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Sunday, December 28, 2008

Tightening the Money Belt


Spending Squeeze

Money is tight. That could spoil plans for a new home, car, vacation and more – unless you take action.

By Lori Johnston
The persistent credit crunch is impacting the way of life that Ericka Basile – and the millionaire readers of Naples Dog Magazine, which she publishes – used to take for granted. Recently the Florida entrepreneur was astounded to discover $257 in fees on one of her credit cards – just the latest surge in rising debt that's finally catching up with Basile and millions of consumers like her. "I'm trying to figure out, How do I get out from underneath this? It's a weight on my shoulders," says Basile, whose annual salary averages $159,000.
As the headlines remind us daily, the free-spending money train has left the tracks. Prices are up, but the ample assets we had to cover ourselves during good times are disappearing. Home equity has dipped to its lowest level in more than 60 years, and abysmal savings rates have left dwindling cash reserves. And credit? The creditors that were once all too willing to hand out cash now don't have it, or have turned off the spigot for fear of escalating losses. In short, we're learning again (if we ever knew how) to pay as we go. Even among women who have a good hold on their finances, the new tight -money environment can create a sense of panic – and require a new approach to money, says CPA Belinda Fuchs, president and founder of Own Your Money, a Boston-based financial coaching firm.
"Options are more limited now," she says. "The credit card companies and banks have taken quite a hit with everything happening in our economy. They're recognizing they can't be doing what they were doing before because they're going to get the same results. One of the things they're doing is making it harder to take out credit."
For big purchases, lenders are requiring more paperwork, higher down payments and higher credit scores for the best rates. Credit card lenders are taking a much harder look at new lines of credit, and they're more reluctant to cut existing customers some slack. "The products that are offered are much more scrutinized right now," says Jayne Malinowski, a vice president with Fifth Third Bank. "It's severely tightened."
Basile was denied a lower rate by one card company but is hesitant to consolidate her debt because of concerns about how it could affect her credit rating. Her best option now, she says, is to take control of her spending, which includes doing away with plans for a vacation with her two kids.
The most conspicuously absent safety net for consumers is still home equity – the one-time cash machine that's as anemic today as it was six months ago. "People were using that money as a financing source for many different things, such as maybe starting a business or funding education for children," says Faith Read Xenos, CFP, co-founder of Singer Xenos, a boutique wealth management firm. "They thought they had it available, and now they don't."
Alyssa Gilmore, 36, a senior marketing professional for a Boston-area financial technology company, was banking on her home as the capital behind plans to relocate her family to a better school district this year. But now those plans are on hold. A few years ago, she and her husband would've had much more equity in their home and could've sold it at again. "With the shrinking margins of home affordability, and with the tightening restrictions on loans, the chances of our being able to buy a place in a great school district, or sell our current home, in the next several years is probably slim," Gilmore says.
Easing the Squeeze
Overall, professional women may not be feeling the crunch as much because they typically have more cash reserves and are ideal borrowers, says Shiva Sattar, a Wachovia wealth management regional director. But it would be a mistake to feel immune to the crisis and allow it to catch you by surprise. Advisers relate cautionary tales of some clients – suddenly cash poor with no lending available – who have had to ask parents for inheritances in advance.
"It's really important that people look now" for lending they might need in the near future, Malinowski says, whether it be for a new car, a tuition payment or anticipated medical expenses. "Don't wait until you need the money. If you need the money, you're not going to qualify for it."

For those who are already taking a hit, financial advisers suggest a few basic steps that can help control ballooning payments and protect your future credit options.
First, make sure expenses don't exceed income.
Sounds obvious, but earlier this year the U.S. personal savings rate went negative, meaning we paid out more than we took in. That may work for the federal government, but it's not sustainable for the rest of us. Gilmore, for one, says she's trying very hard to save more, diverting cash into risk-free CDs and interest-bearing money market accounts. "We are in a time where money may be tighter and wages may stagnate," she says. "Opportunities to earn more money might shut down."

Second, enact a strategy to stay in financial shape.
If necessary, talk to your lender and ask for help with a debt management plan, says Jessica Cecere, president of the nonprofit Consumer Credit Counseling Service in Florida. And avoid raiding your future to pay for your present. So-called hardship withdrawals from 401(k) plans are on the rise as a way to make mortgage payments or raise quick cash. But if you don't return the money within 120 days, Xenos says, it's a taxable distribution, and you could lose 40 percent of the funds to taxes and penalties.

Third, keep an eye on your credit report.
As minimum scores for loan approval and the best rates increase, women can take steps to improve their credit scores. Malinowski advises directing any extra money toward minimizing debt loads. Paying credit cards down to 50 percent of the line amount can make a dramatic impact on a credit score, she says. And when the debt is paid off, dump most of your cards, keeping just a couple. Sattar adds: "Do you really need a card for Macy's, Nordstrom, Dillard's and other stores?"

While an overnight fix to your credit rating isn't possible, a little prudence and discipline will pay off in the future. "Over time," Cecere says, "if you're good, the good behavior outweighs the bad."

Cool Tool: Network IQ


Great article from Fabulously Broke in the City: Cost per Use is a Shopaholic's Saviour

I'm going through one of my favourite blogs, Fabulously Broke in the City and I found this great article on Cost per use.

Cost per use is a concept I hold near and dear to my heart only because it helps me make very quick decisions about whether or not I purchase the item today, tomorrow, or have to sleep on it for a couple of months.

Let’s take purses for example.

The basic idea of cost per use or wear, is if you are to spend $30 or $80 on a nice purse, you are planning on using that purse day in, day out.

Case in point. I bought a soft, faux leather, bronze metallic purse for $30 about 4 years ago. That is now the purse I bring with me on all of my travelling trips because it is elegant enough to be a work purse, soft enough to squish into my suitcase and not worry about it being damaged, and big (but not too much bag) enough to hold my items when I go sightseeing. Plus, I paid only $30 for it.After 4 years, that purse has cost about $12.50/year so far. That's 0.034 cents a day. And every year I take care of it, and use it, the cost per use goes down until it approaches zero.

This is the same principle that can be used for clothing. I bought a cheap shirt for $5 on sale a month ago, took care of it, and now just looks dull, faded, frayed, ugly and stretched. In contrast, I purchased a $50 shirt about a year ago, took the same care with it, but it still looks sharp, and it has kept its dye and colour well over the years. The quality was just simply better.And just the other day, I bought the most amazing looking sapphire blue top that fit me like a glove, felt amazing, and cost about $74 after all the taxes were in. This was a great buy because the quality is clearly there, the colour looks great, and the fit is fabulous. If I take care of it, it won't pill, rip, or be stained. It also helps that the fact that I spent more money makes me want to be more careful with it as well.

I am not saying that EVERYTHING that costs more money is worth it, or you should blow money on something JUST to make you take care of your things better, but I'm just saying pick and choose what you want to pay more for, and what you won't.

The only time I ever spent $80 on a purse, was 2 years ago for this Friis & Co. gorgeous black-lace gathered overlay on a faux white leather purse, with a silk black lining. I love it, and I carry it whenever I'm out on the town. Sure, the cost per use is a lot higher for that purse, but I plan on keeping that purse well into the future, and by that time, that purse will still be worth every penny I had paid for it.But I can guarantee you would NEVER have seen that purse in a thrift store, and if I had waited and missed out on my chance to buy it on the cheap for $80 CAD and still be able to love it after all this time.In short, I'd much rather have ONE $30-$80 purse I love and like to carry, than buying $4-$10, or a $20 purse and end up throwing the purses away, donating it, or shoving it into the back of my closet, untouched and unused, saved for the firs day I bought it. That cost per use for that "thrifty" bag that I never really loved in the first place was $4-$20, instead of $7.50-$12.50.Sure, I could just use my laptop bag, or maybe a free plastic grocery bag to carry around my items, but as most women can attest to, it just isn't the same. And besides, how cheap are you going to get? There has to be a limit somewhere. I'd treat this free plastic grocery bag cheapness akin to stealing ketchup packets from McDonald's and squeezing it into your ketchup jar to save $3 per in addition to spending 6 hours of your time squeezing each packet in.

Being too frugal can be a bad thing for your karma. Trust me, I know! You tend to feel resentful of your debt and the bad feelings just pile up.With that being said, I'd never cross the threshold of $100 for a bag, because it's just a bag. But some people will buy $400 - $2000 It Bags for the season, use it for a season (about 4 months, maybe 6 months), and discard the former It Bag into the back of their closet, or sell it at a fraction (albeit still over $100) of its original retail cost.Now, which one seems more economical to you?You can even apply this to buying cars, or really, buying anything in general. If you're going to buy a new car because buying a used one just doesn't appeal to you, that's fine. But if you buy a new car once every 3 years to upgrade, that's not being as economical as if you bought that new car, took super good care of it, and made it last 15 - 20 years. The cost per use goes down, and in the end, you are still thrilled with your purchase.

Saturday, December 27, 2008

Recession Survival Guide


Survive and Thrive

The worsening financial crisis has brought out the best and the worst among women investors. Even if you fall into the latter category, it isn't too late to change.

By Mary Claire Allvine

In a crucible, liquid boils off and only essential chemicals remain behind to be identified. Today's market has boiled off all excess liquidity – literally – and what's left in your financial crucible? Answering this question honestly will determine who will thrive following this global economic crisis and who might never recover. Every investor opened her third-quarter statements to bad news. Whether she owns bonds or stocks, her results are down. Compounding these paper losses, the threat of layoffs, loss of credit access and evaporated home values have raised the heat. Two clear metals have emerged: I'll call one gold; the other is clearly lead.

Gold Investors :In times like these, the valuable investor traits you want to see emerge come out sparkling. This savvy investor seems to have nerves of steel, but in reality she simply has a focus on what she's trying to accomplish. She has diversification, and she has the means to be patient.

What else, exactly, is she doing?
- Like anyone seeking to grow net worth who has cash she doesn't need in the next seven years, she's buying on horrible market days. She does her research, learns to use limit orders, sets them and goes back to work. She also sticks with her pre-existing dollar-cost-averaging plan, perhaps even accelerating it. She diversified equity mutual funds from low-cost, tax-efficient companies. She doesn't act rashly to buy or to sell; instead she takes measured steps with an eye on the long run.
- This same woman confirms her liquidity sources, retains lines of credit priced advantageously off the low prime rate, and reduces unnecessary spending to ensure that reserves last as long as possible. She's not ignorant of world news, but she's not immobilized by it either.
- She's also cutting her taxes now and in the future. While she's hanging onto appropriate stock investments – indeed, she's adding to them – she's also swapping funds or stocks with losses, replacing them with equivalent funds without leaving the market for even a day. In this action, she's taking losses she can use against taxes this year – and banking losses she can use against likely higher capital gains in the future.
- Finally, she's confirming the financial organizations with whom she invests. Likely, she long ago consolidated into a surviving, global mutual fund company. She is not buying one-off CDs at various banks; she's not searching for the next hot idea; and she's not listening to a broker on commission.

Fool's Gold: Sadly, many other women are not finding value today. Indeed, they're undermining their own objectives and missing opportunities. Over the last three months, I have witnessed:
A woman who wanted to sell all her stocks. Emotionally exhausted, she can't imagine how long her investments will take to recover, and she's worried about paying bills next month. Another had too much of her money in her company's stock, which has tanked, while her job security has evaporated. "I knew better!" she admits. "But I was investing in a company I believed in."
A woman who admitted too late that she was living from commission check to commission check in an industry where buyers are all sidelined. She also found that her home equity lender could cut off the $50,000 line it had previously offered her against her home. All of a sudden that $1,000 purse and $500-a-month leased car make her sick, not exhilarated.
Another woman, with a portfolio of individual stocks, who can't bring herself to sell them, take the losses and invest in an index fund. "I don't know why I can't do it. I just can't," she says.
A woman who has four different 401(k)s, a brokerage account, a bank in her home town, one in her new town, and two different mutual funds at two different fund companies. "I don't even know, really, how much I've lost because I don't know where I started," she says, "and I can't make time to total up where I am."

Change NowEven for those of us who didn't turn out to have the inherent strength and value we had hoped for, there is some common-sense alchemy we can practice. Conversion always starts with these magic words: "I need to change."

Where to start?
1. Start with where you want to be in 10 years. Yes, 10. There's no quick turnaround, but envision the future. Every step toward that financial future needs to be directed purposefully.
2. Admit where you are. Total it up: Make a balance sheet of assets and liabilities. Detail your fixed living expenses. Track where your cash comes from reliably and admit what's variable income. Note that the economy will likely get worse before it gets better. Make an immediate plan to survive: Cut costs, pick up a consulting job, sell your more valuable personal assets.
3. Get help. Truthfully, most successful professionals aren't trained in personal finance. Find an adviser who is not selling you a product or promising you an easy solution. Find one who will teach you and whom you will trust enough to follow her advice.
Mary Claire Allvine, CFP, is co-author of The 7 Most Important Money Decisions You'll Ever Make (Rodale, 2005) and a partner at Brownson, Rehmus & Foxworth Inc., a national fee-only financial plannin

Friday, December 19, 2008

Holiday Budgeting


Follow this link for expert financial advice from Jean Chatzky during the holidays. You'll find info on making a holiday bugdet, holiday travel and entertainment tips.

Black Belt Shopping Strategies

  1. Start now
  2. Make a gift list
  3. Know your limits
  4. Comparison shop
  5. Go in the morning, late night or early in the week
  6. Enlist the professionals - Ask for help
  7. Negotiate and haggle
  8. Schedule a get ready day
  9. Remember the "Magic Factor"

Beware of Holiday Sales


Everywhere you look latetly during this holiday season stores are offering massive sales but don't fall into the trap of purchasing stuff you don't need and throwing your money away just because it is cheaper. Here are some ways to hold on to your cash during the holiday:
- Don't shop when you are hungry: It turns out that this is not just true for grocery shopping but all kinds of shopping.
- Don't bring children shopping with you: Kids have their own techniques to persuade parents when it comes to purchasing.
- Make a list: Take 10-20 minutes before you go shopping and write down everything you need to buy and stick to the list it will make sure you stay within budget and don't stay too long in the crowded stores.
- Don't fall for sale discounts: It doesn't matter if it's on sale if you don't need it or want it for yourself or someone else. If you don't need it you could save 100% instead of 30%.
- Get Creative !

Money Saving Tips from the View

Click on the Bank on the View Icon above to watch clips relating to money saving tips for the holiday season and all year round.

Tuesday, December 16, 2008

Shopping Secrets from Shop Smart Magazine

  1. Try it on, then go online
  2. Ask for freebies
  3. Always check return costs, especially for large items
  4. Put sale items on hold
  5. Give used cars the twice over
  6. Google "promotion code" before you buy
  7. Don't buy electronics based on the features alone
  8. Haggle with the doctor
  9. Print coupons before you hit outlets
  10. Keep reading the ads even after you buy
  11. Don't shop when you're exhausted
  12. Check e-bay first
  13. Stock up on pet food
  14. Think twice about final sale items
  15. Find a supermarket the price matches
  16. Always check receipts
  17. Look good and spend less
  18. Get software for less
  19. If it's a bargain grab it
  20. Always try to haggle
  21. Get advance notice of sales
  22. Check your insurance plan for discounts

For detail on all the items on this list and more just click this link: http://http://www.shopsmartmag.org/files/Shopping_secrets.pdf

First Post of the Christmas season

I would like to apologize to all my readers. I've been really busy with school and as such have not been posting on my blog.

Thank you for your patience