10 Reasons to Love a Downturn

Ted Murphy wrote an excellent post on 10 reasons to love a downturn.

I especially like “Spend time with your family and friends. Enjoy each other and create a support network to get through to better financial times.”  What a great perspective.

Thanks Ted!

Dinner and drinks for 1.2 billion dollars

Wow:
http://blameitonthevoices.blogspot.com/2008/10/zimbabwe-dinner-tab.html

You have to wonder where this will end. I feel really bad for the people of Zimbabwe. They people there are powerless to stop the financial crisis happening around them.

Thanks to @geoffrey_mcgill and the re-tweet from @shanselman for the link.

Does it really matter?

I was talking with a friend of mine after writing my last blog post.  We talked about the presidential race, the current economic crisis, and the banks in Iceland, among a smattering of other popular topics of current interest.  My friend, when presented with a verbal painting of potentially impending doom, responded “Does it really matter?”  I think this speaks truthfully to the apathy partially responsible for our current plight.

Presidents come and go.  Political and economic policy sails in and out and the majority of people are none the wiser.  “Yeah, that was a bad policy or a bad time, but we’ll come through it, everything will be ok.”  Now I’m not proferring that the end of the world is currently rolling up our driveways, but I have to take a stance of “Yes, it does fucking matter!  It affects billions of people on a daily basis.”  It makes me wonder if the last twenty years have been altogether too shielded from harm.  We’ve never truly seen consequences for our actions or for our apathy.

Most people look at global warming with an “oh yeah, is that still going on?” sort of attitude.  The economic crisis is “scary” and everyone “knows someone” who is having problems with their mortgage payments or retirement plans.  However, the overarching response I seem to get from people on these topics is a look of general boredom and an expression similar to the vocalized phrase of my friend: “Does it really matter?”

Well, to the people in Iceland right now: it matters.

To the people in California leaving everything in their homes for a “trash out” team to throw into a dumpster: it matters.

More subtly, for all of us who might suffer under another ignorant and uneducated administration: it matters.

I am sick to death with the apathy, opinions of entitlement, and complete lack of self-responsibility that I have observed over the last decade.  The world does not revolve on a wheel made of gold.  Sooner or later, no matter how many government bailouts and social blinders we employ, the consequences of our apathy and greed are going to affect us all.  The worst part of it all is that most people agree on a foolproof method for determining when it matters:

as soon as it starts affecting you.

FreeCreditReport.com

We’ve all seen the advertisement….”shoulda gone to FREEEE credit report dot coowmmm” with the happy hippy college grad playing his banjo in a themed restaurant and then his beater car.  The principles offered in the commercial of monitoring your credit actually constitute very sound advice.  I monitor my credit, dispute and file inaccuracies in my report, and try to keep on top of the state of my finances.  It’s a wise thing to do.  It was coming up time for me to perform another credit report review and so I thought I’d give freecreditreport.com a shot.  It typically ends up costing me about $40 to get all three reports, but considering I only do this about twice a year that’s really not too bad.

As far as freecreditreport.com go, they are an Experian powered portal proferring a “credit monitoring service”.  This can be loosely translated to “report summary”.  The dashboard provides a quick view of the same data that is contained in my Experian report, as well as a couple of less than useful graphs that “track my credit score” and show “alerts” on my report.  To be fair, I was able to get my Experian report for free, use the freecreditreport.com account to sign into Experian and then file a few disputes about typographical errors on my report.  Nothing huge, just missing apartment numbers on addresses etc…  These things are fairly typical errors on a credit report but it doesn’t hurt to get the disputes filed and clean it up.

How to make sure your FREE credit report is actually FREE
If you are considering using freecreditreport.com then there are just a couple of things you should know:

• You will need to enter credit card information in order to get your free report.
• Your credit card will not be billed until 9 days after you sign up
• After 9 days you will be charged $14.95 monthly for their service
• In order to cancel you should call 1-877-481-6826

How to get the most out of it
To get the most out of your free credit report, here is what I advise that you do.  First go to freecreditreport.com and sign up for a free account.  You will need to enter your username, password, address, social security number, answer a security question, and supply a credit card or debit card number.  This will create your free account. After you have satisfactorily used the report, be sure to call them at 1-877-481-6826 and cancel your account.  There is no option on the website to do this.  When you call they will try to sell you other services and distract you from the cancellation request.  Just persist and after about 30 seconds they should accept that you just want to cancel.  Be sure to persist here.  You will receive an email a few minutes later confirming that your subscription has been cancelled.  You can now continue to browse your free report for the next 9 days.

How to survive an economic crisis?

I am hearing so much talk about the bailout, failure of the bailout, failure of the financial markets, and the impending doom we are all promised is rolling up our driveways.  However, I find myself not alone from my friends and peers in asking “What exactly can I do about all this?”  We are not economic powerhouses with the ability to stimulate or restart the economy.  If you’re anything like me then you have a couple of car loans, one or two credit cards, and a comfortable apartment or small house.  You have a 401k investment plan into which you have added a percentage of your paycheck.  In your daily life you will awake, go to work, pay your bills, eat, and sleep.  Your options to solve the crisis in the financial markets are somewhat slim.  We all would like for the “financial crisis” to be over but we lack the means to directly effect that change.  Furthermore, you are probably looking for ways to ensure that over the next six months you can still feed your family and pay the rent/mortgage.  Grander designs will have to wait for a fuller wallet.

So what can you do in the meantime to help ensure that you are able to ride out this crisis?  There are a couple of things.  Please bear in mind that I am not a financial advisor, nor a qualified or certified financial consultant in any way.  I have opinions and observations, all of which could be (and probably are) entirely false and misguided.  However, I have had many friends over the last few weeks ask me for ideas about keeping themselves safe through troubling times.  To that end I will share the ideas and techniques I am using to insulate myself from whatever economic change is forthcoming.

Float (or Rainy Day Fund)
The first thing is the concept of a float or a rainy day fund.  We all know that a nice little savings account would give us a warm fuzzy feeling, however seemingly fewer of us have succeeded at putting one together.  A float is there to simply insulate you from short term bumps in the road.  It should only be used as a last resort to help cover emergency expenses and should be the first thing restored after the emergency need has passed.  The biggest problem most people face with a float is how to get one started so lets start by addressing that first and then progress from there.

Starting a Float
It takes only a small amount of discipline to successfully put together a float.  The most important thing is to get a system going that you can stick to.  The technique I used to get a float going was to first establish a weekly amount that would be set aside for the float only.  I chose $50 but you can tailor it as necessary.  The key is not to set aside the $50 at the start of the week and then hope that you won’t need it by the end.  All that does is put $200 aside in a box that is then spent at the end of the month when money runs out.  Instead try to actively find items during the week that you can consciously do without before you spend the money.  Then take the money you were about to spend and set it aside (in cash if possible) in a box or envelope clearly marked “Float money – DO NOT SPEND”.  When the float has got $50 in for that week then any other purchases are fine to make.  At the end of the week (or month depending upon your schedule) take the money from the box or envelope and deposit it into a savings account.  Doing the deposit in person is important because it mentally reenforces the activity and helps to form the habit and strengthen the system.

For example, I play a lot of video games and will periodically browse the local stores for new games I’m interesting in buying.  I would sometimes pick out a couple of second-hand titles that I would like.  Think carefully before a purchase.  Putting one of the titles back on the shelf, taking out $22.95 from my wallet (I rounded to $23) and then going home with only one second-hand game still made for a great Sunday afternoon.  It also put $23 in the float for that week.  As another example, I sometimes get home from work and think “I’m tired.  Why don’t we just get a take-out delivered tonight?”  Instead think whether you could just heat something from the freezer and put $20 into the float box instead.  It soon reaches $50.  In fact, simply putting back an impulse purchase at the store and putting $4 into the float can help a lot too.  If you keep up the habit of getting to $50 each week then you’ll end up with a $2,500 savings account in just under a year.  This is a really great float.  It may take until next fall to get it built up but the point of this post was what things you could be doing right now to protect yourself against the effects of an economic downturn.  It’s hard work and frustrating at times (I hate putting games back on the shelf) but the lowered stress and peace of mind a float can bring is enormous.  I promise it will significantly improve the quality of your life to have a float account.

Reduce your Debt
Debt is a pain.  None of us want debt and yet nearly all of us have it.  We all mean to pay it off but somehow the action doesn’t line up to the original intention.  Lowering your debt is something that takes focus.  The companies that have loaned you money do not want you to pay it off.  They want to keep charging you interest on that loan and turning a profit.  If you simply put the debt on the shelf in your mind and pay the minimums each month then the companies you owe money to are going to keep fixing the system in their favor to take as much money as they can from your pocket.  The only way to reduce your debt is to face up to it, research it fully (most people could not tell you what they owe), and then set forth a plan of action to pay it off.  If you have multiple credit cards I would consider targetting one first.  Just pay the minimums on the other cards and devote additional resources to getting rid of the one focus target.  Choose the one with the lowest amount owing.  The mental reward of actually clearing a card is very valuable and by choosing the card with the lowest balance you ensure that feeling is as close as possible.  Try to find additional ways to send a little extra money to pay off this card every month.  Similar to the tricks for the float account, setting aside just $10 here and $20 there can quickly add up to a large additional payment.  Remind yourself every month when you pay your bills of all the reasons why you shouldn’t put anything on a credit card.  Don’t add to your debt.  You’re already building up a float for emergencies.  You do not need these credit cards.  They are an anchor on your life.  Find ways to pay them off and avoid using them at all costs!  When you’ve paid off the first card then turn to the next one and focus on that.  You’ll be surprised how quickly you can pay them off when you focus your sights on them.

Pay Yourself Early
Humans need rewards.  We respond well to rewards for actions.  Positive reenforcement has been shown to be the most effective way to encourage beneficial behavior.  At the start of the month (or whenever you receive a paycheck) take out a little money and set it aside.  This money is yours for the month.  I know that sounds strange but something we all must realize is that our paycheck is not our money.  That money belongs to our landlord, the electric company, visa, and a whole host of other people we have already promised to pay.  Take aside a little money from your check as soon as it comes in and make that yours.  Subtract it from the total in your head of how much you got paid.  If your after-tax total is $1,300 then take out $100 and say to yourself “Great, I earned $1,200 this check.”  That $100 is yours to spend on yourself and to do with whatever you like.  However, like an allowance once it is gone then it is gone and you must wait until next month to get more.  By setting the money aside you are making the remainder of your budget much more predictable.  If you don’t set the money aside then you will end up spending it anyway.  As the month progresses you will find that you need this or that and spend it because you need a reward.  However, because you aren’t tracking it you will probably spend more than $100 and also make your budget that much less predictable.  Ever find yourself at the end of the month wondering why you’re $40 overdrawn because a bill went out that you’d forgotten about?  Paying yourself at the start of the month and then leaving the rest of the balance alone will really help to mitigate that.

These are just a few ideas of things that you can start doing today to help your financial situation.  Wall street may get a financial bailout when they make a mistake but I can assure you that you and I will not.  We need to take steps to protect ourselves, especially if tough times are ahead.  Taking action now will pay off bigtime over the next couple of years if you are cautious and careful.  Don’t go out on a big comfort spending spree.  Instead reduce your risks and get a savings account started.  You’ll thank yourself when the day comes that you need it.

An escalator to nowhere

I was pondering the US$700 billion bailout package for the U.S. financial institutions this morning and couldn’t help but think of Gravina Island.  The fact that we aren’t giving any incentive for borrowers to change their habits by simply bailing out the companies who extended them unaffordable loans to begin with simply adds a lemming flavor to the whole deal.  This bailout leads nowhere and the lemmings will learn nothing from the process.  They’ll still wonder why following others up the escalator to nowhere ends up in a painful splat at the bottom.

As someone who has held off buying a house for a long time, instead saving carefully, paying off student debts and car loans, putting away money for a down payment on a house someday, I’m mighty chagrined at the news.  It’s a complete disincentive for being responsible.

“Oh but people were tricked into taking these loans!”  No.  A small percentage of people were misled.  Others knew exactly what they were doing and spouted lines like “You should totally buy a house, stretch as much as possible, you can make a great profit on it.  It’s free money.”  Yeah, that’s true for those who can afford the houses they took mortgages for.  That’s called responsible investment.  Others were just being greedy.  Take some fucking responsibility for the money you borrow.  If you can’t afford to pay back the loan, don’t take it in the first place.  Now we’re using US$700 billion in tax dollars to pay off the loans borrowed in poor faith instead of using them for growth.  That’s an awesome use of resources.  Makes me so proud to be a taxpayer.  I know, maybe next year I can pay for that Mercedes you couldn’t afford too.

$5M for streetcar extension plans?

I wouldn’t usually get involved in local politics, but this story caused me to raise an eyebrow:

http://www.oregonlive.com/environment/index.ssf/2008/08/pdc_board_oks_5_million_for_st.html

We’re spending $5M on the plans for a streetcar extension that may or may not get funded?  Granted that I really have no concept of how much civil engineering projects cost but that seems like a hell of a lot of money to spend on something that might happen.  It makes me wonder how many other projects have been researched and then dumped without any final product.  Is this really the best use of our limited funds?