At an event in Simi Valley, California on the 20th, Treasury Secretary Paulson was asked when the economy was going to hit bottom. Essentially, his answer was “Its not my problem, I don’t know.” While Paulson is being careful in not providing a specific timeline, given the state of the economy the response is far from heartening. Check it out for yourself below.
Monthly Archives: November 2008
Defaced Money
Just wanted to let our readers know…I’m pretty sure that writing on money is illegal under U.S. Federal Law. 
Our November Net Worth: $295,000
Hi All,
We sat down this afternoon over coffee and added up our networth for November. Quickly summarized, our wealth has increased from $288 to $295 thousand in the past month. Its an increase of 7 grand or 2%. While two percent isn’t huge growth, its far better than we expected given economic conditions.
Whats driving the growth? Cash. We’ve been focusing primarily on saving to buy an apartment in Portland, Oregon. We’ve also been keeping the procedes from this blog in a savings account so we can upgrade the website when we have time. The end result is over $21,000 waiting to be invested.
See below for the nitty gritty:
Two More Banks Bite The Dust
Its Friday so the banks must be failing. This time its two regional banks. Downey Savings and Loan and PFF Bank and Trust. The FDIC has seized their assets and will retain control of 213 branches shared between the two banks. Click here for the news from the FDIC.
One hopes these will be the last two to fail, but it doesn’t seem likely given economic conditions.
UPDATE 11/22: looks like its three banks, not two.
Building Wealth In A Recession
Its hard to do.
Recessions are defined by a generalized shrinkage in economic activity – this includes contractions in spending, investing, economic growth and hiring. What it means is that in a recession year, its harder for everyone to make money, so one’s success at building wealth should be judged accordingly.
That said, here two ideas for building wealth in a recession:
1) Investing in industries that sell inexpensive products. Companies like McDonalds (MCD) and Wal-Mart (WMT) which sell inexpensive food and consumer goods are doing better than most. Also, Family Dollar Stores (FDO) and Dollar Tree (DLTR) haven’t done as badly as some others.
2) Being in new industries. Companies in relatively new technologies fared well during the great depression. Of course, back then they were technologies like radio, telephones and suppliers and services for those industries. Today, the internet is still pretty new, so you might look to companies that serve the web. For example we’re still seeing some demand for advertising on our webpage, even thought its been a bit softer lately.
Finally, you ought to consider sticking with the basics. These include spending less than you earn, taking advantage of 401k and IRA deductions and saving and investing prudently. It doesn’t make sense to hoard your money under the mattress. Ultimately, you’ll have to be “in the game” to make progress building wealth.
Best,
James
Back to the Basics of Shopping Savvy
This post is about going back to the basics for spending less and saving more.
As the belt tightens a bit, keep these tips in mind to save money when shopping for groceries:
- Write a list in advance of shopping. Stick to the list.
- Don’t just replace something because you are out of it, stop to think about if you need it right now.
- Don’t shop with scarcity in mind, one or two of an item will generally suffice.
- Avoid the middle isles that tend to have more processed foods.
- Consider making your own for items like salad dressing and pre-packaged items such as whip cream for that pumpkin pie next week.
- Just because it is on sale… doesn’t mean it is a better deal. Check the unit price to know for sure. It is never a better deal if you don’t need it.
- Limit trips to the store. While there is no need to stock up for more than a week, it is better to avoid temptation by shopping a week at a time if possible.
- As always, make sure to eat before you shop.
- If you really want to save money, shop with a calculator.
Helpful tips when shopping for other household or personal items.
- Keep a tally of things larger items you might be considering. Writing it down helps to keep it out of your mind and lets you reflect on your need and research for the best price.
- Avoid impulse shopping. This is one of the biggest areas where it is easy to overspend. If you haven’t already identified a given item on your list for some time, then take a pass. This goes for holiday shopping as well!
- If it doesn’t match the criteria you’ve set, also pass. We often settle for something that isn’t exactly what we need. Waiting might give you something that you will appreciate and treasure for longer and meet your needs better.
- Look for deals. Deals abound in this economy, just look for them and you are likely to save on items you were already intending to purchase.
- Chances are, you might see that you really don’t need it after all. Reflection gives you time to think about your needs. For example, I might really want an iPhone, but do I really need one? Probably not. I’ve been using a free cell phone my whole life, so why do I really need more now? This doesn’t mean I’ll necessarily hold out forever, but it will mean that I’ll hold off until I’m sure that it is what I really want.
Spend Less, Save More,
Miel
Arrr! Pirate Loot Leads to Somali Boomtowns
Hi All,
Just saw this interesting news story from wirednews.com. Evidently the Somali piracy businesses is pumping a lot of money into some of the costal towns in Somali. The massive influxes of cash are improving the local Somali construction, retailing and food service industries.
Before you click over and have a read, please don’t forget that piracy is a high crime. The impact of piracy on oil shipping lanes is obliging huge collateral costs in security and insurance. In addition, pirates have terrorized captured crews, assaulted innocent civilians and contributed to general lawlessness in the Gulf of Eden.
Here is the story.
Best,
James
Credit Cards: Pay Early – Pay Often
Today’s post is in response to a reader who is diligently paying down debt, and wanted to know: whether it makes a difference to pay one lump at the end of the month, or smaller payments weekly or bi-weekly.
The answer is yes! It does make a difference. Most financial experts will tell you there is a marginal benefit to paying by-weekly. However, my best advice is: pay as much as you can, as often as you can!
See, credit cards work on what they call “average daily balance.” This means that you pay interest based on the average balance over the course of the month. This means that if you pay a day earlier, that is one less day of interest that you pay for. So in addition to saving money on stamps, instant online payment can also make a big difference in the long run.
Because of this, you should pay off as often as you can. Also, stretch yourself, if you have budgeted x amount of money per pay period, do whatever you can to add to that. Pay x + y and you’ll be free from credit card debt even sooner. When I paid off mine, I lived as frugally as I could manage and threw absolutely everything else at my credit cards. Here is a piece that spells out clearly how to pay off cards faster.
You should also be aware, however, that credit card autopay doesn’t always work as well as you think it does. If you make an extra payment, many cards will then stop the auto pay, so don’t just assume you are covered. This depends per lender, so make a call to find out.
Here are a couple of other posts related to this subject that you might find helpful. How to get 20% returns by paying off your credit card, savvy credit card use, how to avoid fees, five tips to pay off your cards, and as always, live within your means!
If you need further encouragement to pay off your plastic, other than a looming economy, you can play around with these credit card calculators, credit card pay off, snowball calculator (paying off multiple cards), and the optimizer (shows difference in rate).
You can also take a look at how James paid off his cards, and what approach I took.
Best,
Miel
What’s Up With Gold?
Hi All,
Gold. Ah gold. Gold has been used as a store of value and a currency since humanity first started keeping historical records. More recently there has been a lot of demand for the yellow metal driven by increasing government debt and heightened economic uncertainty. Despite this, the price for gold on international trading exchanges has gone down, leading some to scratch their heads.
According to the NY Post -not exactly a journalistic powerhouse – the Feds are having a hard time making enough gold coins to keep up with demand (here). But at the same time, the price of gold appears to be going down. Why? Well there are a few reasons.
1) Inflation is relatively low. Prices are down 3% from where they were a year ago (1). Gold has often been used a hedge against inflation so with inflation pressures easing, there is less interest in the metal on the part of buyers.
2) The dollar is strengthening. In the past few months, the dollar has been strengthening against other currencies. When the dollar is strong, gold prices tend to decline.
3) Disconnect between the “paper market” and physical supply. There are a number of different ways to buy gold these days. Its possible to purchase exchange traded fund shares, dabble in futures and options, buy and sell leases on physical holdings of metal, etc etc. For understandable reasons, many of these are removed from the supply constraint of the actual metal itself. Thus, the diversity of ways to invest in gold suggests that its price may be at least partially divorced from the supply of the physical metal. Simple, put the big money boys who deal in paper aren’t buying gold.
So, to quickly sum up, the price of gold is going down due a combination of weak inflation, a strengthening dollar and market sentiment regarding the value of the metal. The demand for physical gold simply doesn’t have as much impact on prices as these other macro-economic forces.
Personally we DINKs have a couple of ounces of gold safely stashed. Some of artwork on the coins is rather fun and a bit of exposure to precious metals isn’t a bad idea.
Best,
James
Finance Quote of the Day
The missiles won’t be launched. Blood isn’t running in the streets. You owe some money, that’s all. You’re not going to be shot at dawn. There is no debtors prison.
– Jerrold Mundis, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously