WATCH: More Money For YOU By Cutting Spending

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Kiplinger.com has a great video with some quick tips to cut spending. Some categories?

• Food - Restaurants and Shopping
• Mortgage and Insurance
• Energy
• Transportation - Purchase, Insurance, Gas
• Clothing - Shopping, Reducing Impulse Buys, Credit card management etc
• Entertainment
• Vacation - Airfare etc.
• Utility and Technology Bills - Cable, Cell Phone etc., Conservation tips
• Pay Down Debt - Tax Exemptions,
  
• Life Insurance
• Cash Back Credit Cards
• Buying and Selling online, Shopping online, internet comparison shopping
  

It's just under 9 minutes. Totally worth it.

Food For Thought

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A few weeks ago, the Jamaica Gleaner ran an excellent piece in Money Management: You are financially unprepared if....

I have found that some people have great intentions with regard to money management, but have not fully grasped the context of how the various pieces fit together. For example:

• So maybe they go looking for great deals, but charge purchases on credit cards and pay only the minimum until it is paid off. That defeats the purpose of money management.
  

• Others, have a difficult time prioritizing and saving a nest egg, because they see the "now" and not the "what if". That also defeats the purpose of money management

In this piece above stated, the author gives a great job of spelling out where people typically make the big mistakes, and her opinion of what you should do. I would not necessarily advocate every single one of her solutions concurrently, because it really depends on your personal circumstances. However, the basic arguments she makes are very sound.

A worthwhile read!

An Emergency Fund - The Basics

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I came across this great article from Investopedia.com today: Build Yourself An Emergency Fund.

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It starts:

"Unlike the luxuries that so many of us purchase with our credit cards, having an emergency fund is a necessity"(my emphasis).

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It notes:

"If you are among the many investors who don't have a "rainy day" fund stashed away in case of emergencies, there's no time like the present to start saving " (my emphasis, but note the word SAVING)

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It reemphasizes:

"The amount of money required to fund a proper emergency fund is certainly significant, but we live in uncertain times with uncertain economies. Corporate loyalty is a thing of the past and unemployment can happen unexpectedly, usually at the worst possible moment."

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It's a short piece that covers:

• Why
• How much
• Techniques to get it started and build it

It is well worth your time to read it.

Are You Ready For Hurricane ED?

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Tonight is a "Jamaica" post. So, apologies to my overseas readers if you don't think it's relevant. It's about tips for surviving an economic downturn, so you might want to have a quick read.

This is what we are facing:

• job losses, wage freezes etc.
• accelerated depreciation that the country's leadership is now working to slow in a structured manner
• high interest rates
• electricity rates have been increased because of the accelerated depreciation
• the government is reported to be considering - I repeat, just reported to be considering because there is no decision or even confirmation that they are actually considering - increasing GCT and adding a gas tax, but considering coupling that with lowering income tax

Let me translate this:

• The light bill is going up - again. And oil prices are still low.

• Anything you normally buy is going up because we are an import economy - so between the depreciation and the high interest rates, businesses are passing on their increased costs to you. Don't get mad, that's what businesses do. And if they have higher costs, they have to pass on at least some portion of them.

• Other than inflation eating away at your hard earned money, your disposable income is going down if there are no or limited wage increases.

• In the midst of it all, no jobs are guaranteed.

• Taxes, albeit hypothetical, increase your costs - of gas and all consumables. But hopefully, you get more income if income taxes are reduced. But it would have to be a big enough reduction to cover the increased cost of living to really make a difference.
  

So, what am I doing? I'm hunkering down like we do during hurricane season. You know, you get a bulletin, it may not hit, but you have stocked up and locked up tight just in case.

Well, let's call this one Hurricane Economic Downturn (Hurricane ED for short). And Hurricane ED has taken the world by storm. Some countries are hurt more than others, and are still getting battered.

Despite what you may think, we haven't been hit yet; we're feeling the outer bands. Look around the world and you'll see that this is true. Now, we can be spared a direct hit. Or we can get a hit - direct or otherwise. But, like all hurricanes, if you are prepared, the more prepared you are, the quicker you can recover.

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My top three Hurricane ED Preparation and Survival Tips?

1. Save save save. Expenses are increasing outside of your control. Setting aside more money to be able to meet these expenses is the smartest thing you could do. Everybody should normally have an "Emergency Fund". This is a money management basic. If you don't have an "Emergency Fund", start one. If you do have an "Emergency Fund", pump it up.

2. Budget and stick to it. If you budget, look at it again. And be realistic with the expenses (they are going up) and your inflows (they are flat at best). Not only look at it in terms of cost increases, but look at what can be cut. You don't have to turn your life around in a panic, but remember we talked about seriously reducing electricity consumption, for example? Reducing Bills! - Electricity Bills! Phone Biils! Water Bills! That might be a good place to start.

3. Seriously evaluate debt before you take it on. This is important. General living expenses are going up. Taking on debt makes it even more difficult for you to meet expenses.

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Now, we know how to prepare for and ride through hurricanes. This is really not that different.

• We have to plan.
  
• We have to act.
  
• And we have to help each other.
  

We have done it time and time again.....and it's time to do it now.

Quick Money Management Tips - Free Video Link Here

Cover via Amazon

When I started this blog, I recommended David Bach's Smart Women Finish Rich to get you started with making personal finance doable. It's very logical and straightforward.

He has other versions for couples etc., but substantially, the basics are the same. Another very popular one is Start Late Finish Rich. There is an Amazon search link to the right of this post. Just type in "David Bach" and see all the options.

Now, David Bach has a website where he shows all the clips where he appears on program such as Larry King Live, The Today Show, Regis and Kelly etc.

Here is the link.

Now these videos don't replace the book, in my opinion. But its a great way to get loads of quick and easy tips. Not only can you learn from him, you can learn from the other guests as well as the people who call in. Sometimes the programs he appears on cover job hunting etc, so this video link is a great resource.

Hope you learn something new! I did!

A Quick Way To Have More Money Immediately

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I came across this blog post, and I thought it was so powerful I decided to share the link rather than share the tip within in.

Kudos to the author. It's so simple but so true.

Read this short post: One Thing You Can Do Today That Will Put You In Better Financial Shape Tomorrow

Now maybe you can't go a whole day without spending, but trying giving up one item that you would normally buy regularly, if you can. It's a great way to start.

Everything you save and don't spend, you can earn interest on it. That's more money for you.

Everything you don't buy on credit, does not cost you interest on savings foregone and does not increase your costs by debt interest incurred. That's more money for you.

The Easy Way to Make a Budget

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Remember, money management begins with a realistic assessment of your financial status. See my earlier post here: More Money - The Basics.

It's time to make sure your budget is realistic, and if you don't have a budget then you need to make one.

Budgeting and sticking to the budget is critical to money management. The most successful budget will be the one you make for yourself - only you know what you are realistically willing to do and not do. By all means, get advice. And another opinion of someone you trust is always helpful to give you ideas. But be honest with yourself about your priorities. After all, it is your money that you're spending.

If you are not familiar with budgeting software (are there are tons), start with Microsoft Excel. You are just entering what money comes in and what money goes out - categories and amounts. Excel makes it easy to increase and decrease numbers in each category to see how you can get a better result.

This is a great post I happened upon: How to Make a Budget in 10 Easy Steps

It's a worthwhile read on how to make a budget - easily!

FREE Online Personal Finance Courses

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Check out this article in today's Wall Street Journal about the sharp increase in online personal finance courses: A Boost in Online Money Management.

What's the trend? People are arming themselves with knowledge to make informed decisions. Even if you use a financial adviser, it would be prudent to ensure that you have enough of your own knowledge to evaluate if his or her recommendations are appropriate for you, your particular financial situation, your goals, and your risk tolerance which determines not only investing, but also how much money you feel is a comfortable cushion of savings in the current environment.

There are many FREE and paid services you can enjoy from the comfort of your own home!

From the article: "Popular courses included those on reducing spending, and ways of saving and creating a priority spending plan. "

With a little due diligence to ensure the information is credible, do yourself a huge favor and check out some FREE or paid personal finance courses!

What's a small investment of your time if it saves or makes you money for your own financial security?

Guess What Americans Are Doing? Saving More!

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Today's news was interesting. In the last few months, there has been a steady increase in savings rate in the US. At one point in recent years, it had been negative. See an article here in the New York Times: Consumers Increase Savings While Spending Less

So, I'm thinking this is great news!

After the recent financial crisis and given the ongoing uncertainty, people are making sure that they are more conservative with their money, doing the absolute basic minimum of personal finance which is making sure that they have adequate savings, and really making substantial steps to get themselves back on their feet.

However, some economists argue that when people save "too much", the economy takes long to recover because businesses need the revenue to employ people etc. OK, I see the point. But, consider this:

There is nothing wrong with saving. Saving is the absolute basic minimum of personal finance. You don't have to invest (which is to take on risk with the hope or expectation of a return). You don't have to borrow (which is to take on debt). But you do have to have money to spend for the basic necessities of life and that comes from earning and saving.

If you want to get higher returns than what you can get from savings, and are willing to take the risk of losing all your money, then you invest.

Saving is not investing. I repeat, saving is not investing.

Saving is what you do when you place a deposit with a regulated financial institution at a stated interest rate applicable to that deposit and that deposit is insured up to a limit by a Government agency (such as the FDIC in the US and the JDIC in Jamaica)

If you want to buy things that cost more than your income, then you borrow and pay a premium for that money not being yours. That is what debt is - other people's money and you are using it. If you can wait, it is better to save for an item than go into debt to buy it. Why? Because debt costs money. That money is called interest and that debt interest will in most cases - unless it is concessionary debt - exceed your after tax interest on savings dollar for dollar. So after all your time spent saving, you would be effectively losing some of that interest every time you use any form of credit.

Now, back to this debate between savings and economic recovery.

Now, as I understand it, in the US people lost the ability to access credit - many of them through no fault of their own. If you don't have your own money - which is savings - and you don't have credit - either because of the banking crisis, the new lending standards of the bank, the credit rating system, or because you owe too much money - then what are you going to use to consume? You need savings.

Massive borrowing fueled unsustainable levels of consumption. Would some economists prefer that the economy "recover" by people borrowing which they might not be able to do anyway? Would some economists prefer that other people - who are fearing job losses - use up their savings to consume? Because when those savings are depleted, people will have no money to consume, and will have no savings and possibly employment income to qualify for credit to then consume. At some point, the economy will run out of people who have money to consume.

Why, in this time of record job losses, and market uncertainty should people not save more? Now, I love consumption as much as the next person but I have zero interest in unsustainable consumption. Unsustainable consumption, unsustainable debt with limited, zero or negative saving is how we ended up in this global mess.

No matter how you look at it, consumption gets a hit.

In order for an economy to be sustainable, there has to be a balance between consumption and saving.

We cannot continue to live in an interconnected global economy with such great information asymmetry - where so many people do not understand the basics of personal finance:

• that savings are absolutely mandatory;
  
• that savings are NOT investments;
  
• that you have to evaluate investments not just based on hot tips or recommendations but based on your individual risk profile, needs and age in life;
  
• that debt eats away at your hard earned interest and needs to be managed
• that you should only take on debt in accordance with your realistic ability to repay, and fully cognizant of the true cost of debt
  
• that expenses (and hence consumption) must be managed so that they can be paid from earnings without depleting savings, savings goals and ability to save. Remember the "Pay Yourself First" principle, you must save before you do anything else!
  

I could go on.

In order for anyone to prosper, as we have seen, everybody needs to be at a basic minimum level and it is up to education reform, advocacy, and helping each other that this financial literacy will be achieved. It has to start from a very young age.

If you spend money, you must know how to have money to spend - that is, to save.

It is said that those who weathered the Great Depression were the conservative spenders and the aggressive savers. Although we are not in a Depression, we would sure like to avoid one. The only thing we are certain of is that we are living with uncertainty. And if you don't know if and how much money you are likely to earn in the immediate near future, isn't it prudent to adopt some conservative spending and aggressive saving habits?

Great Slidehow of Money Saving Tips from Oprah.com

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Click here: Money Saving Tips from Thrifty Families

This is a quick slideshow of great tips on Oprah.com featuring CNBC's Dylan Ratigan, and loads of ideas from people who are finding ways to save more money. Everything from budgeting, coupons, money management, discipline in spending, some do-it-yourself around the house, utilities, alternative vacations - such as going to the beach etc. There are also stories of people helping other people, and how Google can help you find deals and free"stuff" in your neighborhood.

When I read "going to the beach" as being thrifty, I thought how often so many of us don't consider a vacation to be a vacation unless we have gone on a plane shopping somewhere. If you do want a vacation, Jamaicans - why don't we try vacationing right here and supporting the local tourism industry - any realistic budget does have entertainment provisions. :)



If you do watch Oprah's show, Tuesday's show is entitled "The Thriftiest Family in America"

Plan to Take Action in 2009

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I remember watching the opening bell on the first day of trading. Trading is a speculative activity, involving risk with the hope of reward.

And here was perhaps the most famous personal finance expert/author, Suze Orman - someone who counsels about money management, the virtues of saving, the importance of managing debt, and taking risks only when you have evaluated them, understand them and can do so depending on your age and stage in life - doing the honors.

It was a very interesting note to start the year. And to me it signaled that this should be the year of financial literacy, and greater risk/reward determination, and ultimately responsibility.

About Economy
Read the Article at HuffingtonPost

Getting Started - Earn and Save More Money Now

Cover via AmazonWhy reinvent the wheel? There are best selling books on Personal Finance. There are countless websites and blogs. Do a little reading and see what is applicable to your situation.

How did I start?

In the first few days of 2009, I read the best seller "Smart Women Finish Rich" by David Bach (don't worry - the information is generic enough for anyone, and he does have different versions). The book was already in my personal library, I just hadn't read it yet. Given the uncertainties we all face, I figured the time was now right. I would highly recommend the book to to help with thinking about saving vs investing (reminder: they are not the same), and also general money management. There is a lot of information specific to the USA, but the general principles are universal, I think.

Next step - application of principles.

For example, that book inspired me to read another personal finance book - but it was a best seller motivational book not a classic "how to" book. Now, I did not have that book in my library, so I went to buy it. But, here's something key, Bach's book had taught me the importance of discipline in spending (which I will get into in a later post), so although I picked up 10 books in the bookstore, I decided that I did not need them - although I wanted them - and decided to buy only the book I intended to buy when I went to the store. By exercising discipline in my consumption of my favorite impulse items, I saved significantly that day! I had saved money by not spending it and not losing savings interest on that money. What's your favorite impulse item or items? Does this story sound familiar - walk into a store for one thing and buy a ton of other things? Now, am I likely to purchase those books later? Sure. But for the time being I can earn interest on that saved money since I am unlikely to read 10 books at the same time :)

Despite the habitual convenience of using a credit card, I used cash to avoid interest charges. This tip came directly from the book, and in a later post I'll get into how to think about various forms of debt. But the main point is that dollar for dollar, interest rate charges will exceed after tax income on savings. So, as much as you save, your net will be negative if you pay high interest rate charges.

Lesson Learned:

• Learn from the experts and start applying the principles immediately. Make personal finance a lifestyle change
  

• Make a list of needs - not wants - before shopping. Take the list. Try to stick to it. With discipline and habit, foregone consumption can add up to real savings which earns interest.
  

• Make cash or fee-free ABM cards the preferred payment type. Debt reduction and avoidance reduces the amount of your hard earned savings lost to debt service.
  

Check back tomorrow for a summary of basic personal finance principles to get you started on your journey!

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