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October 2009 - Posts - The Dollar Stretcher
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The Dollar Stretcher blog will explore people and money.

October 2009 - Posts

  • Looking at Both Sides

    I've noticed that it's very easy for me to see a situation and quickly come up with all the things that can go wrong. In fact, I've probably even thought that it was a good thing that I did so. I've always felt that if you know the worst that can come out of an event, and you're willing to accept that, then you can go in without fear.

    But, it occurs to me that I should also be considering all the things that could go right. Because if I don't consider them I have a one-sided view that's really more of a distortion than a realistic appraisal. And, making decisions based on a distorted view isn't the best way to come to a good conclusion.

    Keep on Stretching those Dollars!

    Gary

  • A Body In Motion...

    I don't recall it's name, but I believe that there's a law of physics that says that a body in motion will continue to move in the same direction unless some other force influences it. For instance, if you roll a ball across the floor it will continue in the same direction unless something (say a wrinkle in the throw rug) causes it to change direction.

    Sometimes I think that our lives operate much the same way. We've been buying and using the same product for years. Our ball just keeps rolling in the same direction. But it probably is a good idea to change course every so often. To try something new to see whether it fits our lifestyle. So I'd ask you a question. What are you trying that's different this week?

  • My $4590 U.S. Debt

    Wow! That's probably the only thing that you can say about it. We're getting final estimates on the federal government's income and expenses for the fiscal year that ended Sept. 30th. The experts say that the federal government spent $1.4 trillion more than they took in (source Congressional Budget Office as reported in The Salt Lake Tribune). That's a number that's really hard to get my head around. So I wrote it out: $1,400,000,000,000. (boy that's a lot of zeroes!)

    But even writing it out, it's hard to put into any kind of perspective. It occurred to me that maybe I could grasp it if I knew how much of it I was responsible for. So I googled to see how many of us live in these United States. As reported by U.S. News there are 305 million of us (to be precise 305,529,237).

    Dividing the $1.4 trillion debt by 305 million people means that during the last 12 months the federal government committed to $4,590 in indebtedness on my behalf. Wow times 2! 

    I know that it was an unusual year with all the bailouts and stimulus. But, speaking honestly, I wish that they wouldn't commit me and my kids to each repaying $4,590 plus interest in the future.

    Then I thought that maybe they wouldn't repay it. After all, they have done much to reduce the federal debt in quite a few years. But even if they don't plan on cutting expenses or raising taxes to repay the debt, the interest payment is $229 a year (assuming 5% interest, which is probably a low estimate). In reality I'll probably have to pay $300 or so every year forever to cover the interest on this year's federal debt. 

    So as someone who takes debt very seriously I'm having a bit of trouble accepting this news. Given the economy it's been hard not taking on personal debt. But, like many of you, I'm working awfully hard to keep my spending in line with my income.

    So if anyone in Washington is listening...please don't take on any more debt in my name. I don't think that I can afford it.

     

     

  • What You Should Do Now

    “Never make predictions, especially about the future.” - Casey Stengel

    For years Casey Stengel managed in baseball's big leagues. Some of his quotes are legendary. But, given our current economy, I'd have to take exception to his advice. At least as it applies to our personal finances.

    Let's look at some current information. Unemployment is at 9.8%. Nearly double what it was at the beginning of 2009. Hiring remains anemic.

    The Congressional Budget Office (CBO) estimates that the fiscal year 2009 U.S. deficit will be $1.4 trillion. That's just under 10% of gross domestic product. Or to put it into perspective, during the last year the government borrowed the equivalent of 10% of every good and service the whole country produced.

    There were over 1 million bankruptcies through September, 2009 according to U.S. Bankrtupcy Court. At that pace we'll see 1.4 million this year.

    Forecasts for the economic future vary widely. Despite old Casey's advice you can find reputable economists who are willing to predict both recovery and a more serious recession.

    So, while there is much uncertainty, there are still some things that you can reasonably predict about your personal finances.

    First, you can expect some inflation. Over the long term there's only two things that can be done with the deficit. Congress can adjust future budgets to repay it quickly. Or they can devalue the dollar to pay it back with cheaper dollars later. Based on past experience, I'd say that they won't vote to repay it soon. So we better be prepared for some inflation (i.e. devaluation of the dollar).

    What will that inflation mean to you? It will mean that it will take more dollars to buy things. Bread that cost $2 today will cost $3 tomorrow. If your income does not keep pace with inflation you'll suffer. Those on fixed incomes will be hit hardest.

    Inflation can also devalue your savings. Whatever amount you planned for an emergency fund, college savings or your retirement won't be enough. You'll need to adjust your savings goals upward.

    You'll also want to change the way you invest your savings. Reduce the amount that you have in CD's and money funds. Look to increase the portion in assets with prices that can increase. For instance natural resources (oil, gold, etc.) and housing.

    Look for ways to increase your income. That may mean creating a second income source. It will be hard for many employers to raise your wages to keep up with inflation. Your pay could lag behind increasing prices.

    Expect interest rates to increase. The government is borrowing more than ever before. You'll be competing with them for loans.

    That means that you should pay off any debt where rates change with the market. A homeowner's line of credit is a great example. As rates go up, so will the cost of your HELOC.

    Expect credit card rates to rise. First, because of generally higher interest rates.

    Secondly, because the credit card reform bill of 2009 is forcing issuers to try to make more money from people who pay their bills on time. So instead of clobbering those who fall behind, card issuers will expect everyone to pay a little higher interest.

    They'll also increase fees and reduce rewards. Much of that has already started. A good response is to slowly cancel cards you don't use. Especially recently opened accounts. Do this cautiously. Closing too many accounts too quicky could reduce your credit score.

    If you have any other variable short-term debt pay it off as quickly as possible. If the rates are adjustable be prepared for them to go up.

    Now might be a good time to consider refinancing your house. Locking in lower rates today is a good idea. Especially if you plan on being in your home for more than a couple of years. Bankrate.com has a good tool for comparing mortgage rates

    Think about what you would do if you lost your job. You may be fortunate and have a job that's secure. But most of us need to be prepared for either a pay cut, unpaid days off or even a layoff.

    For instance, training for additional skills while you're still employed could be helpful. You'll find a whole list of things to do if your job is uncertain here .

    Old Casey was right when he said it was hard to predict the future. No one knows for sure how long or rough this economic storm will be. But don't let that keep you from taking the appropriate steps now.


    Gary Foreman is the editor of The Dollar Stretcher.com website and various enewsletters including  Financial Independence. FI is a daily message designed to help people take control of their financial lives through achieving small daily goals. To find out more check out the Financial Independence page.

  • What Is Success?

    Did you ever stop to think that maybe success isn't a destination, but rather a mode of transportation? To me being successful isn't a matter of getting somewhere (the land of 'Success') and then living there the rest of your life. If that were true I would be un-successful until I reached that destination.

    I'd much rather think of success as taking a trip down a good path. A path that's taking me where I want to go and providing me with a pleasant journey along the way. With this view I can be successful wherever I am, just as long as I'm headed in the right direction.

    Don't know about you, but I like that concept much better.

    Keep on Stretching those Dollars!

    Gary

    This post originally appeared in Financial Independence. FI is a daily message designed to help people take control of their financial lives. To find out more check out the Financial Independence page.

    Posted Oct 06 2009, 04:29 PM by Gary with 3 comment(s)
    Filed under:
  • Tracking Cash Expenses

    Hello Gary,
    I am trying to keep track of every expense and I'm doing pretty well so far.  However, I'm having trouble finding a location to put all this information.  I was trying to handwrite it and it seems like I have so many categories.  Do you have a free or inexpensive computer program you'd suggest?  I don't have Microsoft Office, I use Open Office.  I can't really afford Quick Books either.
    Marti

    Marti,
    Good question. I was working on that right now. We'll have a page for the cash expenses soon. We'll be recommending the following systems for tracking:

    Paper and Pencil Tracking - just keep a sheet of paper in your pocket. Make columns for date / amount spent / store / item purchased / category of expense. note: we'll have a free pdf available shortly.

    Spendtracker - A pocket-sized electronic device to help you keep track of your budget in real time. Exclusive Dollar Stretcher member discount: $5 OFF. (use coupon code: STRETCH5).

    mVelopes - An award-winning online envelope money management solution. Mvelopes takes an age-old principle and applies it for today's cashless world.

    Quicken Online - See all your bank accounts and credit card balances in one place on your computer and on your mobile device - for free.

    As to categories, if you have too many just narrow them down. Any category that only has a few dollars in it should be grouped with another category. The goal isn't really getting detailed information. The goal is to know where you're spending the most dollars, so you can determine if you're spending the right amount or too much. If done right you'll be able to use it as a management tool.

    Gary

    note: Marti is asking about our program to help you set and achieve your financial goals called "Financial Independence". You can learn more about it here.

  • Great Financial Sites to Visit

    Hello to all my Frugal Friends!

    Wanted to take just a couple of moments to mention some friends.

    Last week I spend time time visiting with the Editor (Cara Newman) and CEO (Ben Levy) of YoungMoney.com. Had two good conversations. One thing that all 3 of us agreed on was that the level of financial education that young people are getting is woefully lacking. And we want to do everything within our power to correct that. If you're in your teens or twenties, you'll want to check it out. And, if you're older than that, you'll want to pass the URL along to those you know who are still in that age range. I'll pass along a teaser to pique your interest. Right now they've got a video asking student whether *** ed or financial ed is more important! Fortunately, I'm too old to have an opinion on that question! Oh, and you might want to take their Financial IQ challenge. Look for the discounts and incentives that could save some money or even add some money to your bank account!

    The other friend I'd like to mention is Mary Hunt of DebtProofLiving.com. I'm sure that many of you recognize her name since she's been a leader in frugal living for quite awhile. I've read quite a few things from Mary. And I can pretty much say that if Mary wrote it, you can count on it. So, if you haven't already, take a look at her site. It's goes great with what you get here at The Dollar Stretcher.com.

    Hope that you're enjoying some wonderful fall weather!

    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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