I watched President Obama’s speech the other evening (last Tuesday to be exact) as many of you did. I was curious to see what changes were going to be made to the budget and I was interested in his targets for getting the economy going.
I’m not sure if you had this issue, but I always have a tough time watching speeches similar to this because it’s so obvious that all of the other politicians are there to brown nose.
Here are some of the items that I took away from the speech:
– 95% of all Americans will see tax cuts on April 1st in their paychecks.
– There is a website where you can see what is being done to put the US economy on the road to recovery, Recovery.gov. I took a quick look at this website and there’s not a whole lot of information posted yet. I hope that changes in the future. By looking at the website, it looks like it was perhaps rolled out to be available prior to his speech to Congress.
– 3.5 million jobs created through infrastructure improvements: roads, bridges, broadband, mass transit, etc.
He gave three examples of how he is going to kick start the economy:
1. New Lending Fund – Flow of credit is the lifeline of America and he aims to get that credit going through a new lending fund that will be able to loan to people for cars, college, and small businesses.
2. Housing Plan – This plan will help responsible lenders and mortgagees to lower interest rates and help keep people in their homes. I thought something like this had already been implemented. From what I’ve read of past plans, they have been ineffective. I wonder what they will do differently.
3. Bank Accountability – Put pressure on banks to lend to people. Also, there was a real emphasis on keeping the banks accountable for the money they receive from the taxpayers.
Obama said this a few times:
It’s not about helping banks, it’s about helping people.
Obama also seemed to hit on three major points – healthcare, energy, and education. In mentioning each of the three pursuits, Obama discussed items he’d like to target within each. The most notable pursuits being seeking a cure for cancer during our lifetime and by 2020, have the highest proportion of college graduates in the world.
All of this being said, what does all of this mean to you?
If you don’t live in the US or if you don’t care for the US, the speech probably didn’t do much for you. This blog never will be about politics so let’s put that aside. Regardless of your political affiliation, this speech was significant to you for a variety of reasons.
For one, if you are a taxpayer, this speech gave us an indication of what is being done with OUR money to help straighten out the economy. As I mentioned earlier, Recovery.org is to be the government’s vehicle for transparency to the taxpayers. It’s great that spending will be transparent, but we also need to begin looking at a way to begin paying down the debt. Currently, the U.S deficit is at close to $11 TRILLION, according to brillig.com. That comes to just over $35,600 for every man, woman, and child. That number is frightening once you start looking at the number of people in your family. For my wife and I, we would need to pay back ~$71,000. I’m not into scare tactics, but these are the facts and we need to live with it and figure out how to reverse this trend quickly.
The second reason why this speech was significant to you is that if you earn under $250,000 as a household, your taxes will not go up.
The third reason is that it appears there will be a renewed emphasis on education. It’s easy to make a claim that education is important. Let’s see if there is some follow through.
Perhaps the most significant moment for me was the story of Leonard Abess. Mr. Abess sold a stake he had in a bank last November. He took $60 million of the proceeds from that sale and gave it to the bank’s present and 72 former employees. Some of the long time employees received as much as $100,000.
Did you watch the speech? What did you think? What did it mean for you?
Photo by: Tony The Misfit
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Book Review: The Art of The Start
Interview: Professional Blogger
Case Study: My Adventures in Forex Trading (Update: 2/16)
The TED Spread and What It Means to You
You may or may not follow the market. Personally, I try to stay out of the day to day activities partially for my sanity, but also because it doesn’t matter if I look at it or not because we aren’t selling anytime soon. While I try to stay away from all of the “hoopla” mentioned in the news, I do want to be educated so I know what I am doing and have a plan of action. One item that I had heard about previously in news articles, and in a podcast (Plant Money from NPR) I listen to while running, is the TED spread.
The TED spread is the difference between the three-month U.S. Treasury yield and the three-month Libor rate. The Libor rate is the rate at which banks charge each other on the London interbank exchange. NPR and The Big Money have in fact stated that we should be following the TED spread and not the Dow.
So, how do you know what number is good or bad for the Ted Spread?
CNN states that “A jump in the spread shows how panicky banks are, in that they are charging each other a bigger interest-rate premium than money lent to the U.S. government“. This basically means that banks are afraid to lend to one another out of fear that the firm borrowing the money will fail or the firm lending the money might need the money for it’s own crisis.
To give you an idea of what the TED Spread has looked like more recently and in the past, I found a nifty chart via Bloomberg.
If you look at the chart above, you’ll notice that the TED Spread typically stays at around 50 points or less, but since late 2007, it’s been a different story. In fact, it’s been more than double over it’s average for over the last year.
The current TED Spread trend seems to be going in the right direction. Do you think the economy is on it’s way back?
Photo by: Azrainman
A few weeks ago, the 4 week T-bill auction reported a yield of 0.000% (that is NOT a type-O). A T-bill stands for a treasury bill. A Treasure Bill is a short-term debt obligation backed by the U.S. government with a maturity date of less than a year. T-bills are sold in $1000 denominations.
It seems odd that people would be willing to accept no return after buying a T-bill, but that is in fact what is happening. When people need a place to put their cash, there is nothing safer than a government security.
Where are you putting your money? We have a lot of our money in money market accounts right now, primarily ING Direct.
Photo by Kevin Dooley
The holidays are a fun time. This is the time of year that we make our trips to go visit friends and family and catch up on the past year. This is also a time of year that people tend to spend quite a bit on gifts. Let’s take a look at a few ways you can soften the impact to your pocket book.
- Draw names – In the situation of large family gatherings, instead of buying gifts for all of your family members, draw names. When you draw names, you are only responsible for buying a present for the person drawn as opposed to buying presents for the entire family. This will limit the number of presents bought by everyone and save everybody a good bit of coin.
- Make gifts – This most likely will not appeal to the modern day American, but hear me out. Do you think a gift card that I spent absolutely no time or thought would be more appreciated than a hand written letter? In the letter, you could express how much you appreciate what they’ve done for you. J.D. at Get Rich Slowly also has a great list of gifts you can make yourself.
- Escrow – My wife and I really don’t get each other gifts for Christmas. It seems like other family members pretty much take care of that. Having said that, we do spend some money on other family members and Angel Tree kids. To soften the financial blow, we basically escrow the money in an ING account. Since this February, we’ve been putting back $20 per week into our account. I just looked and we have $673.08! Perhaps this is a little more of a little less than what you typically spend. If so, just alter the weekly amount deposited into your ING account. I’m sure there are many other options for banks, but we’ve found ING to be really easy to use.
- Take Advantage of Circuit City Store Closings – Circuit City is closing 155 stores nationwide. There can be great deals found at many store closing sales. If you have an electronics need, it may be worth your time to take a look and see if you can score a great deal.
- Don’t Give Gifts at All – Why not show your generosity by spending time at a homeless shelter serving meals or visiting a retirement home to spend time with people who may not get many visitors. You could get the whole family in on the activity. While it may be hard for some to believe, you can get much more long term satisfaction out of community service than spending your money on more material things.
- Photo by Kris Decurtis
This is part 1 of a series on 10 Ways to Become Financially Independent.
A lot of people talk about being rich, but I think they should be talking about being financially independent. I’ve outlined why I think you should be financially independent and its benefits in a previous article (link). I’ve also speculated what I think the US would be like if more people were financially independent (link). A lot of “rich” (I’m defining a rich person as a person with a high income not necessarily a high net worth) people often have to work very long hours to sustain their high spending or “rich” lifestyle. If they lose their jobs, these high spending individuals would more often than not have a difficult time keeping up with their bills without their high incomes unless they saved a substantial amount of money which is not usually the case as shown in the book The Millionaire Next door. The Millionaire Next door authors have spent their careers studying the wealthy and found that millionaires are typically people who spend much less than their income and usually are self-employed although not exclusively.
There are a lot of ways to become financially independent. I am not there YET so perhaps you should stop reading. However, I am very interested in becoming financially independent so maybe we can help each other along the way.
Sound like a plan Stan?
There are many ways to becoming financially independent. I don’t think most people become financially independent through any single method. I’m sure it’s an iterative process that usually takes many years, at least 10 (I threw that number out there), to complete.
1. Win the Lottery
I don’t believe in the lottery. The people that play the lottery are the same people that if they won, they would probably spend it all (my personal opinion and I have a lot of family members and friends that play the lottery). I would like to be proven otherwise, but that seems to be my perception. You need to respect money and the time (your life) that you spend to earn it. I’m still digging through books to find the books that are most beneficial in advice towards financial independence. Your Money or Your Life by Joe Dominguez and Vicki Robin had probably the most significant impact on me thus far. If you haven’t read it, you should. In the spirit of respecting money and the life you spend to make money, I would suggest you borrow the book from the library. If you really feel that you’d like to support me towards financial independence, it won’t make me cry if you buy the book through my Amazon store. Another companion book I would suggest is Getting a Life: Real Lives Transformed by Your Money or Your Life by Jacquelyn Blix and David Heitmiller.
The biggest factor to becoming financially independent is to play great defense, lower your expenses and curb your spending. Great defenses win championships, right? Well, if you want to have a championship team, you need a great defense. An offense, your ability to produce income, in my opinion, is more difficult to control, but we will explore those options in future posts.
There are a lot of books about lowering your expenses, but I’m only going to mention two of the more popular books.
- Your Money or Your Life – Your Money or Your Life is a great resource. Keep in mind that some of the information is dated and perhaps too progressive (baby steps) for your taste, but lowering your expenses is the most powerful part of your goal towards financial independence. There is an online study group as well as local meetings (depending on your location) that you can join to help your through your journey.
- The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey – He has a great following and is very popular. I have personally never read his books, but I am familiar with his concepts. There are many Dave Ramsey study groups. I’ve seen many Dave Ramsey classes offered through various churches and I’m sure other companies and organizations offer them as well.
I don’t by any means want you to not eat or not have fun in life, but you should at least know where your money is going. If you are already on a budget, but are feeling deprived, Liz Weston @ MSN shows how you can “Live Well Without Busting Your Budget“. One extreme example of people that are cutting their spending is Jacob at Early Retirement Extreme. They cut their expenses in half by moving in an RV. I’ve also interviewed a couple that has been living in their RV for about a year (link).
Here are some other great blog posts and resources for cutting your spending or reducing your debt which can also reduce your spending:
- 40 Ways to Reduce Your Monthly Required Spending by Trent at the Simple Dollar – Here are some highlights from his post:
Cancel club memberships Look at things like a health club, a country club, and so on. How often do you really use these services? If you’re using a gym membership less than once a week or a country club membership less than once a month, you’re likely throwing away money.
Reduce or eliminate your cable bill For many people, this advice is beyond the pale, but it’s worth looking at. Perhaps you could trim back on your premium channel selection and just go with basic cable, or perhaps you could even eliminate your cable bill entirely – it will also help with electricity costs because you won’t be watching television as much and you’ll suddenly find you have much more free time.
Look for inexpensive entertainment options Do you utilize the local library? Do you attend local community events like municipal band concerts and so on? Are you aware of local volunteer groups and organizations? Your community often offers many options for inexpensive or free entertainment of all kinds – you don’t have to have a big entertainment budget each month.
Strongly reduce or eliminate travel We live very far from our extended families, so we are aware of the costs of travel. We’ve found that by being selective about what we travel to – and also open to inviting people to visiting us – we significantly cut down on travel expenses.
Cancel newspaper and magazine subscriptions If you get a magazine or newspaper in the mail but simply don’t read it, cancel that subscription when it comes up for renewal, no matter how much you “like” the magazine. An unread subscription is nothing more than expensive clutter.
Look at and consider reducing/eliminating other regular paid services Look at services like Netflix – are you really getting $19.95 a month out of these services? If not, just drop the service and look for other options, like a local rental store. What about satellite radio? If you use that but find yourself not using it or just sticking with the same things you listen to on regular radio (like NPR or top forty), then cancel the service.
My favorite room in the house is the kitchen, but for many people it just seems more convenient to eat out, even though it’s incredibly expensive and not as much of a time saver as you might think. Consider these options.
Cook (and pack) your own meals at home When you cook at home, make plenty so that you can freeze some of it for future meals and, even better, take some of it as leftovers to work, drastically reducing the cost of the typical workplace lunch. Some people may shy away from leftovers, but there are some secrets to making any leftovers as good as the original.
Reduce or eliminate eating out or getting take-out Take-out and dining out can be a huge time saver for a busy family, but the expense can be tremendous – and it often doesn’t save much time, either. Instead, look at other options for dining at home: prepare lots of meals at once and freeze them for easy cooking later, focus on simple recipes, and choose recipes that utilize the fresh produce in season in your area.
Eliminate services (housecleaning, landscaping, etc.) If you hire out household services to others, consider trimming back or eliminating them. Instead, put aside some time each week to do them yourself – not only will you save money, but you’ll find that many activities can get the whole family involved (like housecleaning).
Reduce or eliminate consumable habits (smoking, alcohol, etc.) Any consumable habit, whether it be smoking or excessive drinking, can be a constant drain on a budget without any real benefit. Give the habit a kick in the pants and your wallet will breathe a serious sigh of relief.
Move to a less expensive area Many people leave this option out when looking at trimming their budget, but if you can find work in another area, it may be worth considering. Look around at other areas of the country where you can find employment, see what your salary would be there, and look at the housing costs. Quite often, you’ll find yourself significantly ahead by looking at areas like Minneapolis rather than areas like San Francisco, even at a significantly lower salary.
- 10 Ways to Cut Spending by Kristine McKinley at Ms. Financial Savvy – Here are some highlights from his post:
Consider dropping your home telephone line. Your cell phone is probably all you really need, and most likely it has free long distance. You could save $30 or more per month by dropping your “land line”.
Cut back on trips to Starbucks or other premium coffee shops. Often called the “latte factor“, spending several dollars per day on luxuries like premium coffee can really add up. For example, if you spend $4 for a cappuccino five times a week for 50 weeks out of the year (you�re on vacation the other two weeks), you would spend $1,000 in a year. Try treating your trip to Starbucks as a treat instead of a habit.You’ll save money and probably lose weight too!
Pay your mortgage payment bi-weekly instead of monthly. You’ll pay less interest and pay off your mortgage faster.
Carry cash instead of credit cards. Psychologically it’s harder to spend cash than it is to use the credit card.You’ll spend less and save on interest charges.
- 8 Ways to Cut Back Without Sacrificing by Kimberly Palmer at US News – Here are some highlights from his post:
- How We Became Debt Free in One Year by Rachel and Doug at Small Notebook – Here are some highlights from his post:
- 101 Ways to Reduce Spending and Keep More of Your Money by Blunt Money – Here are some highlights from his post:
Host movie night. Going to the movies, especially if you’re a popcorn fan, can easily cost $40 for two people. Instead, suggests Faye Griffiths-Smith, community leader for the American Association of Family and Consumer Sciences, rent a movie and invite friends over to watch.
Learn to cook. Not only does eating at restaurants add up, but so too does buying lunch. If you cook dinner at home, you can bring in leftovers to work the next day or take a few minutes to pack a sandwich. If mornings are always rushed, then try packing it at night before bed, suggests Jean Austin, family and consumer science educator for the Maryland Cooperative Extension Service. And when you shop for your ingredients, make sure you have a snack first. Going to the grocery store hungry often leads to impulse buys, Austin warns.
Drink at home. Whether your beverage of choice is green tea, espresso, or beer, it’s much cheaper when consumed in the comfort of your own kitchen. Going to a bar with friends can easily cost $50, McDonnell says. Instead, pick up a six-pack and hang out at a friend’s house. The social interaction will cheer you up without the hefty bar tab.
Decide what you really want. Most people can cut 10 percent of their spending within 10 minutes, says Ramit Sethi, author of the I Will Teach You to Be Rich blog. Just write down your major spending categories, such as food and loan payments, and then guess what percentage is going to each category. Make a second list with what you want the percentages to be, and then make a third list describing what they actually are. If the reality doesn’t match up with your ideal, then adjust your spending.
We rented an apartment instead of buying a house. We still live in an apartment, but it’s because we want to, and it’s been a good decision financially for us.
We furnished our apartment with second-hand furniture instead of buying new.
Our income tax refund was sent to pay the debt.
New cars – Don’t buy new cars in first place. Really, don’t! Buying a new car is like throwing 20% of your money out the window as you drive off the lot. Not to mention that new cars are often financed, and the insurance rates & tags are higher. Buy a used car instead. Get it detailed & spray in some new car scent if you want the same effect. (Although what makes your car smell new are mostly volatile organic compounds.) If you decide to buy a new car anyway, research the heck out of it first using sites like Edmunds and Kelley Blue Book. Call your insurance company before buying to make sure that it’s not a model that will cause your rates to skyrocket. Know your bottom line before going in, and exactly what you are and are not willing to compromise on. Set up competition between dealers. Be prepared to spend a lot of time at the chosen dealer and then walk out. (Leave your kids at home, bring a snack, and don’t buy a car on your first visit to the dealer.) If you are financing, get your financing first, elsewhere. Refuse to talk “payments”or trades — talk only the total price of the car, tax & fees included. Avoid extended warranties and other extras.
Used cars – First, there is nothing wrong with a used car. They’re great, in fact! And you can save tens of thousands of dollars by driving them instead of new cars. Many of the tips listed under the New Cars section apply to buying used cars from a dealer as well. The biggest difference when buying a used car is that you may get a better deal by going through a private party or auction. Just bring someone with you who is knowledgeable about cars, and have the car checked out by a trusted mechanic before purchasing. Also, it’s usually easier (or at least faster) to negotiate with individuals. If you’re buying at auction, you’ll likely need literal cash in hand to do the deal, and it’s unlikely that you’ll be able to thoroughly inspect the car (or even to turn it on). So be prepared for some additional expenses with those. Still, the deal you can get at an auction might make that worthwhile. For auctions, set a maximum price that you’ll pay and quit bidding the moment the auction goes over that price. There will be other cars. LOTS of other cars.
Food and Drink
Coffee – Kick the habit, or make your own & bring it with you. With luck you might even be able to convince your office to use a brand that people like, and get your fix at work. If you do buy your coffee at a coffee shop (Starbucks, anyone?) bring your own cup for a possible discount. You can also get Starbucks gift cards at a discount at Costco right now. (Approx. $80 for $100 in gift cards.) Nothing says you can’t use a gift card for yourself.
Processed foods – Eliminate as many processed foods from your diet as possible. Both your body and your bottom line will thank you. If you do buy processed foods, consider store brands. They are often made by national brands, but sold for a fraction of the price. Most stores offer a money-back guarantee on their brands, so you really have nothing to lose if you’re dissatisfied. Stock up when processed foods go on sale as well, since one advantage of processed foods is that they often have enough preservatives in them to last a long time.
TV services – You can now watch many TV shows online for free on sites like CBS, NBC, Hulu, etc., so you may want to consider eliminating your cable or satellite altogether. But if you’d rather keep them, make it a habit to call up regularly and ask for discounts. Figure out exactly what you want first, and then ask what the cheapest way to get it is. (Just be sure you’re not getting a promotional offer that will quickly expire.)
Parties – It’s tacky to invite people to a party and assign things for them to bring or charge a cover charge. But it’s NOT tacky to have a potluck, or to only serve snacks. Better to have the party you can actually afford, than to “host” a fancier one and expect others to pay for it. Remember that a “party” can be as simple as game night with chips & salsa. The point is to have fun with your friends and family.
Health and Beauty
Dry cleaning – I’ve saved hundreds of dollars over the years by doing one simple thing: I refuse to buy things that say “dry clean only”. Not only does this save me money and time, it helps the environment too. If you do have clothes that require dry cleaning, remember that they don’t need to be dry cleaned each time you wear them. Get yourself a clothes brush to brush them out after wearing and hang them up to wear. Only get them cleaned when they really need it.
Massages – Inexpensive massages are available from massage schools and places like Massage Envy. You can also learn to give massages yourself for just the cost of some oils.
Prescriptions – All prescription prices are not created equal. Especially if you have a recurring prescription, call around to different pharmacies to see what they charge. You can also take advantage of pharmacy coupons. And did you know that Costco offers prescriptions? Drug companies provide free drugs to those who qualify. Generics are another money-saving option, as is asking your doctor for samples if it’s unlikely you’ll be on a drug for a long time or if you’re not sure how effective the drug might be.
Flowers – Flowers from farmers markets, the grocery store, Costco, or even your own yard can be much cheaper than flowers from a florist. Spend a few minutes learning how to arrange flowers, pick up a vase at a thrift store or garage sale and you can have beautiful arrangements at very little cost.
Cleaning supplies – The only cleaning supplies we use in our house are now vinegar, baking soda, and Barkeeper’s friend. These products work wonders on our house, save big bucks, and are better for the environment.
Electricity – Some simple ways to save on electricity include turning off the lights, unplugging items that produce phantom loads (usually anything with a “brick” that plugs in), caulking or weather stripping to seal leaks, adding insulation, switching to CFLs, etc. See the U.S. Department of Energy’s site for additional ideas.
Clothes – Resale stores and EBay are great places to buy inexpensive children’s clothes. Talk to friends and relatives with kids of various ages to arrange a hand-me-down type circle. Some children’s clothes get so little wear that they’re just like new, and you can get them for free this way. On the other hand, sometimes kids can be really hard on their clothes. In that case, consider joining Sears’ KidVantage® Club, which replaces kids clothing & shoes for free if they wear out before your child outgrows them.
Toys – Kids generally have more toys than they know what to do with, and after awhile they become just so much clutter. To avoid buying still more toys, begin putting away some of their toys temporarily. The remaining toys will be more appealing since they will stand out more, and you can rotate them for the ones you put back at regular intervals. That way they’ll always have something “new” without the extra expenses. Garage sales are good places to find used toys as well. (Just be sure that they are not on a recall list.)
Are you interested in being Financially Independent? If so, why?
What are you doing to curb your spending? We recently sold a house and were able to pay off a car and a few smaller student loans (link).