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Daily Links: Personal Bailout Edition
Tuesday, 7th October 2008 (by J.D.)This article is about Spare Change
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While a friend babysits our four cats, Kris and I are enjoying a short vacation in northwest Washington. All around this small town, people are buzzing about the economy. Nobody’s panicking. Instead, they’re talking about all the things they plan to do this winter to cut back and save money.
I’ve found a lot of articles on similar topics around the web recently.
For example, USA Today has a piece about how average Americans are beginning to cut back. The $700 billion bailout for the financial system hasn’t trickled down to Main Street. Small businesses have been hit hard, but there’s no rescue in sight for them. Meanwhile, Americans seem to be embracing frugality.
On a similar note, Craig pointed me to an article at The Tacoma News Tribune. Susan Tompor writes that to create your own personal bailout plan, start by living within your means: Cut back on your use of credit, build up a cash reserve, cut unnecessary household expenses, and begin to track your spending. You can create your own financial rescue plan, and you don’t need the government’s help to do it.
I love “mind games” people use to encourage themselves to save more money. I’ve mentioned many of these in the past (the 30-day rule, the spending tax). Now Ron at The Wisdom Journal has compiled a list of 17 sneaky savings strategies, a collection of money games you can use to boost your savings. I like this article.
Finally, the current economy has a lot of folks worried. Some who though they could manage their money alone are now wondering if they should find help. AskMen.com has some advice for how to find a financial advisor if you do decide to go that route. I still believe most of us can learn to manage our own money, though; all it takes is a little time, and a willingness to read some of the excellent books on personal finance available at the public library.
24 Responses to “Daily Links: Personal Bailout Edition”
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October 7th, 2008 at 6:11 pm
This is regarding picking a financial advisor. It’s best to invest on your own. No one cares about your money but you. Only you know how hard it is to earn a dollar, and even harder to save a dollar - that’s why self-interest is the best interest. The funny thing about money is that everyone can give advice about your money, but they are not nearly so casual with their own money. If you absolutely have to have an advisor, I suggest a fee based one. Here is an article I wrote on this in the past - http://adawnjournal.com/2008/04/15/no-one-cares-about-your-money/
Cheers,
A Dawn
http://www.adawnjournal.com
October 7th, 2008 at 6:23 pm
I plan on making more and spending more hopefully. I’m already cut to the bone.
October 7th, 2008 at 6:52 pm
I agree that managing your own money is the best way to go. It’s hard to trust anyone with your hard earned money, these days.
October 7th, 2008 at 7:35 pm
The silver lining on this cloud is that it will (hopefully) cause people to live within their means, start saving, stop living on credit, and get a little financial literacy.
We can hope anyway, right?
October 7th, 2008 at 7:46 pm
Some REAL FINANCIAL ADVICE you can use today to help end his mess.
I read a short article at WSJ online that talked about the size of the financial bubble that this “bail out” is trying to fix.
Apparently I’m not the only one wondering why no one is talking about the 500 trillion dollar global derivatives market and the nil effect that our puny $1,000,000,000,000 in bail out money will have on the derivatives already out there…that’s only .2% of the total nominal value of the global market…Is there something I’m missing here?
I think we’re in trouble…
Unless…
…people start living within their means
…stop borrowing like there’s no tomorrow
Actually start… dare I say it…saving money!
Learn a lesson from all of this mess!!!! and begin to live and manage your money with discipline.
Then maybe we can find a way out of this insanity,
No longer be victims to the predatory practices of those evil money lenders
(Fool me once shame on you, But fool me twice …then shame on me!)
While everyone is busy (in Washington anyway) pointing fingers…we know who is to blame…WE ARE!
Sure Wall Street is evil and corrupt…well… NO DUH!!
Politicians are a bunch of hacks who only look like their actually getting something done…While actually lining their own pockets and fleecing the people (again… NO DUH!)
But WE THE PEOPLE….We can change how we manage ourselves, and our money…Once and for all:
Common sense needs to become common practice …
Take the words of Gandhi to heart -Be the change you want to see in the world…Then We The People can save the world (like we always do). We can do it by saving our money. I don’t think I’d be the first person to give this financial advice: Build cash. Right now building cash is vital, it’s your life preserver in a thicket of complex financial problems.
Step one: Cut spending, cut spending, and then cut it some more.
Step two: Keep your cash in short term instruments. Money markets pay better than savings accounts. Just be careful when choosing a management company. Be sure and pick one that has a strong financial position (you can’t go wrong with either of the big guys, Vanguard or Fidelity (btw as of this writing the Vanguard tax-free money market is yielding close to 5.5%)).
Step three: Be extra careful with your credit right now. Spend a little more time each month planning your budget and checking your cash flow timing, don’t be late, if you let your credit slide in this environment you’ll be toast…Lenders are getting tougher and tougher, I just read a white paper from Fair Isacc describing how they are adapting their scoring models…The take away from them is that it will be harder and harder to redefine your credit in the future.
Cut spending, build cash reserves and invest them wisely. Then watch and wait for the right time …you’re time will come if you’re careful, patient and frugal. Just use a little common sense.
Posted by Wayne Silverman
October 7th, 2008 at 8:08 pm
It’s all about education. If more Americans would step up and learn more about spending wisely, and saving money we solve half of the problem right there.
October 7th, 2008 at 8:39 pm
I agree that it’s best to live within your means and save money on a personal level. However, on a macro scale our entire economy is actually built on the requirement that debt increases constantly. It turns out that if everyone actually lived without debt, current monetary policy would collapse. I’m not sure what the impact would be
October 7th, 2008 at 9:39 pm
There’s is a problem with Americans living within their means: real wages have stagnated for years and have been falling for the past seven. Our economy (that is, any capitalist economy) is based on constant growth. If people have less money to spend, the economy cannot grow, it will only stagnate. Someone (the government, business owners, or both) have to turn this around and make sure that Americans’ ever increasing productivity is actually rewarded with higher pay.
October 7th, 2008 at 9:49 pm
We restructured our economy around ever-increasing debt as a way to juice the economy and get it to grow faster. Now we are paying the price as the debts we took on, without a reasonable ability to pay short of large-scale ponzi schemes like over-inflated housing prices, start to default.
Frankly it will be painful, but I think tighter credit is better for the economy in the long run. People should not be borrowing money except when it is for something that is absolutely essential. If we stopped acting like a pack of Pavlov’s dogs trained to borrow every time an economist (or politican) rings a bell, perhaps we’d actually own some of the things we mistakenly call “ours”.
We are wasting hundreds of billions dollars a year just on interest payments, money that could be better spent either buying the things we really need, or invested for the future. And it’s not just the personal debts we take out, our government continues to borrow more each day in our name, debts that we taxpayers will ultimately be forced to make good at some point through higher taxes or increased prices (if the government put the taxes on businesses, they will simply pass that cost back to us at the register).
Unfortunately we’re too addicted to getting any little whim we want fulfilled today, rather than showing some patience and waiting until we can afford it, and that will be our undoing. Even if we dodge the bullet this time and the economy miraculously recovers, it is just postponing the inevitable unless we start to change. Just imagine this same crisis, even bigger, another decade or two from now, when we all owe that much more.
October 8th, 2008 at 12:11 am
JD - would you happen to be in Port Angeles?
Just curious, when I read that you were in NW Washington… that’s my hometown.
It is comforting to see more and more people choosing *not* to panic.
October 8th, 2008 at 4:40 am
I agree with you [Valerie]…I’ve been thinking about the macro effect of all of us (in the frugality movement) on the larger economy. What if everyone lived without debt? I have been doing some reading into sharia finance, sharia (Muslim law) forbids the paying or receipt of interest. There is a very active and strong economy built on sharia principles (btw I’m not muslim, I’m jewish..but the economic principles of Islamic Banking, a financial system without interest, are quite fascinating).
While I agree that our system is based on debt, I’ve learned that there may be alternatives to amassing huge piles of debt.
Do we need long term debt for our economy to survive?
Based on what we have learned about debt, paying off our mortgages early, living within our means, building savings…can all of these factors be factored in to change the way we think about debt…Not just as individuals, but as a society.
But don’t believe me, read the writings of Thomas Jefferson and Ben Franklin, they had some very clear ideas about debt. And a very different vision for our country than where we are now.
Is everyone aware that before 1945 most people in America did not have mortgages?
Are you aware that currently in the US, 40% of homes do not have mortgage liens against them (are owned free and clear)?
So I think we can take a large chunk of the debt out of the American financial system without sinking the boat.
Maybe it’s time to start talking about this …and the only people qualified to talk about it are those of us who are controlling our personal finances without deficit spending (i.e. the people on this board and other similar communities).
October 8th, 2008 at 6:20 am
I agree with Dawn, personal responsibility is the only way, that way YOU can watch on a daily basis, YOU think about it, YOU are more careful, after all it is your own money and no one else really cares about it.
Think about how a lot of times people are given money through an inheritance or gift and they hand it over to invest only to have nothing left in a few years because they did not educate themselves.
We have become a nation of payment buyers, it is time we look at our money. When I tallied up my expenses at the first of the year, I came up with 26,000 dollars worth of debt, not counting my student loan. Who would knowingly sign up for that?
We as a nation need to actually sit down and total up all of our debt, come up with a plan to pay it off, and start living within our means.
I have since paid off about the 23,000 dollars worth of the debt and now I am much more careful with my spending. I try to buy things I need, and if I want something I save the money and buy it. I no longer promise my future dollars to the coalition, and I live on less than I make, and actually save some money for the first time in my life.
It is hard to break yourself from the credit/borrowing lifestyle.
Do I fall back once in awhile, of course I do, but I try not to beat myself up to bad, and brush myself off and start over.
http://downwithdebt.today.com/
October 8th, 2008 at 7:08 am
this is the time of year that we make the switch from air conditioning to heating. There’s always some time when we’re not using either and I’m hoping to stretch that as far as possible. I’m also having continual discussions about turning things off — lights, radios, anything that one turns on casually and then leaves on. And I’m going to get more serious about no more small loads of laundry, full loads only! Maybe extra attention and vigilence won’t affect my utilities bill, but maybe (hopefully) I’ll see some difference.
October 8th, 2008 at 7:17 am
I posted something like this recently…about how the economy is distressing, but instead of stressing about what we can’t change, we should focus on what we can do, which is to live responsibly and frugally. Much better than living in despair over Wall Street.
October 8th, 2008 at 7:58 am
Over the summer, my dad was food shopping and remarked on a lady he saw looking at the strawberries. She picked up a container, studied it, then put it down. She muttered: I need to start looking at the prices and stay on a budget. Then she went on her way.
My dad brought it up because he was like “WHy are you just NOW being conscious of your spending?? It is a way of life, not a life circumstance!”
We had been discussing the economy and I had stated how I was seeing more of an influx of people using coupons and people consciously shopping the sales. Then we both agreed that you should always shop that way - not just when there is fear in the air. (Although better late than never is worth noting).
The fact you read/mentioned askmen.com made me laugh - I’m not sure why LOL. It’s probably changed over the years, I might check it out.
Speaking of your kitties - are you going to do a post about the cost of pet ownership? Of course, be sure to include how great it is having furry friends underfoot!
October 8th, 2008 at 8:24 am
Sometimes I think that constantly watching the news can do more harm than good. When “pack mentality” sets in, there’s a stampede, and I think most networks are doing little to calm and reassure people.
My mom called in a panic yesterday, wondering if she should start pulling money out of her retirement fund, and it took ten minutes to reassure her that it wasn’t the end of the world. This phone call occurred, of course, after she’d watched the nightly news.
I agree with downwithdebt, who said that we all have to just take care of our own money. That’s all we can do, right? We should focus on what we can control: eliminating our debt and saving money. Focusing on simplifying our life can actually be quite calming and liberating.
October 8th, 2008 at 10:00 am
Erika @8: Capitalist economy is NOT based on constant growth; just because you say it does not make it so. You are looking at government interventionism by the Federal Reserve and equating that to the effects of a free market. In fact, it is the exact opposite; the market regulation by the Federal Reserve AND Congress caused this bubble. Cheap credit was made available by the Fed. Congress enacted law after law encouraging (and requiring) that credit be lent to under-qualified borrowers. Review, for example, the Community Reinvestment Act and revisions to it.
No politician wanted to reverse these reduced lending standards, because he or she would be accused of keeping low-income citizens from the American dream of home ownership.
October 8th, 2008 at 11:14 am
I’m hoping that this recession/market drop/bailout/”emergency” will get the attention of some of my fellow citizens.
Spend less than you earn… pretty simple. I think we have a rough ride ahead of us though. If everyone cuts back, there are going to be some companies that really get hurt by it.
October 8th, 2008 at 12:07 pm
Hey, thanks for this post, your ideas, and the link to the article on the 17 ideas. They seemed like some interesting ways to save some $$ without being super frugal about things.
October 8th, 2008 at 1:00 pm
mwarden…you hit the nail on the head with your closing comment…and that’s just what it is… politics.
GreenestDollar: I had the same conversation with my mother, I finally told her to turn off the TV!
I have realized no change in the way I live my life in the midst of this economic tsunami…I have been frugal for a long time…it really pays off when times are tough, even though many people may have looked at me funny when I told them I was wearing thrift store clothes (during more prosperous years).
As Warren Buffet often says, “It’s not ’till the tide goes out that you find out who’s been swimming naked!”
October 8th, 2008 at 1:14 pm
Some of us have costly medical needs and the costs keep rising. I wouldn’t live more than a few days without insulin and my wife would suffer miserable amounts of pain without her therapies ( current costs for us both are almost $1000/month ).
October 8th, 2008 at 2:03 pm
“Susan Tompor writes that to create your own personal bailout plan, start by living within your means: Cut back on your use of credit, build up a cash reserve, cut unnecessary household expenses, and begin to track your spending.” All very good ideas, but instead of a personal bailout plan (or more properly, in addition to), we need to get the government to do the same.
October 9th, 2008 at 9:39 am
I read the 17 tricky ways to save article. Really? Pay yourself the late fee?
My first job out of college was as an “independent contractor”, aka “temp”. In that situation, you end up being responsible for the taxes that the employer usually handles. I was only 22 and didn’t know anything specific about taxes, but I figured that it would require about 30% of my income.
So, with each weekly(!) paycheck, I would go to the bank and put 70% of it in my checking account and 30% of it in my plain old savings account.
When tax time came, I had the money to pay. I don’t remember exactly what it was, but I think I had to write a check for $2500. Which is a lot of dough when you’re making $8.50 an hour, but I had it because of simply carving off the amount each pay check.
I guess I was lucky to have that experience. With direct deposit these days, I set up my paycheck to go into two different accounts. One is the normal checking account, the other is a long term money market. It’s an incredibly easy way to save.
It’s a lot easier, at least for me, to set up direct deposit/401(k) withholding/etc once than to do something kooky like make a tip jar for myself or fill out online surveys.
Oh yeah, and bonuses and gifts get deposited directly into the long term account rather than checking.
October 10th, 2008 at 3:54 pm
@ Aaron Kulbe: I was going to guess Port Townsend - my last town. Sigh, I miss it so.