Wise Bread

Best of personal finance: Wall Street Rollercoaster

Andrea Dickson — Wed, 15 Oct 2008 23:23:23 +0000

Welcome to Wise Bread's Best of Personal Finance roundup!

Rules to live by when the economy heads south. Boston.com and FIRE Finance

Smarter than the average bear market. "Yet with these terrifying headlines every day, it’s like people have become blind, yet highly literate zombies who wander aimlessly from one newspaper to another. Being dumb is not just focusing on the wrong things, it’s making poor financial decisions and then throwing up your hands and wondering why you don’t have enough money a few years later. If you own only one stock — especially if it’s your employer’s stock — then you are a fool." I Will Teach You To Be Rich

Avoiding bankrupcty when you're sick. Queercents

Comfort foods are all the rage during economic hard times. A grilled cheese sandwich is the height of frugality. Here's a recipe. Cheap Eats

Tips for jet-setting, worldly types. "Most tickets are changeable, no matter what is written on them. If you run into trouble, don’t give up – the airlines can make exceptions under the right circumstances. It doesn’t always work, but good things often come to those who are persistent." Zen Habits

Throw the bums out. AIG is rightly still getting hammered by the government for acting like a bunch of jerkwads. NY Times

What if there were no Joneses to keep up with? The Simple Dollar

Free grub in your birthday suit! Lots of restaurants give you free food on your birthday. Dean provides a list for all of you who love a free-ish lunch. Mr. Cheap Stuff

Less time, less spendy. Reducing your time at the supermarket will help you spend less. "[L]ast weekend at the grocery store I was unnerved by displays of snack foods, ice cream, Halloween candy, and ready-made items like deli entrees and rotisserie chickens. Seeing them was like hearing fragments of a language I used to speak. What was all this stuff?" MSN Smart Spending

Giving when you're not really getting? Is your charitable giving going to change as the economy worsens? Free Money Finance

And it begins. Credit card companies are cracking down on consumers because they are panicking as much as everyone else. Walletpop

When time IS money. Small ways to work smarter on your PC. Dumb Little Man

Why total meltdown is unlikely. "I continue to think that global governments will get this figured out and credit markets will start to ease before truly awful consequences take hold. We're in for a recession, not anarchy." Motley Fool

Richy McRichpants. What does it really mean to be "rich"? Can you be rich without realizing it? Get Rich Slowly

Why your credit card debt is partly to blame for this financial mess. "By 2006, though, consumers were not only spending more on everyday goods -- remember, spending 89% of income -- but also spending more to pay debt. They were spending 13% of their incomes to cover debt, Church notes. So households were spending everything they made -- and borrowing some more money on top of that -- just to get through the average year." Freep

When being cool as a cucumber matters. Why staying calm in an economic crisis is better for everyone involved. Five Cent Nickel

Goodbye, schadenfreude. "Until last week, Europe had witnessed the type of anti-American gloating usually seen only during the soccer World Cup, the quadrennial event in which the American team is routed in the early rounds." Slate

Tips and tricks for budgeting. Some of the best (free) tools you can use to save money and reduce debt. No Credit Needed

Iceland almost goes bankrupt. Who knew that countries could even do that? "Iceland's dramatically transformed stock exchange offers a clear indication of the massive blow dealt to the country's economy, recently based almost entirely on a financial sector that represented between eight and 10 times its gross domestic product." AFP

Hard times call for simple soutions. Why simplicity offers a fairly easy path to saving money. Mighty Bargain Hunter

HAHA! It can be fun to see what people wrote about a few months ago, when the economic collapse was becoming a reality and lots of people said it wouldn't happen anyway. Reuters

Is tax season here already? Oh, it never ended. If you filed for an extension, you have to actually file your taxes by today. Consumerism Commentary

California is selling itself to the American consumer. Want a piece of the action? Bloomberg

Talk about lemons into lemonade. So what if your 401K is down 40%? Stocks are going to be cheap. All Financial Matters

Oooh la la. Does this mean that sales of cheese and cigarettes will decrease? Europeans react to the economic crisis. Xinhua News

Slippery slope. If the cost of oil keeps falling, will we keep pushing to drill? CNN

Safe bet. Everyone is buying safes for their home because it's frowned upon to keep your money under your mattress. LA Times

It's the little things that count. There are plenty of ways to pinch pennies - here are 101 pinching techniques. Our Four Pence Worth

Discount on discount chain membership. Sam's Club memberships can be had for $10 for the rest of the year. Bargain Hunter

Have a tip for a best of personal finance round-up? Share them in the forum.

Permalink | Comments | Andrea Dickson's blog | Channel: Personal Finance

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

My Poverty-Fighting Superheroes

Julie Rains — Wed, 15 Oct 2008 12:27:47 +0000

By Julie Rains

You never know -- your mild-mannered neighbor, co-worker, or long-time buddy may be a hero in the battle against poverty. He might prepare meals for the homeless; she might tutor at-risk kids. I have lots of poverty-fighting heroes but there are a few who stand out because of their fanaticism, contrarianism, or perseverance. Here are their stories in honor of Blog Action Day 2008 Poverty.

Nita unmasks evil sales messages disguised as financial advice.

She wielded her expertise to fight financial illiteracy and empower citizens to make good financial decisions. With a doctorate in Financial Education (Ed.D.), Nita ran a one-person, government-funded Money Management Center that educated community members on personal finance topics. She shared her expertise through private counseling sessions, newsletters, workshops, in-school programs, and television segments.

I met Nita at a speaking engagement and later became a member of her advisory board. At one of the board meetings, I met a church pastor who expressed concern about predatory business practices that affected members of his congregation; at the time, he was complaining about rent-to-own agreements that required payments well beyond the original purchase price. Such practices, along with unawareness regarding other purchase options, he believed, were one element in preventing the poor from acquiring wealth. But it is not just the financially naïve who need guidance; Nita helped those who were reasonably savvy (me, for example as I have a BSBA-Concentration in Finance) break down the elements of financial matters and make good decisions.

Sadly, Nita’s position was eliminated several years ago because of budget cuts.

Debbie smashes inaction.

Debbie is a member of a non-profit, all-volunteer service club of about 20 people who provide support to those with communicative disorders. Members of the group, along with sister chapters, spend a lot of hours raising money (yard sales, spaghetti dinners, bowl-a-thons, ballgame concessions) to fund yearly programs such as one-on-one summertime speech therapy for children receiving group therapy during the school year and a week of traditional camp for children who are deaf or have deaf parents or siblings.

So, when random individuals surface with requests of $500 to $1,500 for a hearing aid repair bill or a technology-driven communication device, there is an inevitable hesitation to immediately write a check. Questions about whether government sources of funds have been exhausted are tossed around. But Debbie, who is aware of bureaucratic hurdles and the dangers of long wait-times, urges prompt action so that, for example, the hard of hearing young adult can understand his boss and family (with his now-working hearing aid), and the autistic child (with a special device) can communicate with his teacher and parents as soon as possible.

Dean concocts scheme, leverages compassion.

Dean was the mastermind behind an assistance organization that started as a brainstorming session during his Sunday school class and became a long-standing crisis resource for residents of his small town. The organization provides grocery items and money to clients on a one-time or limited-time basis. Though information on each client is recorded, a lengthy interview and intake process is not involved. With immediate needs met, clients can more intentionally deal with problems that the crisis (such as a family member’s death, job loss, or house fire) created. Through quick action, his group helps to prevent escalating problems.

The group is now a coalition of more than 10 churches and receives regular support from community members and groups such as the scouts, who organize an annual collection for the pantry.

Linda fights for good nutrition for all.

Linda is an RN who teaches childbirth and nutrition classes to expectant parents in her spare time. She’ll urge any pregnant woman to look into WIC (Women, Infants, and Children), making no assumptions about the eligibility of her audience but rather emphasizing the value of good nutrition and its accessibility for everyone (USA program).

Patricia and Sarah lift large obstacles to work.

Patricia is the Executive Director and Sarah is the Director of Support Services of an inner-city child development center that serves low-income families. Access to high quality, affordable childcare is a major obstacle to work for many parents and, more recently, grandparents. By offering scholarships and sliding scale tuition rates, weekly fees are affordable. Patricia and Sarah are aided by a host of donors throughout the community as well as cyclists who participate in the agency's annual charity ride.

Want to help alleviate the causes of poverty or suffering caused by poverty? Here are a few programs that have gotten my attention recently:

Bikes for the World (donate bikes to the poor in developing countries or the Metro DC area, where the non-profit agency is located)
Crop Hunger Walk (walk and raise money or sponsor a walker to raise funds for local and global hunger-fighting agencies)
Train for Humanity (sponsor Leo or others to benefit Darfur Peace and Development Organization)

Permalink | 7 comments | Julie Rains's blog | Channel: Life Hacks

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

The Upside of an Economic Downturn?

Fred Lee — Tue, 14 Oct 2008 11:26:51 +0000

By Fred Lee

Not that anyone would wish economic hardship on anybody, but can the case be made that there are in fact health benefits to an economic downturn? Well, the conclusion is not as simple as you might think, and the answers are surprisingly mixed. In a recent article in the New York Times , researchers found that there are in fact instances where lean economic times might actually have a positive impact on our health.

While it goes without saying that a flourishing economy goes a long way to improving our standard or living, it is interesting to note that there are instances where economic prosperity does not always translate into good health.

Take, for instance, the economic expansion of the past two decades. While we have witnessed unprecedented growth in the stock market along with an incredible accumulation of wealth, the population as a whole has also experienced skyrocketing rates of obesity, diabetes, heart disease, and stroke.

The reason for this seems to boil down to time, or lack thereof. When the economy is good, people seem to dedicate more of their lives to working hard at their jobs. In fact, in a previous post, Xin Lu wrote about a Japanese worker who actually worked himself to death!

While the desire to work hard and do a good job is completely understandable, it also means that less time is dedicated to the maintenance of a healthy lifestyle, which includes healthy eating, exercise, and regular check ups with your doctor. When times are good, people also tend to embrace unhealthy habits like excessive consumption of alcohol (especially before getting behind the wheel), as well as stress and anxiety that can come from trying to maintain a certain lifestyle, which also, in the modern era of consuming, can entail accruing debt.

Then, of course, there is the issue of spending quality time at home with friends and family, which I think is reasonable to say contributes positively to one’s health and brings up the need to distinguish between one’s standard of living and one’s quality of life. This is especially true in the case of raising children.

In fact, some of the data seems to point to the fact that children may actually benefit from the economy slowing down. The reason for this may be hard to nail down, but some theorize that it has to do with more time spent with either mom or dad (who may be unemployed as a result of a slowdown), and the healthy aspects of life that go along with it, i.e., healthy, home cooked meals from scratch, the comfort and peace of mind that come from being around the nuclear family.

It is important to note that for families that are hit harder by a downturn, the results might not be so bright and sunny. In other words, if a family cannot absorb the loss of income, then it doesn’t bode well for the children or the parents. It makes sense, since not only do they have less access to food and health care, but the stress might also compromise quality family time.

On the other hand, if the loss of income can be absorbed, then having a parent spending more time with their children surely can’t be a horrible thing. Sure, you can’t buy as many houses, cars or big screen TVs, but it begs the question, how much is enough? If you can keep a roof over your head, food on the table, and clothes on your back, then maybe the only way to slow down and spend more quality time with your family is to be forced to do it.

So during these difficult times, many of us may have to curb our spending habits. This could mean buying fewer extravagant and frivolous items, and even forsaking our daily latte. This, however, could go a long way in instilling us with a greater appreciation for the simpler things in life, like our famiy, friends, and health.

And maybe even that watered down cup of Yuban, which should be enjoyed in the company of loved ones… slowly.

Permalink | 18 comments | Fred Lee's blog | Channel: Frugal Living

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

Women of personal finance spotlight: Frugal Upstate here to answer your questions

Lynn Truong — Tue, 14 Oct 2008 05:58:45 +0000

By Lynn Truong

For this entire week 10/13 - 10/19, Jenn from Frugal Upstate will be answering questions in our forums about blogging, personal finance, and entrepreneurship!

Jenn is a quite fascinating and accomplished lady. Browse through her 100 Things About Me post and you'll find gems like "I’ve eaten a chicken heart while visiting Taiwan" and "I got my Masters of Business with a concentration in Logistics while in the Army." Now that's someone I would love to have a long chat with.

Please join Jenn in our forums today!

This interview is part of Wise Bread's spotlight on the Women of personal finance. At the end of the interview period we'll publish the best questions and answers from the forum interview and post them on the homepage. If your question gets picked we'll include a link back to your blog.

About Frugal Upstate

Blog: Frugal Upstate

Blogger: Jenn

Subscribe: RSS & Email

In her own words:

I’m New York mama Jenn from Frugal Upstate. Since 2006, I’ve been writing about simple ways to save money doing simple things you’ve never even considered. One hint: it’s not all about clipping coupons and buying on sale!

My motto is use what you’ve got, get creative and save. I started by stretching what I had for longer, reusing stuff and making do without all the little needless extras. Along the way, I figured out that frugality is fun—like the way you feel when you find a designer dress at a yard sale for $5.

Frugality isn’t scary, it’s a gradual process that I’m still learning myself. I try different frugal skills, some of which stick, and some that don’t. I have fabulous successes and ridiculous failures. I possess no special skills except tenacity and the belief that I can figure it out. And my favorite part is sharing and learning from my readers.

My kids inspired me to take up the frugal cause. I was a career Army officer working with guns and tanks, about a world away from my blissfully domestic life today. After the birth of my first child, I decided to stay home full time. A typical New Yorker, I wanted it all: a good life, happy kiddos and a fat wallet on one less paycheck. I was determined to prove to the world that we don’t need more money to keep up our quality of life.

I’m also a suburban subversive, plotting to reinvent the way we stay-at-home-moms think about keeping up with the Joneses. Here’s an example: last year I instituted a $10 gift limit at my daughter’s birthday party. No one complained, and gift limits started popping up on Christmas parties and friends’ invites. Quietly, we frugalites will take over the world!

Remember, every frugal tip isn’t for everyone. Try one new frugal skill and see if it works. Even just a few can and will make a difference in your lifestyle (and your bank account).

Check out some of her most popular posts:

Conscious Spending

Video Blog: Making Your Own Laundry Soap

Video Blog: Hanging Out the Wash

Frugal Food Part One: Eggs

Frugal Food Part Two: Tuna

Frugal Food Part Three: Beans

Frugal Food Part Four: Ground Meat

Frugal Food Part Fiver: Chicken Whole, Wings & Thighs

Frugal Food Part Six: Bread, Potatoes, Pasta & Rice

Gift Tags from Christmas Cards

Make Attractive & Frugal Curtains & Storage Boxes

Grab a cup of java and join our chat with Jenn in the forum today!

Jenn and Lynn hanging out at Blog World Expo.

Permalink | 7 comments | Lynn Truong's blog | Channel: Frugal Living

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

That Age-Old Conundrum: Time vs. Money

Sarah Winfrey — Mon, 13 Oct 2008 21:00:55 +0000

By Sarah Winfrey

Have you ever thought, "If only I could do X, it wouldn't matter how much money I made?" Or maybe you've wondered, "Why do I feel like I do so much for so little compensation?" If you've had these or similar thoughts, you're not alone, and you're probably suffering from some disjointed thoughts about time and money.

Believe it or not, it's easy to get stuck living a life you're unhappy with because your time and your money aren't connected in the way you'd like them to be. If you don't think about it, you'll live a life that says you value what the people around you value, or what your parents taught you to value, but that may be a far cry from what you actually value. Here are some competing theories about the relationship between time and money, and some thoughts on figuring out what they mean to you.

Time is money

In this theory, your time is only as important as the amount of money you can make. You focus on a particular task for a particular amount of time and get paid a particular amount of money for your trouble. That money, and nothing else, shows you the value of your time.

Many people hold this as true, though some hold it to a greater extent than others. For many, this is only true during the work day, but personal time is different. But for others, this is a ruling principle of life. If you've ever felt like your personal value depended at all on your salary, that's evidence of this sort of thinking.

It's key to note that this is the principle that most jobs are built around. An employer determines how much it's worth to him to have a person performing a certain task for a certain amount of time, and pays that wage. There are definitely complicating factors, but that's the basis on which salaries are determined. So this is a driving principle in Western culture (and increasingly in Eastern ones).

Time over money

If this is what you believe, then the amount of money you make doesn't mean much to you. You'd much rather have your time to yourself, or at least under your control, than let someone else control it for whatever amount of money they value it at.

Do you work a lower-paying job because you get more days off or control your personal time? Then you might subscribe to this theory. Do you freelance because you want to be able to meet those friends for lunch whenever they're free? Then you definitely value controlling your time more than you value making a particular amount of money.

Money over time

Would you rather work through weekends to have more cash, particularly if you get overtime? Is the stress of major responsibility worth it to you because you make more money when you take it on? If it came down to a decision between a date-night with your spouse and a few more hours that would net you some serious income, would you choose to work?

If you answered "yes" to any of those questions, then there are times when you value money over time. You want cash, whether it's for financial security or so you can buy that new toy, and you're willng to give up total control of your time (and other people's) to get it.

Practically

In our daily lives, most of us subscribe to these different theories at different times. Maybe the success of our weekdays is determined by how much money we make, but that of our weekends determined by how much time we get to spend chillin' in front of the television.

We also subscribe to these ideas to varying degrees. Sometimes, money is important, but only so long as a person can take two weeks of vacation every summer. Or maybe someone wants to stay home with their kids, but they also need to make a certain amount of money to live.

It doesn't matter how you fit these ideas together; what matters is that you know how they fit together for you!

Figuring it out

Ask yourself the questions below. Spend 5-15 minutes answering each one, either in discussion with someone else or in a journal. When you've finished answering, you'll have a pretty good idea as to what you value, how much you value it, and when you value something else entirely.

1. If you had the option to work over the weekend making double-time, would you do it? What if your kid had a big game on Saturday or you had planned a date to the Met? How would you justify your choice?

2. Looking over the last year, how often have you taken vacation? Sick days? Did you ever go to work instead of taking time off because being absent negatively effected your paycheck?

3. How do you look at your wages? Are they never enough, just right, or plenty for your needs? Do you feel like you trade your time for money? If so, is it a fair trade? If not, would you prefer more money or more free time?

If you feel the desire, share some of your responses with us. I'd love to know where Wisebread readers stand!

Permalink | 4 comments | Sarah Winfrey's blog | Channel: General Tips

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

Surviving a financial panic -- lessons from the past

Philip Brewer — Mon, 13 Oct 2008 13:44:45 +0000

By Philip Brewer

Financial panics used to be quite ordinary. In the century or two prior to the great depression, there was a panic every 15 or 20 years. Since the great depression we haven't had a classic financial panic, until now. There's a thing or two that we can learn from panics past to help us survive the current one.

To begin with, there's a reason why we haven't had financial panics for the past 75 years--fiat currency.

Panics and gold

Panics used to begin when people decided to get their hands on actual, physical gold. That could happen for a lot of different reasons. Often it was because there had been inflation--banks issuing bank notes far in excess of the gold they had on deposit--and people decided that they didn't trust their bank. Sometimes, though, it happened without any particular malpractice by the banks, simply because there was a demand for gold someplace else--an economic boom in Europe or South America could drain gold from the United States or vice versa.

Since issuing banknotes was literally printing money, the temptation to go overboard was immense, and individual banks that did so used to collapse all the time. A prudent bank, though, could be modestly profitable and a great boon to its community, but in a panic, even prudent banks would fail. (You could, in theory, create a panic-proof bank that held enough gold to pay off every banknote, but it would be a money-losing institution. Holding all its gold in its vaults, it would be practically unable to make loans, but would still having to pay for a building, tellers, security, and so on.)

Prior to 1933, it was very hard to address a panic, because there wasn't enough gold. Sometimes, if a panic started small, it could be headed off by large banks (or even wealthy individuals) lending gold to the banks that were under pressure. The banks could then redeem enough banknotes to satisfy worried note holders. When the panic subsided, gold would flow back to the banks, they could pay off the loan, and things would return to normal.

In the case of a large panic, though, the banking system as a whole didn't have enough gold to redeem enough of the banknotes. Banks would pay out gold for a while, hoping that they could thereby demonstrate their soundness. Once it became clear that the gold on hand wouldn't satisfy the demands of note holders, the bank would suspend note redemption. Note that, even when that happened, depositors and note holders didn't necessarily lose everything. In many cases, the bank was actually solvent. As their customers went on paying their debts, gold would gradually flow back to the bank, allowing it (at some point) to resume redeeming its notes.

Since 1933, there hasn't been any gold backing the banknotes anyway, a condition that had seemed to have eliminated the possibility of a classic panic.

And yet, here we are. So, what were the keys to surviving a panic in those days, and how do they apply today?

Liquidity

The first way a panic works its harm is by destroying liquidity.

Once a panic started, the first things to go was the payments system. In normal times, people could spend banknotes as easily as they spent gold and could pay their bills with checks. In a panic that isn't true. Every transaction becomes its own negotiation. Payment in gold is fine (although you have to be sure it's real gold). Payment in the notes of a sound bank is okay, but opinions differ regarding which banks are sound and which aren't, leading to confusion and disagreement--the result is a whole sliding scale from the sound banks to the iffy banks to the banks that have suspended redemption of their notes but are still open to the banks that have closed. Checks have the same issue of bank soundness, only it's layered on top of the question of whether or not you've got money in your account.

Adding that sort of negotiation on top of every transaction was obviously a nightmare. So, if you want to understand why central bankers, finance ministers, and politicians are in such a tizzy, imagine layering those issues on top of the complex payment systems that we use now.

Today, checks are clearing, credit and debit cards work fine, the ATM machines have money, direct deposits are going through on schedule, automated clearing house payments for bill payments and bank transfers are all working smoothly. This is a huge win for the economy. Just imagine what happens if those systems start to break down--if your transfer from your internet bank doesn't show up in your local bank, if your credit or debit card starts being declined, if your landlord and the power company stop taking checks and start wanting you to show up in person with cash in hand.

If it was just liquidity, though, the problems would be manageable. Cumbersome, but manageable.

Solvency

The second way a panic works its harm is by destroying solvency.

As a panic began to set in, a business with merely adequate capital could suddenly find itself on the ropes. Its customers would start paying at the last possible moment, and then start paying late (and, in many cases, going bust and not paying at all). At the same time, its suppliers would start cutting credit limits, pressing for early payment, and then demanding payment in cash. On top of that, its bank would refuse to lend. If you had the cash to bridge the gap--paying your bills on time, even though people were paying you late--then you were fine.

It wasn't that simple, of course. If your bank failed it didn't make much difference how much money you had. The wealthy could take measures--dividing their money among several banks and holding some amount of physical gold for example--but those strategies were largely closed to the poor (who couldn't scrap together enough for one bank account, let alone two, and who didn't have a safe place to store gold even if they could put their hands on some). They were also largely closed to businesses, who had their money invested in the business, not sitting around just in case their customers started paying late the very same week their suppliers started demanding payment in cash.

The key, then, to surviving a nineteenth or early twentieth century panic was to have ample cash, to choose your bank carefully, and to have some actual physical gold on hand. In particular, being one of the first people to panic--showing up to turn your banknotes into gold while the bank was still paying in gold--was the winning strategy. The result was bank runs that could bring down even sound banks.

Since there's deposit insurance to protect small and medium-sized depositors--and since there's no gold at the bank to be gotten anyway--we do seem to have largely eliminated bank runs, and largely eliminated the need for ordinary people to participate even when there is one.

Still, the solvency issues remain--if customers can't pay, even a well-capitalized business can't continue to operate for very long. And, as businesses cease operations--or simply shrink to the point where they're sized to service the fraction of their customers who can pay--employees find themselves out on the street, facing their own solvency issues.

And solvency issues are why, even though they're not obliged to back deposits with gold, the banks are failing.

Our new panic

Even sound banks can fail in a panic, if they're obliged to pay out gold, simply because there isn't enough gold in the system to pay off all the banknotes at once. Since our banks aren't obliged to pay out gold, sound banks aren't really at risk--even if they don't have cash on hand to pay off all their depositors, as long as they have assets (generally, loans that are being paid back), they can get unlimited cash from the central bank. In this situation, what would have been a panic is merely a credit squeeze.

So, how come banks are failing in our current panic? Basically, a lot of the banks aren't sound. Their assets, instead of being mortgages on local homes and loans to local businesses, are instead huge amounts of the sort of "securitized" debt that you've no doubt heard about--groups of mortgages, auto loans, credit card debts, and so on, all packaged up and divided into slices that were supposed to have predictable risk characteristics (but that turned out not to).

Presumably, not all the banks are in trouble. So, a second problem is that nobody knows which banks are solid, which banks are iffy, and which banks are just waiting for the coroner to sign the death certificate.

(That's why the Treasury's plan was to buy up a large amount of this securitized debt. The idea was, if you could put a price on those iffy securities, the sound banks could resume normal operation. If the price was high enough--higher than the assets are really worth--many of the iffy banks would be okay as well.)

The result has been a situation a lot like a classic financial panic, even without the issue of a shortage of physical gold.

A few words about gold

In panics past, the key winning strategy was to move to gold before banknotes lost all their value. I don't think that's a useful strategy this time. Gold may be a winning investment, but it lacks the key attribute that made it a winner in the past: it isn't cash.

Until 1933, contracts were often written in terms of gold dollars. If your banknote wasn't backed by gold--if your bank had closed or suspended payment--you couldn't use it to pay your bills. That's no longer true. The value of the dollar may soar or crash in terms of its international value and it may lose its value slowly or quickly to inflation (or even gain value due to deflation). But you can be reasonably sure a dollar will continue to be worth a dollar when it comes to paying your bills. That's something that people didn't have going for them in the panics of the nineteenth and early twentieth centuries.

Gold may (or may not) be a great investment, but it's a crappy way to pay your bills. For that, you need money--regular old bank deposits and currency.

The hard money folks like to say that gold is the one financial asset that isn't someone else's liability. In a world where many liabilities are not being honored, that's a big deal. But as long as your liabilities are in dollars (or euros or pounds or krona), you want to have cash on hand to pay your bills. For example, I'm just three months into a one-year lease. I know exactly how many dollars I need to pay to keep my apartment for the next nine months. I have no clue how much gold I'd need.

As an aside, it seems that there actually is a shortage of physical gold. Perhaps in part because a rather new fund (SPDR Gold Shares) has been buying huge amounts of gold and storing it in vault--enough that its gold reserves recently passed those of Japan. Fabricators of gold coins are having trouble getting their hands on enough to meet demand. That's a situation that can't last for long--people will bid up the price of physical gold high enough to draw those large gold bars out of the vaults. That makes gold sound pretty good as an investment--but it doesn't turn it into cash.

Strategies for survival

Knowing that the keys are liquidity and solvency, there are some obvious strategies to begin with.

Don't depend on credit. Arrange your finances so that you can fund everything with cash. If you're a business, this will inevitably make you less profitable, but less profitable is better than being out of business.

Keep your assets safe. Even if you avoid debt, you still have obligations that need to be met--rent, taxes, utility bills, etc. If your income is uncertain (and it is), then you want to have cash on hand to meet those obligations. Things like bank deposits (under the insurance limits), money market funds (now also insured), and Treasury securities are very safe and very liquid.

Cut expenses and diversify your income. Having liquidity is key in the short term, but over the medium to longer term the key is to make sure that your expenses don't exceed your income.

Later, buy valuable stuff cheap. As the panic winds down, large amounts of valuable stuff will be on sale cheap, because those who were not liquid enough will be forced to sell. If you've got cash at that point, you're in a position to make some outstanding investments.

These were the strategies for surviving panics in the past. They're still the strategies today. The one good thing about a financial panic is that it (unlike, say, a war) doesn't destroy the actual productive capacity of the economy. The factories are still there, workers are still there, the land is still there. Staying liquid, and making sure that your expenses don't outstrip your income, will get you through to where that underlying productive capacity can come to the fore once again.

Permalink | 9 comments | Philip Brewer's blog | Channel: Personal Finance

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

8 Nifty Tips for Getting the Most from an All-You-Can Eat Buffet

Linsey Knerl — Mon, 13 Oct 2008 01:58:46 +0000

By Linsey Knerl

Food can serve many purposes. For some it is merely for nourishment. For others it is a form of art or a means of entertainment. For still others, it fills an emotional need and could even be considered an addiction or vice. For the purpose of this article, I’d like to point out that my advice is for the most basic of needs: good nutrition, a bit of indulgence, and a chance to fellowship with your family or friends with no dishes to clean up! Here are the 8 ways we make our dining dollars a great investment:

1. Kids eat free (or almost free). Yep, with four of them, it’s important that we at least get a generous discount, if not a total write-off on the little darlings. In my area, Tuesday is usually the “Kids Eat Free Day” and requires that at least one adult purchase is made for every one (or even two) free kids’ meals. Be sure that if you are dining at a chain restaurant, you call ahead to see if they honor national promotions. We once went to a Golden Corral based on a commercial we saw, only to find they no longer participated in the Kid’s Eat Free promotion. We started to walk, but the manager begged us back in – and comped the kids’ meals to boot.

2. Lunch is served. If at all possible, eat the lunch buffet. There is usually at least a $2-3 difference in the pricing of lunch and dinner, and usually the offerings are similar. In rare instance, an evening buffet may offer something special, like nicer steak, crab legs, or a themed dinner. Weigh your options to decide if this is worth it. I won’t justify the extra for a cheap steak, but a couple of jumbo crab legs might seal the deal.

3. Skip the beverage (or plan accordingly.) Drinks can make an otherwise affordable buffet downright expensive. If drinks are included, go for it. If not, you may want to stick to water with lemon, or decide on only one drink. (Some places will let you get a soft drink with your meal and a coffee afterward, but may charge you for two drinks.)

4. Fill up on fresh. I know that those hot wings are tasty, (and I’m also digging the homemade mac and cheese), but the best way to get your money’s worth on a buffet is to eat as fresh as possible. Melons, berries, broccoli, and avocados are yummy ways to eat healthy and increase the value of your buffet. Encourage kids to eat one full plate of fresh stuff before they even head toward the French fries and fried shrimp. (They will get loads of nutrients, and you can feel good knowing the extra cost gave them more than any Happy Meal could really provide.)

5. Take your time. Buffets are not a dine-and-dash type of atmosphere. If you are squeezing in your meal between two other pressing matters, pick another day to buffet. We like to take a weekday with nothing else to do, go early, and stay late. We snack, talk, and enjoy each other while sampling all kinds of new foods. If we do it right, we can have a lunch/dinner combo that knocks out two meals in one. (Leaving by 4:30, so as not to get charged for dinner, too!) We think of it as the same concept as a brunch, but with the two later meals combined. (And if kids get hungry at home later, we snack on yogurt and granola, or another kind of light breakfast food before retiring for the evening.)

6. Know what’s safe. Even the most talked-about buffets can be a health risk. Be aware of your surroundings, and watch for common food safety issues that may make you sick later. Look for foods that are fairly popular, get switched out often, and appear fresh. If anything doesn’t look right, please don’t eat it! (And let a manager know of your findings.) Raw fishes should be approached with caution, and any salad made with mayonnaise should be eyed carefully. (It’s a bad idea to go for that tuna salad with the orangish-looking crust on top.)

7. Explore your options. There are many types of buffets that appeal to our family. We like Chinese, American, and Italian the best. (In areas that offer more diverse options, I’m sure there are many more kinds to choose from.) Encourage your family to try new things while at the buffet (after all, if they don’t like their first choice, they can just try another dish – and you won’t be out any more.)

8. Be courteous. While buffets are great for saving money, they also seem to attract dining dunces that have little to no common sense or courtesy. While most all of you will know these, I feel they are at least worth saying:

Just because it is a buffet, doesn’t mean you don’t have to tip (even if they only pick up your plates, they deserve the minimum for your region.)

Don’t take more than you can eat at one time (wasting food is a no-no, no matter where you are at.)

Don’t let little kids get their own food (most places have a 10 years or older policy for the buffet line.)

Clean up after yourself. It’s a restaurant, not an abandoned lot. Pick your trash up off the floor, and try to make the server’s job at least tolerable. They work hard, too.

We look forward to our monthly outings to a buffet-style restaurant. When a family of 6 can eat well for under $20 -- that’s a great deal! And with a wide variety of dining options, buffets can fit any style or budget.

Permalink | 21 comments | Linsey Knerl's blog | Channel: Frugal Living, Food and Drink

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

Book Review: Personal Development for Smart People: The Conscious Pursuit of Personal Growth

Kate Luther — Sun, 12 Oct 2008 03:28:55 +0000

By Kate Luther

Some books draw you in with mystery and suspense. Others keep you hooked with drama or intrigue. And then there are some that just manage to really hit home and make you say "Ah-ha!"

Such is the case with Personal Development for Smart People by Steve Pavlina. Using what Steve calls "personal growth from high-level concepts to practical actions", Personal Development for Smart People goes beyond just setting goals and takes us much deeper into the human psyche.

Now, for those of you who may not be a fan of concepts such as the Law of Attraction, keep reading because this isn't your everyday "think it and you'll receive it" kind of book.

Instead, Steve approaches some of the tougher questions that deal not only with our own individual satisfaction but also how we connect to the Universe around us. And interestingly, this approach takes away our ability for self-denial and puts us back into the driver's seat of our own lives.

Using seven fundamental principles - truth, love, power, oneness, authority, courage and intelligence - Steve encourages us to approach life by asking the question "where is the path with a heart?". This enables us to stay focused on the things that really matter and steer clear of mindless preoccupation for the sake of avoiding the things we're not ready to deal with yet.

And perhaps that's one of the reasons I liked this book so much.

Its not that you have to change everything in your life right now. In fact, its quite okay if you aren't yet ready or equipped to change those things that aren't in-line with your dreams and ideals. But you do at least, need to acknowledge that the conflict exists and more importantly, that you'd like the changes to occur.

"Whenever you're faced with a part of reality you don't like, and you feel powerless to change it, the first step is to accept the truth of your situation. Say to yourself: This situation is wrong for me, yet I lack the strength to change it right now."

And in case you're wondering, this was just the first of many "Ah-ha!" moments for me. How many times do we continue going through the motions, knowing somewhere deep down inside that it isn't really what we want but because we feel unable to change it, we just pretend it doesn't exist?

Does acknowledging this kind of "Truth" make things better? Oddly enough, I think it does. I think when we stop lying to ourselves about who we are versus who we'd really like to be, it makes it much easier to see where we need to adjust our course.

Its so easy to fall into the many traps of our modern-day society. There's peer pressure to keep up with those darned Joneses all the time and we're constantly being told by our political and religious leaders what's right and what's wrong without any real thought being given to whether or not those opinions mesh with our own. Instead, we often follow along, trying to fit in with a particular party, clique or class.

But in doing so, we've agreed to let someone else do the driving on our behalf and then when things don't turn out the way we like, we feel surprised and certainly betrayed that our driver didn't get us to the destination that we wanted.

But Personal Development for Smart People puts all of this right back at our own doorstep which, I'll admit, can be a scary concept but its definitely one worth examining.

The book is divided into two parts, the first dealing with the seven principles and what they mean. The second part delves into actual application and gives you ideas for applying these universal principles to all areas of your life, whether its bad habits you'd like to break, health you'd like to improve or money you'd like to make.

When I finished reading, I felt a little less stressed and certainly much more focused and "in control" of where I'd like to go next. My problems and concerns hadn't magically disappeared but I felt like I was much more equipped to tackle them head on.

And that's really the whole point.

In the introduction, Steve says that the

"goal of this book is to teach you how to bring all areas of your life into alignment with these universal principles [the seven mentioned above]. This requires injecting truth into your relationships, aligning your career with love, and bringing power to your spiritual practice. This is what it means to live as a conscious, intelligent human being."

After reading Personal Development for Smart People, I'd say he met that goal and then some.

Permalink | 5 comments | Kate Luther's blog | Channel: Life Hacks, Productivity

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

Please Pass the October Surprise

Catherine Shaffer — Sat, 11 Oct 2008 13:49:49 +0000

By Catherine Shaffer

I've always believed that mastery of vocabulary is at least halfway to mastery of the subject. Words are power--the kind of power commonly wielded by eggheads with pocket protectors, but power nonetheless. In the past weeks and months, I've seen a lot of new vocabulary thrown around in the media, and most of us are too busy ducking and diving out of the way to ask what all these crazy words mean. So let's demystify the language of the new economics, right here, right now. Here's a list of common terms you might encounter in your newspaper, on television, or even in a blog.

Commercial paper: This is an IOU, good for maybe a month or two. Unlike a regular IOU, it's written for very large amounts, and companies accept them from each other pretty much without question. Apparently, commercial paper is the way that many companies meet payroll and buy inventory. I always thought they used money. Who knew?

Credit default swap: Halfway between an insurance policy and a racetrack wager, this is a way that mortgage lenders made themselves feel safe giving loans to people about whom they otherwise knew nothing. No job? No documentation? No problem. We have a credit default swap.

Subprime debacle: The inevitable outcome of widespread use of credit default swaps to back sketchy loans. The word 'debacle' has somewhat of a Victorian ring to my ear. It sounds like something that might happen in “The Importance of Being Earnest.” This is how the whole mess was described earlier this year, when we were all in an enviable state of denial. Notably, a 'debacle' is nothing that ever happens to oneself. It always happens to other people. Like the time our neighbors, a husband and wife, met each other driving separate cars in opposite directions on our street, and proceeded to have a very loud argument between the two cars. Boy, was that ever a debacle. So glad I wasn't involved!

Liquidity crisis: Until recently, I would have told you that a liquidity crisis is what happened when my sixty-pound puppy wasn't put outside often enough. But apparently, 'liquidity crisis' is actually what happens when you can't borrow enough money to keep going. Next time your buddy asks you for $100, just until next payday, you'll know he's having a liquidity crisis. Let's just hope that his employer is not relying on commercial paper to make payroll, or his liquidity crisis will become yours. Which, when I think about it, is the essential circular nature of this whole mess.

Tranch: This is a silly, made-up word that big investor types use to explain why they can't look closely at the history of individual mortgages bought and sold by their companies. See, it's in a “tranch.” It's meant to evoke bundles, or “bunches,” which are sort of shrink-wrapped so you can't open them up and look in side. Someone once suggested calling them “faggots,” but that idea was quickly shouted down.

Toxic assets: Imagine that pirates Larry and Lunt from Jonah, the Veggie Tales movie, had successfully invested their prize money from the Mr. Twisty's Twisted Cheese Curls Sweepstakes in cheese curls, as they wished to do. And suppose that after they bought those cheese curls, but before they had a chance to resell them at a profit, they learned that the cheese curls had been manufactured in China (not Nineveh), and that they had high levels of melamine...

Mortgage meltdown: This is the same as subprime debacle, but a bit later in history, when everyone is feeling that it is not so funny anymore. It's like those neighbors shouting in the street are suddenly in your living room, and their car is parked in your driveway, and their trunk is full of those toxic cheese curls, and it turns out they are radioactive, not toxic, and they are going into nuclear meltdown!

Irrational despair: This is one half of a very small set of emotions which Wall Street stock traders are capable of (the other being irrational exuberance). Their severely limited emotional range literally controls our economy, while regulators feebly scold them from afar.

Economic collapse: In physics, there is conservation of matter and energy. Sadly, there is no law of conservation of money in economics. Money can simply disappear, and if enough of it does so, you have economic collapse.

Iceland: A small country in the extreme north populated by the descendants of Vikings which has recently experienced economic collapse (see above). If not rescued by other nations of the world, Iceland will have no choice but to replenish its coffers by raiding the coastlines of Europe and America. Guys with names like Sven and Eric Ericson, with Swedish Chef accents, will be burning our houses and raping our women. Also, they will be sending millions of emails that read, “Dear Friend, We would like to offer you a unique business opportunity...” (with Swedish Chef accents).

October surprise: As if having toilet paper in your trees and rotten pumpkins smashed in your driveway were not enough of a surprise, the October surprise is lore believed by stockbrokers and other Wall Street types (see 'Irrational despair,' above). Apparently, people who work in the New York Stock Exchange are among the most superstitious people on Earth. To a man, they take vacations each year in Ireland to hunt leprechauns, and can be found any time clutching rabbits feet, voodoo charms, saints medallions, and all manner of good luck items. Apparently, these denizens of the trading floor believe bad things happen in October, and in the way of many such prophecies, it happens to frequently be self-fulfilling.

So that, in a nutshell, is the lingo. Know it, understand it, use it wisely. And yet, one thing is still missing. We still don't have a comprehensive phrase to describe the whole phenomenon. I submitted my entry, “The Great Economic Shitstorm of 2008,” to Ben Bernanke, but I haven't received a response from him yet.

Permalink | 9 comments | Catherine Shaffer's blog | Channel: Personal Finance, Consumer Affairs

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.

Book review: Internet Riches

Philip Brewer — Sat, 11 Oct 2008 12:30:17 +0000

By Philip Brewer

Internet Riches: The Simple Money-making Secrets of Online Millionaires by Scott Fox

If you've never considered starting an internet business--but now that I mention it, it seems like a good idea--this is the book for you. If you've considered starting an internet business--but you've done no serious thinking about how to approach actually doing it--this is an excellent book. If you've already got an internet business, or you're otherwise familiar with one's inner workings, I'm afraid you won't find a lot in this book that you don't already know.

For me, the book started off a bit slow. A good bit of the first part of the book was devoted to two ideas: that the end of the dotcom boom didn't mean the end of internet business, and that an internet business can be started on the cheap, compared to starting a bricks-and-morter business. The thing is, I already knew those things.

After that the book picks up a good bit. It looks in some detail at a series of internet businesses, talking about how they were structured and how they earned money. It provides a number of worked examples of how different internet businesses work.

Business goal

It's worth comparing this book with Tim Ferriss's book The 4-Hour Workweek. Both recommend creating small internet businesses. Ferriss, though, wraps his whole suggestion around a very specific pattern--creating a business (or a few businesses) that provide enough money to live on with an absolute minimum amount of work--to free the time up to do other things.

Fox's idea is different. He recommends that you create your internet business around something that you're interested in--a hobby, perhaps. Something that, if you spend a good bit of time doing it, you'll be happy to have done so.

Business analysis

Perhaps the best part of Fox's book is the section on brainstorming possible business ideas and then evaluating whether they might support an internet business--it's good stuff.

Because there's a steady stream of newer, better, easier tools and systems to build e-commerce sites with, Fox faced an impossible task in discussing the mechanics of actually building your site--anything specific enough to be useful would have been out of date before the book was printed. On the other hand, the target audience for this book--people who had barely begun to think that running an internet business might be a neat thing to do--need a considerable amount of handholding. Fox does a pretty good job of threading that needle. There's a lot you'd have to learn to actually create and run a web-based business beginning where Fox's book leaves off, but nothing that a bright person who was willing to put in some effort couldn't do.

Business expectations

If all you want to do is make a bit of money off your hobby, I think there's a pretty good chance you'd be successful following a program like the one that Fox lays out. If you pay particular attention to the sections on evaluating and testing your ideas, and follow his advice to start small and keep early costs to a minimum, your risk is very small, and your chance of at least some reward is pretty good.

Just about at that point, though, the book quietly slips from talking about creating small sites where your hobby brings in enough money to support itself (and maybe pay for beer and pizza), to sites that let you quit your job, and then to sites that bring in millions. If the book explained how to take your site from the first category and slide it into the second or third, though, I missed it.

If you've thought of setting up an internet business (even if you've just thought of it for the few minutes that it's taken you to read this review), Internet Riches will show you how to get started--and how to do so at minimal cost and minimal risk.

Permalink | 4 comments | Philip Brewer's blog | Channel: Entrepreneurship, Making Extra Cash

Similar entries:

For Wise Bread Subscribers Only! Download your FREE copy ($10 value) of our Wise Driving Guide: 108 Tips to Raise Your Fuel Economy.

This article is from Wise Bread.