Money and You – Keeping Your Finances Afloat

Keep Financially Afloat - Lifebelt with CashThe Great Recession of 2008 was a wake up call for millions of Americans and other citizens around the world. Most economists agreed this was the worst economic downturn since the Great Depression of the 1930s.

Between 2007 when the recession began and 2009, well over five million jobs were lost – and many of them are never coming back. 2.6 million people filed for bankruptcy. 8.3 million homes were lost to foreclosure. If you were lucky enough not to be one of those affected, you saw these statistics as a cautionary moral tale. “How can I make sure this doesn’t happen to me?” you asked yourself over and over again.

Borrowing not Money is the Root of all Evil

The roots of the 2008 economic crisis, many economists tell us, can be traced directly to the sub-prime mortgage crisis. But actually it runs deeper than that.

The current economic crisis can be tracked back to America’s transition from a nation that bought with cash to a nation that buys with credit cards. In 1980, slightly over 50 percent of all Americans had at least one credit card; by 1976, that statistic had grown to over 75 percent. That statistic hadn’t changed by 2008; what had changed was that Americans with credit cards were relying much more heavily on them: By 2010, the average American household carried 3.5 credit cards, with 14 percent of households carrying more than ten. The average credit card debt per household was $14, 743; many of these borrowers were using credit cards to pay for necessities and had no clear plan for how they were going to repay this debt – which kept snowballing by an average percentage rate (APR) of 14.38 percent per year.

Want to make sure your personal finances don’t spiral out of control? It’s a no brainer. As Polonius cautioned Hamlet over 500 years ago, “Neither a borrower nor a lender be.” In today’s society, the reality is that it’s almost impossible to pay cash when you are purchasing a big ticket item like a house or a car. But there are ways to keep even these costs in check.

Your Credit Rating

The surest way to manage the costs of the few things you buy with credit is to maintain a good credit score. This can be done by observing three simple rules:

• Keep your total number of credit cards down.
• Never use a credit card for personal expenses unless you intend to repay the credit card in full at the end of the month.
• Always make your credit card payments on time.

A word of explanation about Rule One: There is no hard and fast rule about the number of credit cards to carry in order to optimize your FICO score. When lenders evaluate loan applications, however, they calculate a derivative called a debt-to-income ratio: If you maxed out all the credit cards you currently carry, how much would you be able to repay given your current earnings? If this ratio is greater than 37 percent, you should seriously consider giving up one or more of your credit cards.

The federal government will provide you with a free credit report once a year. It’s a good idea to review this on an annual basis. Although this document will not contain your credit scores as such, it will provide a list of all the debts you currently owe, information about how conscientious you’ve been about repaying your debt and a listing of the lines of credit you have available.

Money Saving Tips

Sign saying Savings AheadRemember you are what you think as much as you are what you eat!  If you think that there will not be enough and that is your continuous thought about life and financial prosperity that may influence your behavior and confidence levels.  Like most behavior saving money is a pattern and one that you would be wise to adopt.  If you think you do not have enough to save money even starting with two dollars a week every consecutive week will create a “pattern” of saving money. Initially it is about creating a savings pattern and not so much how much you save. You will be able to tell yourself that you are saving money and gradually you will find yourself with more money and the ability to save more money.

How to save on Food
In February 2011 wholesale food prices jumped by nearly four percent – the largest month-to-month increase in 37 years. How can you keep your food expenditures down and still eat nutritiously?

The most effective way to avoid supermarket sticker shock is to plan your meals ahead of time. Factor leftovers into this plan.

Create your weekly shopping list with an eye to what you already have in your larder: This will keep you from over shopping. Avoid impulse food buys.

Yes, it pays to check ads for what’s on sale and coupons when they’re for items you’d be buying anyway. But if you rely too much on coupons, you will find yourself with huge inventories of items that you really aren’t going to use. After all, everyone likes some variety in their diet: How many times can you serve baked beans in a single week?

As of 2010, 91 percent of Americans had cell phones. If you are your family members are among them, ask yourself: Do we really need a landline?

There is one compelling reason to keep local telephone service: Should you ever find yourself in a situation where you need to call 911, cell phones are far less reliable. But if you do decide to keep local telephone service, make sure your service is as streamlined as possible. You don’t need call waiting. You don’t need call forwarding. Invest $20 in an answering machine and you can do away with that expensive voicemail option. Never, ever call directory assistance.

If you are carrying a second line for Internet or fax, chances are that you don’t need it. Voice over IP (VoIP) is offered by a number of companies these days, as is fax over IP. The quality for both is quite decent.

What’s the largest driver of gas and electricity consumption? The weather! If you can’t arrange to live in Florida or California – and even they have been having unusually cold weather this year – then the best thing you can do to keep your energy bills down is to weather-proof your home. You don’t need to spend huge amounts of money to accomplish this.

A felt or reinforced foam sweep will prevent cold air from seeping through your doors while caulking cracks in your window frames will close any gaps there.
Thermal curtains will act as an insulation barrier keeping cold air out in winter and hot air out in summer.

Should you have the funds to invest in new appliances, many states have programs that give rebates on Energy Star appliances like heat pumps, central and room air conditioners, and gas furnaces.

Energy efficient light bulbs, available through discount retailers at reasonable prices, can save you $30 in energy costs over the life of the bulb – not to mention the amount they save the environment in greenhouse gases.

Many Americans think doing away with insurance altogether – except in situations where the law requires it, as most states do with auto insurance – is a good way to save money. This is a false economy. Nobody knows what the future will bring, and insurance is a way of protecting yourself financially should unforeseen difficulties arise.

If you live alone, chances are you have no need for life insurance; but if you have a family to whom your loss would be a major financial hardship, then you should invest in a policy. Only the primary wage earner needs to be insured. Most insurers will require a physical examination before they will issue a policy. It’s a good idea to avoid alcohol for three days before this exam so your liver functions show no abnormalities; similarly, if you can, avoid caffeine one day before the exam: Caffeine is known to artificially increase blood pressure.

You can minimize premiums if you purchase homeowners insurance and automobile insurance from the same company. You can lower your auto insurance premiums even more by maintaining a good driving record and making sure your vehicle has good safety features.

Buying a Car
When you’re shopping for a vehicle, ask yourself: Do I really need a new car?

The rate of depreciation of course depends upon the model and make of the vehicle but in general the minute you drive a new car off the lot, it has lost nine percent of its value. By the end of Year One, it has lost 19 percent of its value; by the end of Year Five, 65 percent of its value. Except in situations where a new automobile promises huge savings at the pump or is significantly more environment-friendly, buying a brand new vehicle is not a wise financial move.

Whether you purchase a new vehicle or a vehicle that is new to you, your monthly auto loan payment is a big concern to someone who is budget-conscious. The most important determinant in keeping your monthly payment affordable will be your credit score: The higher your credit score, the lower your monthly payment.

Other considerations? The larger the down payment you are able to make, the less your monthly auto payment will be; ditto the longer the length of your repayment contract – although this one has a catch: You may find yourself paying more for the car over the long run.

Staying on the Financial Straight and Narrow

Is America finally recovering from the Great Recession of 2008? Most economists agree that it is and yet many American families continue to struggle.

The engine that drove the American economy for many years was over-consumption based on artificially created demand.

The real allure of credit cards is impulse spending. No, we didn’t really need that new pair of basketball shoes we saw advertised in every magazine and on every TV channel – and we certainly couldn’t afford them – but that play now/pay later ethos all that plastic inspired shielded us from the true repercussions of our purchases.

It may have happened to you then. Don’t let it happen again. If you want to stay financially resilient, plan your spending carefully – and if impulse buying is something you really enjoy, then program a set amount for spree purchases into your monthly budget.

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