Well, it has been nearly two months since my last post and I wanted to explain my disappearance.

I started with good intentions, to have some way to express my personal opinions and feelings, which are summarized here. After writing a few posts and being really excited as to what I had started, life happened. I’m sure most of you know what I mean when I say this, I’ve got wrapped up in other activities at home, overloaded at work, and fully immersed in another graduate course (Quantitative Analysis for Information Technology).

To put some icing on the cake, my last post was on July 31st, on August 6th I had knee surgery. After a couple weeks of rest and recovery on the couch, I’ve spent the last 6 weeks in physical therapy. My last session is this later afternoon.

Any spare time I’ve had from the responsibilities above, I’ve been trying to spend with the wife and kids. I’ve also found myself distracted from life by trying to follow what is going on with Wall Street and this $700 billion bailout that’s currently being fought over on Capital Hill. I’ve been very tempted to post my observations and opinions about the economic situation, I’ve been watching it closely (habitually on a daily basis) for over a year now. I haven’t wanted to post because I always try to find a way to put a bright light on a bad situation. I’d much rather prefer to be referred to as an optimist instead of a pessimist. I’ve just found that this situation has challenged my ability to be optimistic. What I have come to realize is that both situations don’t work. I’ll just have to be a realist instead.

I don’t have a rosy outlook on the economy, not just national, but global. I don’t think anyone can fix this situation by dumping money on it, in fact I think it’s just going to make things worse. Maybe better short term, but the long term ramifications will be disastrous.

So what am I going to do? Moan and complain and make everyone afraid? No, that will not be my intent. I’ll be a realist, I’ll try to present some real information and I’ll provide my opinion. I think we have many challenges ahead on the economic front, but no matter what the situation is, there are ways to hedge against these unfortunate times. There are ways to do this without “wasting” money trying to plan on what to do if things do indeed get worse.

Hope for the best, but plan for the worst.

There is a win-win scenario, and that’s going to be the goal of my writing over the next few weeks.

Before I end, I have to thank J.D. Roth over at GetRichSlowly. J.D. sent me an e-mail last night, and I don’t know if it was his intent, but he motivated me to get back to this. Thanks J.D.

To you, the reader … let me know what you think. Any type of encouragement or constructive feedback will do wonders at this point in time.

Look for an important and very useful post on Tuesday October 1st.

Thanks!

When it comes to helpful ideas for reducing debt, let’s start off simple:

1) Never make the minimum payment. Always pay more.

Paying only the minimum is probably 2-3% of your current balance, depending on the policy of the bank or creditor in question. A higher minimum payment is a good thing, but never make their minimum, make your minimum. The higher the better, but let’s just say 10% is a good easy number to work with. $2000 balance? Send in $200, or more if you can afford it. Can’t afford 10%? That’s OK, but you still have to send in more than the minimum, even if it’s only $1. The mindset an approach is significant here.

People are always concerned with low interest rates and for good reason, but higher minimum payments are better. Paying a lower interest rate helps because more of your payment amount is going to the principal and less to interest. But a higher minimum payment has a bigger impact than the interest rate in most cases when it comes to the amount of time it takes to get out of debt.

2) Be careful about being too aggressive in debt reduction.

Blasphemy! Well maybe not.

The problem about being too aggressive in trying to reduce debt is that it might leave you with so little money left for yourself and cause you to use credit to overcome a possible shortfall caused by impulse spending or an emergency. You should have an emergency fund setup with at least $500 - $1000 before you really start getting serious about making big dents in your debt. You could also look into getting yourself the “best credit card ever!” as well to help protect your emergency fund. I talked about the “best credit card ever!” in a previous post.

3) Create and stick to a budget.

This is really simple, but you should have a plan on how you spend your money. It’s important to pay yourself first, meaning the first priority should be to put some money into savings or an emergency fund. Once you take care of that, move on to your bills and debt.

4) Be frugal, but give yourself enough money to be fairly comfortable.

If you are experiencing misery in trying to reduce debt because so much money is going to the “cause” and not in your pocket for basic needs, you’ll associate debt reduction as a bad thing and you probably won’t stick to it. Set a weekly spending amount, I give myself $50 per week for gas and anything else I need/want. Once it’s gone, it’s gone until my spending allowance is replenished in the next week. Another tip here, don’t try and give yourself 2 or 4 weeks spending allowance at one time. If you do this and spend it all too quick, you’ll be broke for a long while, and that also might make you fall off the wagon.

5) Got a raise? Great! Put half to savings/debt and half to you for a bump in your spending allowance.

It’s a good compromise. You got a raise probably because you deserved it. It can actually help when you reward yourself in these situations, and you’ll feel good because you did use half of it for something responsible and beneficial to your future.

6) Debt snowball or highest interest first? Well that’s up to you.

Obviously the biggest impact here is when attacking the highest interest debt first. It’s not fun to pay interest and you want more of your money going to principal that will help eliminate the most costly debt first. But it’s up to you because you might be the type that gets really motivated and excited in crossing creditors off of your list. Paying off little debts first allows this list to get smaller, and sometimes this sort of reduction is better for the spirit.

7) Realize it’s not going to be easy.

It’s hard being in debt and sending a large part of your hard earned money away to pay it off. So it sounds even worse to want to send in even more money, after all shouldn’t we get to keep our money? Let yourself come to terms with the situation you’re in with debt. Isn’t it a bad situation? When I’m in a bad situation, the only thing I’m focusing on is how to get out of the situation as fast as I can. It’s going to be hard, you will feel challenged and deprived. But doing easy things never really give you good things in return.

8) Talk about your debt.

That’s right, it’s a dreaded thing to do, but it can help. Talking to a friend or family member about your debt and how you want to tackle it can help put you “on the hook” so to speak. It might make you feel more accountable to follow through with your debt reduction plan. It might even embarrass you as well, and for your own good I say. You’ll then want to tackle your embarrassment, which means a stronger committment to reducing your debt.

9) Track your spending and attempt to get a good outside view of your habits.

Then, do some research on ways you might be able to save here. Spend money at Starbucks every day? Buy a coffee pot for home and the office. It might be a little investment now, but you’ll save more in the long run. Be honest and creative …even one idea like this can make a big difference.

10) You know those credit cards that you haven’t cut up yet? They stay at home.

Debit cards apply here as well.

But what about emergencies? I can’t think of many emergencies that require an instant payment, other than being robbed at gun point (or by one’s own self at a cash register). If the robber takes your cards, cancel them. You don’t want the temptation of the devil’s plastic in your pocket or your purse. Cash carries a fixed amount unless you go to get more. Plastic on the other hand, well it’s more like rubber in this case … it’s flexible and stretchable and that’s not good. Your spending allowance? That’s done with cash my friend.

Well that’s my list of ten ways to help in debt reduction, but there’s surely thousands more. Please share your tips on tackling debt with me and other readers in the comments area.

The New York Times has an article covering Governor David Patterson’s live televised address to New Yorkers last night concerning a financial crisis that is afflicting New York.

Points of interest from the article:

• The Governor called on citizens to “cut up our credit cards”.
• Taxes collected on the 16 largest banks of New York fell an amazing 97% between June ‘07 and June ‘08. For a dollar figure, this correlates to collecting $173 million in 2007 vs. only $5 million in 2008.
• New York’s budget deficit is to grow to $26.2 billion over the next three years.
• It is estimated that large financial firms based in New York will pay out $18 billion less in compensation and benefits than they did last year.

I’m glad the Governor came out and told people to cut up their credit cards. Most talking heads of industry or government encourage citizens to spend money to support the economy, even though I feel that it’s never good advice to give.

I wish we were getting better news, but things only seem to get worse out there. I don’t think there is a need for panic, but please think about things like this when you go out and are presented with opportunities to rack up debt. You may need your money for necessities in the near future. Food prices are rising and will continue to do so based on all projections that I’ve come across. Bad news is affecting many people right now, but I think it’s just a start. More of this financial mess will come out, and I think it will accelerate.

This all hasn’t really hurt us yet for the most part, but I think it has the chance to do so … sorry for seeming so pessimistic. The good news is that you can make the decisions today to protect yourself and your family if things do get worse. Spend only what you have to on necessities. If you want to go out and make a purchase based on your “wants”, postpone it for a while and put the money in savings, or pay off some bills. Create an emergency fund if you don’t have one. I truly think we can all be prepared for most unfortunate and unplanned events if we have the right attitude and take the responsibility to take care of our needs before our wants. Take charge of your future and assume no one else will.

I’m going to do my best to find some good, optimistic news to report in my next post. Until then, save your money.

I know, it sounds like a typical marketing ad, tricking customers into debt … but I do think I’ve found the best credit card for people. You’ll find however that my credit card offer is a bit deceiving as well.

If you use credit cards, haven’t you ever dreamed of being in the position of the credit card companies? I mean the part where they’re making money on their money, not the part about ruining peoples lives. I’ve found a way to do this, but it takes a lot of self discipline to pull it off and make it work.

I’ll start off with a little background first. I’ve been saving with ING Direct with their Orange Savings account since 2004. I’ve always been happy with their service and they typically have always been in the top 10 of national banks as far as the best rates for savers. Once you start saving and you see your money start growing, well it has a certain affect on your spending habits. I’d much rather save my money than spend it.

Even though I’ve always been a big saver, I’ve also carried around credit cards and used them frequently as well. I normally always pay off the balance every month before the grace period, but there are times during the holidays or on vacation where I think some of us, including myself go a bit overboard in the spirit of things. I’ve realized that paying money to spend money really is a lousy deal. That’s not a break through when it comes to ideas, but debt really is a horrible thing for consumers. Lenders obviously feel differently. My idea after really sitting down and thinking about this was, why can’t I be the lender? I’m not talking about starting up a bank, but why can’t I play both the role of borrower and the lender with my own finances and spending?

Here’s what I did:

Already being a customer with ING Direct, I decided to open up an Orange Checking account. The Orange Checking account allows you to pay bills online for free, write checks online, withdraw cash from ATM’s, make purchases in the store and online, and it even provides you with a pretty reasonable interest rate for a checking account. Right now the current interest rates for the Orange Checking is somewhere between 1.75% and 3.4%, depending on your account balance.

I started an automatic deposit of $100 per month into this account. Now that I have a debit card with the account, I consider this to be my “Eric’s Bank Credit Card”. My intention for this card is to use it whenever I would think about using a credit card from a real bank. If I use the card for a purchase, I pay myself back interest on the card for the use of my own money. I chose a simple rate of 1% per month for simplicity purposes, you could choose a different rate. So if I spend $100 on this card, I end up paying back $101 if I pay it off within a month. I keep track of my outstanding balance debits from month to month and add 1% to the outstanding debit amount every month. I don’t compound interest from month to month for simplicity reasons as well. What ends up happening is that my money grows if I don’t use the card, but it grows even more if I do. I think this is better than just spending from savings because if you treat this like a credit card, you’ll probably be more inclined to pay it back.

I find that there’s even more benefits. Not only am I saving and growing money with this card, but I’m saving even more by not paying the finance charges to a regular bank for the use of their money via their credit card. There’s also no excessive cash advance charges if you choose to get cash, but I still pay it back with interest. If you can see the whole picture here, you should truly be able to see the large scale benefits. I also realize that this takes a lot of self discipline to manage, but so should using any type of credit card.

You can spend, but you have to pay to spend, which actually can help your savings as well. I’m not saying that spending is a good thing, not spending the money is far better than spending it even if you have to pay yourself back the interest. I do think however that it’s better than the real credit card alternative.

I can imagine the thoughts of some readers out there, “I don’t have the type of money to fund a balance that would be needed to replace my existing card.” Well, that’s why I started with $100 a month as an automatic deposit. After only 5 months you’ll have $500 or more depending if you use the card along the way and with the interest that you’ll accrue. Eventually after over a year, you’ll have over $1200 for sure, unless you slip up a bit with the repayments.

The key here is that even if you do slip up while using this card, you might deplete some of the balance, but at least you are not digging yourself into debt.

I’ve found that I don’t need to use my real credit cards anymore, and next month they are all getting canceled and cut up. But what about needing a real credit card for emergencies? I agree with Dave Ramsey in the fact that an emergency is the absolute wrong time you want to use a credit card and carry a debt. Besides, if you stick to the plan for a few years, you can easily have a card with a $5000+ balance that’s an asset and not a liability. It’s earning you money rather than costing you money.

What do you think?

The New York Times featured an interesting but alarming article today titled “Worried Banks Sharply Reduce Loans”.  The writer talks about how the current housing crisis has caused banks to shift gears and act overly cautious about lending in many different markets, even to those who are typically considered low risk.

This is something that I think is going to cause further problems related to the U.S and global economies (in addition to the mortgage/housing mess, the decline of the dollar and record oil prices). The banking industry is only starting to get its share of the limelight, with the problems of IndyMac, Fannie Mae, Freddie Mae, Bear Stearns, Washington Mutual, First National and others.

The main purpose of banks is to safeguard account holder funds and loan money in the form of credit to various organizations and individuals. While I think that credit is way over used on a large scale, reducing credit to businesses that have opportunities to grow can have serious ramifications. Banks are now having to pay for their mistakes even though the consequence at this point is only to fall into a safety net of the U.S. Government (funded by taxpayer dollars). I think we will start seeing a contraction of the economy when banks realize they can’t loan money out to anyone with a pulse and any business that has a bank account.

This should be a wake up call for all. The banking industry has had its run and it was run with greed.

I’ve normally been very bullish on the economy during the past five to ten years, but the events of the last year have been alarming, and my sentiment as to the market and the economy has changed for the worse. While I am still long with stocks in my brokerage account, Roth IRA, and my life insurance investments … I’ve started to hedge my bets with things like money market savings, cash savings, taking possession of gold and silver and investing in food storage.

I don’t care we if haven’t met the definition of a recession or not … all news and signs point to a recession that is growing in severity.

It’s not that I am insistent that a major crash is coming, but if one were to come, this is the time.

I’m just following the mantra of “hope for the best and prepare for the worst”. This is a safeguard approach, I don’t think it’s time to sell stock and empty bank accounts. Actually now is a better time to buy stocks compared to this time last year (buy low … sell high), but I think we are still to see the bottom, a bottom I think we won’t reach at the earliest, later this year but it could be as long as 2010. It doesn’t hurt to pick up stocks on the way down, you can’t predict the absolute bottom until it passes. Just realize that you might have to take some scary losses to make serious gains, patience is truly a virtue in this situation.

In an upcoming post I’ll talk about gold, food storage and other things that people can do to prepare for the worst if they do go that way. It is important to keep a positive attitude and not make irrational decisions at this point. There are ways to prepare for the worst without loosing much (or anything at all) if things actually turn up for the better and that is what I’m hoping for.