Monday, October 20, 2008
You have a mortgage, utilities, car payments, student loans and one heck of a headache. Running up your credit cards seems to be the only way you can make it paycheck to paycheck. Where do you go? What can you do? It is as easy as five simple steps.
Step One: Do something NOW. The longer you wait, the larger the repercussions will be with the ships sinks. You can only make minimum payments for so long. At some point you will not be able to continue the cycle of debt avoidance.
Step Two: Prioritize your spending. Using a simple spreadsheet created in excel or a sheet of paper, write down the bills and expenses that are absolutely necessary. Be honest with yourself. The 200 dollar cable bill is not a necessity.
Step Three: Cut back slowly. Nothing will set you up for failure more than anything else. By immediately turning off the TV, locking yourself in the kitchen to avoid going out, and never watching a movie again, you will drive yourself and your family crazy. Take it slow and gradually reduce unneeded spending.
Step Four: After cutting back, set up goals prioritizing your debt payoff schedule. Use any excess money you have to begin building your emergency fund. Grow your assets, diversify your investments and continue looking for additional ways to introduce frugality into your life.
Step Five: Educate yourself in all aspects of your financial life. Learn about managing your income, expenses, investments, insurance, debts, and goals. Knowledge is power. It is the key to making the changes in your financial lifestyle long lasting and productive.
At the very top level, these are the basic means from taking complete financial chaos to simplistic financial order. However, steps 2-5 can be fledged out into a several substeps. I will be taking a look at the break down of these more detail steps in the next couple of weeks.
Securing financial independence and security is a slow and tedious process. No one can guarantee success, but with a little effort and some hard work, you can and will reach succeed.
The national debt. It is growing at an unprecedented rate and seemingly unnoticed by Congress and our executive leadership. At some point we as a country will need to pay for this debt. When will that happen? No one can tell for sure, but here are some things to think about:
- The national debt clock has broken. Designed and put into service in 1989 by Seymour Durst, the national debt clock has run out of digits for the rapidly increasing debt. Seymour's son (current owner of the clock) is planning on a new clock to track up to a QUADRILLION dollars. Sounds like something out of an Austin Powers movie.
- The federal government spent 451 billion dollars on interest expense related to our national debt. An absolutely astounding number. Broken out over the number of people in this country (assume 304 million) that is 1,484 dollars a person. Why is this not a bigger deal?
- Based on inflation (see chart below, from the US National Debt Clock FAQ by Ed Hall) our national debt has exploded in the last 30 years. Fundamentally, our government has gone from balanced budget fiscal policy to one disregarding financial responsibility. The exploding debt took only 13 months to go from 9 trillion to 10 trillion. Previously it took 22 1/2 months to get from 8 to 9 trillion.
So what does this mean for us? At some point their will be a day of reckoning where we as Americans will have to fund and respond to our out of control debt situation. Our government, our people and our tax dollars need to follow basic financial guidelines and set ourselves up for success. We cannot continue to mortgage our future. Currently, each individual theoretically owes about 34,000 dollars of our national debt! Can you stroke a check for your portion? For a family of four, the 136,000 dollar debt is SIX times the 2008 poverty level.
As you can clearly see, fundamental fiscal policy must change in this country. It will take more than a change leadership in Washington to solve this. We as a country must change, reversing negative saving rate and reining in our attachment to debt.
Thursday, October 2, 2008
Is anyone safe from this downturn? I believe the answer is no. People, rich and poor, have to face rising inflation from the flood of money coming from the Fed, increased cost of capital from banks tightening lending policies, and lastly, unbelievable propaganda from both sides of the situation.
As Trent over at The Simple Dollar said, the only thing we have to fear is fear itself. While I agree with Trent that the average consumer is grossly uneducated about the current market situation, I do not agree that there is nothing to fear.
Inflation is real and it hurts. When was the last time you checked the price of milk or bread. It seems that everyday it gets more and more expensive. As the government pumps money into the economy, it essentially devalues the money already in circulation. That, coupled with poor exchange rates with countries around the world, has crippled the dollar, causing prices to go up. Oil is a major factor here for consumable items, but it is not the only reason. Inflation is absolutely something to worry about with your investments.
The financial market in Today's world is very circular. The very simple version is this: One bank lends to another bank, who then lends the money to a consumer, who then purchases a home from a home builder, who then pays his suppliers, who finally deposit their money back into the original bank. Banks are now tightening lending standards for two reasons; they cannot afford to make any more risky investments (sub-prime debt) and they need to hold onto as much cash as their assets lose liquidity. With the credit market tightening lending policies, banks are unwilling to loan to each other, correspondingly making it more difficult for consumers to get money. Businesses can't get credit required for investments to grow, and individuals can't get credit to buy cars or homes. When consumers can't get credit, the economy can't grow.
With the media pushing Congress's actions as a bailout, I think it really needs to be referred to as a stimulant for the economy. Congress is not wiping the noses of people who misstepped, they are simply trying to kick-start the credit market. While there are no guarantees, I believe by removing the bad debt in the lending arena, banks will be more willing to lend, people will have access to credit and the Federal Reserve will stop pumping money into the economy, thereby slowing inflation.
No one is safe from the current situation. Everyone needs or has desires for money, even the rich. When the money isn't there, it hurts us all.
Moral of the story: Stick to your principles. Understand your financial picture and maintain your focus. Work to secure additional income if falling short and to cut expenses if necessary. The economy will recover, but only YOU can control your financial house.
This past weekend I was fortunate enough to be invited by my in-laws to see the new movie Fireproof. Fireproof is a story about a young firefighter (Kirk Cameron) and his wife who are struggling in their relationship. They are at the breaking point and ready to give up. As the firefighter struggles to maintain his marriage, his father gives him a journal, known as the Love Dare, to help him gain his wife’s love and respect back. Through the help of his father and coworker, the firefighter realizes the mistakes he has made, both with his wife and God. Below is a trailer of the movie.
A breakout success, Fireproof was extremely successful in its debut weekend. Coming in fourth at the box office with a limited release says as much for the quality of the movie as it does the blessing God bestowed upon the message it contained.
My wife and I were extremely encouraged and motivated by this movie. For those struggling to find their way spiritually in their marriage, this is a must watch. Beyond the message of hope and healing, Fireproof is a fantastic movie with great acting and a good story.
Coming right out of the movie are a couple of resources that should help those who wish to work as a couple, or complete the Love Dare.
God’s word states,
Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It is not rude, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres. 1 Corinthians 13:4-7To everyone who struggles, God is with you, and with Him you can do all things.
Wednesday, October 1, 2008
There are a couple of things to think about before buying that dream car.
Knowing when to buy is half the battle. Timing your purchase is essential, especially when in the market for new cars. It is fairly simple and can give you a leg up when haggling. By waiting until the end of the month during the transition to a new model year in late summer or fall, dealerships will be trying to unload their inventory. Incentives, rebates and special financing offers will be offered and can be taken advantage of to ultimately lower the purchase price of the vehicle.
Go to the dealership with a blank check in your pocket. Dealerships are a for-profit business and will work to separate you from your hard earned dollars by whatever means. Give yourself a leg up buy going in pre-qualified for a loan. You can easily shop around and find the best rate for the car prior to going into shop. If you do forget to go in pre-qualified make sure you know your credit score and history. This will allow you to make educated decisions when dealing with financing through the dealership.
Focus on finding the car you want but for a price that matches your budget. A very viable alternative to buying new is to buy a used car. You save on a few years of depreciation and can still get a relatively new car with low mileage.
Monday, September 29, 2008
I like most other middle class people am struggling. In today's world with expenses rising and income never seeming to catch up I worry about paying the mortgage, credit card bills and even the cable guy. However, like everything, knowledge is power.
But where do you get this knowledge? How do you find ways to track your spending and where your income is going? There are a multitude of online budget websites and tracking programs that can overwhelm and leave us with little to no motivation to answer our questions. In the great expanse of tools, two that I have begun to use and enjoy are as follows:
- Mint.com - Mint.com is an amazing online resource of visual aides and tools. Mint categorizes your expenses for you and tracks your spending. By inputing your login information for your various accounts, it will update periodically and everytime you login to provide you with a spending history. I personally use Mint.com and have found it to be extremely useful.
- PearBudget.com - PearBudget is a downloadable spreadsheet that tracks your spending. Simply set up your monthly expenses and your proposed budget amount and PearBudget will populate monthly schedules for you to track your spending. Entering your receipts at the end of the week will update the spreadsheet to reflect how your are aligning with your budget and where you need to address your spending. Like Mint.com, I use this spreadsheet as well. As an accountant, spreadsheets are a personal passion so using this is fun for me.
After tracking your spending, get to know where you overspend. Mint.com has a wonderful tool that allows you to compare to other people in your city or state to see how you stack up. Once you have an idea for how much you want to spend, stick to your goals and continue to track your spending.
Knowing where you are spending money and what spending habits you have is only half the battle! Adjusting those habits requires time and effort.
My main focus with this blog is personal finance, faith and relationships (specifically marriage). To give you some background on where my thoughts and opinions will come from, let me first tell you a little about myself.
I am a public accountant by trade, working in Richmond, VA. I work with both corporate and individual clients, preparing tax returns and performing other planning and general accounting work. Outside of work, I married the women of my dreams (however slow I was to realize that) and have had one of the best and worst first years of marriage any newlywed could have (more on that later). Finally, my faith. My faith has been a roller coaster since the beginning. I have gone through good times and bad, and am looking forward to using this blog as a means of coming closer to God.
At any rate, feel free to comment and let me know your thoughts, feelings and passions, and I will do my best to respond and post stories, links and comments that relate.