But take a deep breath. You need to do this. Remember what you said in Step 1? You can do this. This fifth week, set up a simple spreadsheet. In one column, list all of your debts — credit cards, medical bills, auto loan, etc. You can leave out your mortgage, but put everything else. In the second column, put the amounts you owe for each debt. In the third, put the minimum monthly payment, and put the percentage interest in the fourth column. Total up the second and third columns to see your total debt owed and how much you have to pay, at a minimum, towards debt each month.
- Make a spending plan. We don’t like to do this step either. But it’s not going to be as painful as we think. This sixth week, set up another simple spreadsheet. In one column, list your monthly bills (rent or mortgage, auto payment, utilities, cable, etc.) — everything that is a regular monthly expense. Then list variable expenses (things that change every month) like groceries, gas, eating out, etc. Later you should add irregular expenses (stuff that comes up once in awhile — less than once a month) such as auto and house maintenance, clothing, insurance, etc. But we won’t get into that now, as we want to keep it simple. In the second column, put down the amounts for each. Be sure to put enough for things like gas and groceries, as you don’t want to be short. Be sure to also include your minimum debt payments and your emergency fund deposit. Now, list your income sources and monthly amounts. There. You’ve got a temporary spending plan (you’ll want to add the irregular expenses later). Now, if the expenses are greater than the income, you’ll need to make adjustments until the expenses are equal to or less than the income.
- Control spending. If you’re into your seventh week of this debt plan, you may find it hard to keep track of your spending and ensure that you’re sticking to your spending plan. Here’s the key: first do the emergency fund deposit. Then do the debt payments. Then do your monthly bills. Then withdraw the variable amounts in cash, and put them into separate envelopes. It’s old-fashioned, but it works, as you don’t have to worry about overspending. When your envelope is empty, you can’t spend anymore. Continue to cut back on non-essential spending as much as you can at this point, so you’re able to stick within your spending plan.
- Pay bills on time. This may be a problem for a lot of people. It’s important, if you want to get out of debt, to start paying all your bills on time. If you follow the payment plan outlined in Step 7, your bills should be paid before you get to any discretionary spending categories. At this point, you want to focus on getting those bills paid on time, and making it a habit. If you have trouble remembering, try one of these methods: 1) pay bills as soon as they come in — take them to the computer and pay them online, or write out a check and prepare the envelope to be mailed the next day; or 2) set up a reminder in your calendar program to tell you when bills are due.
- Start a snowball. Now that your finances are relatively under control, you can start a debt snowball. At this point, you should have the beginnings of an emergency fund, you should know how much you owe, you should have a temporary spending plan, you should be paying bills on time and controlling your spending. Now you can focus on paying your debt. Here’s what to do: If you can find at least $100 from your spending plan, use that to start your debt snowball. You may need to cut back on discretionary spending (as you did in Steps 2 and 3). Or, once your emergency fund is at $1,000, you can use the amount you were putting into that account for your debt snowball. If you have trouble finding $100 for a debt snowball, you need to look at what other expenses you can cut back on. OK, once you’ve found at least $100 for your debt snowball (and more would be better), take a look at your debt spreadsheet. First, order the debts from the smallest amount owed to the largest. Now, look at your smallest debt owed — you will start by paying $100 (your debt snowball) plus the minimum monthly payment on that debt each month, until the debt is paid off. When the debt is paid off, you will take the amount you were paying on it (let’s say $50 monthly payment plus the $100 debt snowball for a total of $150) and pay it to your next smallest debt, until it is paid off. Continue to pay off your debts, one at a time, until they are all paid off. Now you have a large sum you can put into growing your emergency fund, and funding your irregular expenses, and finally start investing.
- Find larger cuts. Once you’ve controlled your finances and started your debt snowball, there are ways to increase the snowball — and hence the speed with which you get out of debt. Look at your larger expenses — are there ways you can eliminate or cut back on them? Can you sell your car for a smaller, used model? Can you find a smaller house or apartment to rent? Can you sell your house and rent a cheaper one? Can you get by with one car? Can you eliminate some services you’ve been using? Whatever cuts you make, apply that amount to your debt snowball — don’t spend it.
- Grow your income. Another great way to get out of debt faster is to make more money. Look at ways you can make money on the side — or ask for a raise or get a better job. Take 30 minutes to brainstorm. Are there ways you can start a small business online? Sell your valuables on eBay? Start freelancing on the side? Get a part-time job? This only has to be temporary, but the more money you make, the faster you’ll get out of debt. Be sure to apply your new income to your debt snowball.
- Track your progress. On your debt spreadsheet, be sure to update it every payday (or however often you pay debt) so that you can see your shrinking debt amount. You should be able to calculate how many months you have left before you’re completely out of debt. It may be a long ways off, but it’s within sight!
- Bonus step: Celebrate! It’s important to celebrate, not only when you’re out of debt, but along the way as you eliminate each debt. Have fun! Make this an adventure. It can be amazingly satisfying to stop spending and gain control of your finances instead. Find free entertainment, make it a challenge to be frugal and save money and find cheap used stuff. Pat yourself on the back along the way.
We often sit down and wonder......How do we develop and ensure success in our lives.......In the path of living our lives, there are many dreams and goals that we strive to reach. Some of these goals are very short term, some are intermediate term and some are long term. Of course, when you add dreams to that, there are few that are really out there!
Each goal matters, but, it only matters if these goals are clear, written down, and reviewed often. Otherwise they are just wishes and dreams of 'passing thoughts' in our busy brains. Our senses invoke those things, and well, they ae not clear, precise, committed goals by any stretch of the imagination. If that wish and dream reoccurs, then it should be documented first, and then you have to site down and figure out how to achieve it.
Most goals will require you to have access to resources that you never had, so better buckle down to gather those resources, convince people around you (that you need) and also start collecting those resources. A goal of a new car needs money for the downpayment, a drivers license, a garage to take care of it, access to an insurance agent and finally access to roads! Seriously, when you think about it, those are your resources. Think detail, think without any assumptions, and make the detailed plan on how you are going to achieve each of these points (in detail).
A lot of people have money goals.....So, here is a writeup borrowed to give you the l0-down on how to get there from a competent book-author. This is his summary:
If the objective with saving and investing is to accumulate sufficient assets over a period of time so that you can adequately fund a goal. When setting up an investment plan, there are a few considerations about goals that are important to evaluate.
One of the most important factors is how long you have to accumulate assets. The longer the time period, the less you have to save. Also, if the goal is far in the future (e.g., retirement), then you have more flexibility in the appropriate investment strategy. If the goal is short term in nature, your investment choices will typically be more limited.
Flexibility in time
Some financial goals have a rigid time horizon. For instance, your child may plan to go to college in four years, the summer after completing high school. In this situation, it is not easy to delay the need for the first year’s tuition and room and board (although you could take out a loan to defer the full cost).
For other goals, like retirement, the specific horizon may be inherently more flexible. As an example, you might choose to delay retirement by a year or two if markets perform particularly poorly. The point here is that goals with variable time horizons create additional flexibility for an appropriate investment strategy. If things don’t go as planned, you might be able to delay the goal to ultimately reach success.
Flexibility in size
For some financial goals, the amount of money I needed is known in advance and is fixed. For instance, maybe you need to make a property tax payment next April of $15,000. In this case, the tax assessor is not going to take $13,000 if markets happen to perform poorly. You need to come up with exactly $15,000 next April.
For other types of goals, the amount needed might be squishier. Perhaps you are saving money for the purchase of a vacation cabin in 5 years. You might like to have $100,000 to purchase the cabin of your dreams, but maybe you would be willing to settle for an $80,000 one a little farther away from the lake if markets don’t perform as well as expected.
For goals with less rigid funding requirements, you can accept more investment risk than for goals with very specific requirements. If markets don’t perform very well, then you have the option to reduce your expectations a bit. In many ways, this idea is similar to the flexible time horizon mentioned above.
Lump sum versus recurring
Another consideration is whether the money to fund the goal is needed all at once (lump sum), or whether it will be paid out over time. For instance, you typically don’t need to come up with the full cost of a four-year college education all on the first day of classes. The payments will be generally spread out over a four-year period. In effect, goals with recurring payments have a longer time horizon than lump sum goals, depending on the length of the period over which the payments occur.
Of course, retirement goals are a special class of recurring payments, since the length of time that you (and perhaps your spouse) will need retirement income depends on your lifespan. Since we don’t know when we are going to die, this creates the need for a string of income payments with an uncertain end date.
Keep in mind the idea that flexibility — either in terms of timing or the size of the goal itself or the dedication needed to achieve your goal — is an important consideration when selecting an appropriate savings and investment strategy.
Go For It Folks.....Dream......Define a Goal......Design HOW to Achieve It......Enjoy the Fruits.
ps: This is how I have accomplished EACH of my goals, all the way from 10th Grade until now (and I have teenagers now!!!!!)
Enjoy Top 18+1 rules for life !!!
1. Pursue Achievable Goals
2. Keep Genuine Smiles
3. Share with Others
4. Help Thy Neighbors
5.Maintain a Youthful Spirit
6. Get Along with the Rich, the Poor, the Beautiful, &the Ugly
7. Keep Cool Under Pressure
8 . Lighten the Atmosphere with Humor
9. Forgive the Annoyance of Others
10. Have a Few Pals
11. Cooperate and Reap Greater Rewards
12. Treasure Every Moment with Your Love Ones13. Have High Confidence in Yourself
14. Respect the Disadvantaged
15. Indulge Yourself Occasionally
16. Surf the Net at Leisure
17. Take Calculated Risks18. Understand "Money Isn't Everything"
Plus 1. Remeber to Implement these rules at every mode of your life