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January 2009 - Posts - The Dollar Stretcher
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The Dollar Stretcher

The Dollar Stretcher blog will explore people and money.

January 2009 - Posts

  • The Best Stimulus

    Before making up your mind whether the stimulus package in Congress is a good idea, it might be a good idea to check a few facts.

    First, according to USA Today the stimulus package will cost $825 billion. Or 825 thousand million. That's a number that's hard for you and I to understand. 

    Let's try another big number. According to the CIA there are 303,824,640 Americans (July 2008 est.). 

    If we divide the cost of the stimulus ($825 billion) by the number of Americans (303.8 million) we get a cost per American (every man, woman and child) of $2,715.

    For a family of four that would be $10,860 ($2,715 x 4).

    Unfortunately, this money isn't just sitting on a shelf waiting to be spend. The government doesn't have it and will need to borrow. 

    So the U.S. Government is putting my family in debt by $10,860. Sometime in the future the four of us will need to pay that much (plus interest) more in additional taxes. That's certainly something that I wouldn't vote for. So I need a real good reason to agree to that much debt.

    The argument made in Washington is that we need to do something quickly to save the economy. But, is this really the best way to go? According to the Congressional Budget Office only about 2/3 of the money will hit the economy in the next 2 fiscal years. Some say that much less will actually make any difference soon. That doesn't seem very immediate to me. 

    And much of it is going to be wasted and not produce any new jobs or protect any existing jobs. Bailing out the same big shots that got us into this mess. More money for projects favored by the lobbyists and big money interests. More pork. In short, just more business as usual in Washington DC. The kind of business that most of us are very tired of.

    On the other hand, what would happen if they just gave you and I the money? We'd spend some and save some. The money we spent would immediately go to create jobs. You could spend that money on many things including job training in case you lose your job.

    The money that we save would mean that there's more money available to people who want to borrow to save their homes or build a new factory and hire new workers. All of the money would effect the economy right now. And none of it would go to the special interests that dominate both political parties in Washington. It would go where you knew it does the most good.

    I know that many well-intentioned people are for this bill. Their goals (avoiding a depression) are good. But you and I will pay a big price for this stimulus bill. If it works the cost will be $2,700 per person. If it fails we'll probably see a depression that will last years and push unemployment into the high teens. Now is not the time for a snap decision. The stakes are much, much too high.

    We'd be wise to consider what happened in the depression of the 1930's. They tried spending government money to create jobs and stimulate the economy. And, if you adjust for inflation and the size of the economy, they actually spent more than is being suggested today. Unfortunately it did not  work. Unemployment stayed in the high teens until the late 1930's. In fact, many economists look back at that time and say that the spending actually made things worse. 

    We face a serious situation. Before we rush into throwing billions of dollars at the problem, we'd be wise to consider alternative plans and to look closely at this plan. We all know that buying a car or house on a 'snap decision' can be very foolish. Many of us have made that mistake (and paid for it for years). Let's not let our elected representatives make a huge mistake by rushing to a solution before we all get a chance to understand that solution. The price could mean unemployment, home foreclosures and more on a scale not seen since the great depression.

    Keep on Stretching those Dollars!

    Gary 


     

     

     

  • Auto Depreciation

     Something to think about...Nothing depreciates your car faster than when a neighbor buys a newer one.

    Keep on Stretching those Dollars!

    Gary 

  • Bring Back Thrift

    This falls under the category of "I wish I had known sooner". I just found out that January 17 to 24 was "National Thrift Week". Originally started in 1916 and sponsored by the YMCA, it fell out of favor and disappeared in 1966. The Templeton Foundation (think John Templeton of mutual fund fame) is trying to bring it back with a site called "Bring Back Thrift Week"  Not only are they trying to raise interest, they also have some very good policy proposals (i.e. matched savings accounts for the low income and children, a product safety commission for financial products, increased financial education...)

    This looks like something that you'll want to check out. Visit their site and let me know what you think.

    Keep on Stretching those Dollars!

    Gary

  • Repaying Christmas Bills

     Did you start out the new year with a Christmas bill hangover? If so you have plenty of company. I haven't seen figures from 2008 yet, but if you ended up with $500, $600 or even $800 on your credit cards from buying presents you're not uncommon.

    So what are you going to do about it? You could just keep paying the minimums. But that would take forever (most years the average family doesn't finish paying for their holiday gifts until May of the following year).

    Or you can aggressively look for ways to shrink those bills. Let's look at a couple of options.

    One way is to find a 'big ticket' solution. One shot that solves the problem. The biggest shot you can fire is to refinance your house. Not so that you can take equity out, but to reduce your monthly payment and use the monthly savings to pay the bills.

    Another one shot solution is to compare home or auto insurance coverage. A change in coverage or insurance companies could save you hundreds in a hurry. You can begin by calling your current agent and ask if he has any suggestions. Then get comparable quotes from two other agents. A few phone calls could turn up serious savings! You can find info on auto insurance from Edmunds.com here. For homeowners' insurance you'll want to contact a couple of local agents.

    You could close the gap by selling something big. Maybe it's time to get rid of that waverunner in the garage. Or the motorhome parked in the backyard. Think back. How often do you use them? Then do the math. You could find that it's cheaper (and easier) to rent one when you want it. And, the cash for selling sure would come in handy now.

    Attempt to get a lower rate on your credit card. It won't solve the problem quickly, but the same monthly payment will pay down more principal if there's less going to pay interest. CreditCards.com has a tool to find the lowest rate here.

    Finding extra savings in your budget can be challenging. But it is possible. Typically groceries/food are the best place to find a few bucks. That's because you'll spend about 20% of your money for food. So cutting your grocery bill by 10 or 15% could save a significant amount.

    There are a number of good ways to reduce your grocery bill. One of the best is to create a 'price book' and begin using it. A price book is a simple little notebook where you keep track of pricing on your most common grocery items. It allows you to buy more when the item is on sale. That tactic alone could easily save 15% on your grocery bill. You'll eat the exact same food. Just pay less for it. Find out more about price books here.

    Eliminate food waste. The estimates vary widely, but most families end up throwing out food that can't be eaten. You'd be surprised, but it's easy to waste 10% or more. Some food goes bad before you even cook or serve it. Some turns green in the leftover trap that's the back of your refrigerator.

    The first step to eliminating waste is to plan your meals and shop with a grocery list. Those impulse buys are the ones that are most likely to become food waste.

    The second step is to use your leftovers intelligently. Many families are recognizing how valuable they can be. Some are even taking a serving of each dinner item and freezing their own microwave meals. Not only does that make it more likely that the leftovers will be eaten, it also removes the temptation to buy expensive fast food. Read more about 'freezer meals' here.

    One final note. Do not borrow money from your 401k plan. Especially if you own stocks. You may be unhappy about recent performance, but you don't want to sell shares at these prices when it's likely that they'll be much more valuable later when you retire. If you sell now you will not benefit when the market goes up (and sooner or later it will).

    Keep on Stretching those Dollars!

    Gary

  • Wise Investment Advice

    If you've looked at your 401k, IRA, pension fund or investment account statement lately, you're probably in a state of shock. 2008 was a tough year for investors.

    I was a financial planner when the market crashed in the late 80's. I remember how scared clients were. Although the market decline hasn't been as sudden this time, the results are the same. Most people really don't know what to do.

    In any critical time, you want to make sure that you don't do anything foolish. Now is the time to move cautiously and rely on proven strategies. That's why I was so happy to see an article by John Bogle appear in the Wall St. Journal online edition. Mr. Bogle is generally given credit for creating the mutual fund as we know it today. He was responsible for Vanguard funds and is a big proponent of index funds. If you were looking for good investing advice, you'd be hard pressed to find someone who knows what's going on and is willing to share it with you. 

    Mr. Bogle points out 6 lessons that he has learned from the recent past. If he's learned these lessons I think that I'd be wise to learn them too! You might want to check them out and add them to your knowledge base.

    Keep on Stretching those Dollars!

    Gary 

    Posted Jan 09 2009, 04:35 PM by Gary with no comments
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  • 12 Things to Watch for in 2009

    I enjoy watching the old westerns on tv. One thing I've learned is that is that if you're going to be a gunfighter you need to always know what's happening around you. Failure to do that could put you in the Boot Hill cemetary.

    Right now our economy is a little like the wild west. Sometimes it seems like there's no rules. Or that whoever has the most guns get to make their own rules. So we might be wise to learn something from that old gunslinger and watch carefully what happens around us. We might keep our finances from an early burial. So here are 12 things to watch out for in 2009.

    Watch for old pricing rules to become obsolete. You're going to have to pay attention to prices in the new year. Some prices will be trending up, while others slide down. And, some will change direction during the year. Now, more than ever, it's important to know your prices. Shop around for any major item . Use a grocery pricebook  to keep track of food prices.

    It's a good time to challenge your assumptions. Just because you always bought a specific brand or store doesn't mean that you should continue. Challenging times cause companies to do things they wouldn't normally do. Some may drop prices significantly. Others could lower quality. Just because you've known a product or company for years doesn't mean that they can't change. In fact, you should expect it to happen.

    Watch for ways to save a few dollars. Even if it's only a dollar or two a day. With an increase in uncertainty, it's much more likely that you could need a few extra bucks in a pinch.

    Watch out for inflation in 2009. As the government pours money into the economy some prices are bound to rise. It probably won't happen until people are comfortable that they can spend their money again. When they do we'll all remember why government borrowing is dangerous.

    Watch for opportunities to stregnthen your position at work. Learn new skills. Be flexible. Do anything you can to make yourself valuable to your employer.

    Watch for ways to help your friends and family. Even if you don't have money to spare you can help. Volunteer to help with a plumbing problem. Or save them the expense of a trip to the store by offering to pick up a few items for them.

    Watch out that you don't put your family in jeopardy helping others. It's nice to be generous, but things like co-signing a note could put your finances in a world of hurt.

    Watch for opportunities. Even in the most challenging times there are some opportunities. You'll need to think creatively. And, it might take some work. But I bet that there's someone who owns an unoccupied 'fixer-upper' home that would be willing to let a family live in it
    while repairs and upgrades were made in trade for rent.

    Watch your stress levels. When finances are tight it's easy to get stressed-out. Letting that stress build up will only make things worse. Don't sacrifice your mental or physical health or marriage to stress. Watch a sunset, listen to music or find some other healthy stress reliever. (btw, shopping is not an acceptable stress reliever)

    Watch for unusual bargains. You'll find more 'liquidation pricing' on a variety of goods. Auctions will have fewer bidders and thus more bargains. 

    Watch your step. Now is a time to be careful in making big financial decisions. Especially since some of your prior assumptions could be wrong. It's true that many mistakes are made when we're in a hurry. Those mistakes could be very damaging in this economy.

    Watch your tongue. Saying too little or too much could be bad for your financial health. There's nothing wrong with letting a few close friends and family know that you're facing some financial challenges. In fact, it's wise to do so. But, you don't want to go to the other extreme where every conversation revolves around your problems. If you go there, you'll notice that people begin to stay away from you.

    Watch your back. Is there some problem or debt that's sneaking up on you? Do you have a major appliance (think furnace, AC unit, refridge) or car that's getting old and may need repair or replacement? Or maybe you're close to being unable to make a minimum payment that would  trigger the default rate on all of your credit cards.

    Keep on Stretching those Dollars!

    Gary

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Gary is a former financial planner and purchasing manager who edits The Dollar Stretcher website <www.stretcher.com> and newsletters. You can follow Gary on Twitter.com/gary_foreman
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