Recovering from the Government Shutdown

The country’s financial crisis could be blamed on several people but let’s not dwell on that.  As individuals we must take accountability for our actions. We spend the most money per person/family than all the others countries in the world.  We have become so obsessed with things and using credit that we have become addicted to shopping. 

What happened to the days when you only purchased items that you could afford?  These are the things are parents and grand-parents are familiar with. If you wanted to buy a home you had to save your money for a down payment and have a really good credit score otherwise you would be quickly escorted out the doors of the bank for wasting their time.  

It is disappointing that a catastrophic event like the recession and most recently the government shutdown had to occur to bring the country back to reality.  Unfortunately, some Americans are still in denial about their financial situation and are holding on for dear life to their “things”.  These “things” have no real value and losing “things” should not make you feel sad, depressed or angry. Losing “things” should teach you a valuable lesson – things have no value.  

There is a national movement called Voluntary Simplicity. The movement follows a basic principle - the only new things you buy are things you need, i.e. food, clothing (not designer clothing or designer shoes), and shelter (only enough for you or your family).  All other things are seen as luxuries which have to be stored, cared for, and maintained.  If you no longer had these things, how much more money would you have, how much more time would you have to spend with your family, enjoy your favorite hobby or give back to your community.  If you no longer had these things, how much more would you reduce your carbon footprint?  How different would your life be if the only new things you buy are things you need?

No matter what method you choose to change your lifestyle and spending habits you must make a permanent change when you are facing a financial crisis and to prevent future crises.  Here are 5 ways to ensure you can survive a financial crisis.

Live below your means. 

This means if you don’t have the money to buy something you don’t buy it. It also means, even if you do have the money to buy something do you really need to buy or do you just want it because you can buy it.  What will be the value of the item after you buy it, will it increase or decrease in value, can you sell it to make a profit, will buying this item enrich your life and just add to the collection of things you already own. 

Create a budget.  

A budget is a spending plan that shows how you spend your money. A spending plan identifies what you spend, what you earn and what you owe.  Once you know where you money is going, it is much easier to track your spending and see if there are any areas where you can cut back.  Subtract your total monthly income from your total monthly expenses and if you have a negative value or less than 5% of your income you are in serious financial trouble and need to change your spending habits quickly.

Downsize.

If you live in a home that has extra rooms – rooms that are never used, lots of extra space and spend a lot of money in utility bills, or if you own a luxury car or mid-sized car that costs more than $20,000 you need to downsize.  Trade in your car for a cheaper car with a smaller car note or buy a used car.  Rent out a room in your home to get extra money to pay down debt or pay for necessary expenses. 

Reduce spending.

Reduce expenses by buying in bulk, using coupons, buying only items that you need, or shopping at discount stores like Costco, Target, Wal-Mart or Walgreens. If you drink Starbucks coffee 5 days a week reduce it to 2 or 3 days a week. If you go to the barber or hair salon every week, start going every 2 weeks.  All of these little things add up and will make a difference in your spending plan.

Live for Tomorrow. 

Stop living day by day, paycheck by paycheck and plan for your future. If you don’t already have a retirement account get one. If you don’t have life insurance buy one as soon as possible.  Contact a financial advisor to make sure you finances are in order and protected.  Living below your means and planning for your future make it easier to live for tomorrow.  Ask yourself what do you want to be doing in the next 5 to 10 years, and then develop a plan to ensure you can achieve these things.

Don't be a Financial Hobbit

                                                            

Hobbits are best known from the movie series Lord of the Rings.  Hobbits are described as a race of people slightly taller than the average table, broad in the shoulders and have the strength of ten men.  Hobbit in old English means hole builder. Hobbits like an unadventurous, rural and simple life of farming, eating, and socializing. They eat 6-7 meals a day if they can find enough food.  They are small, shy, afraid of the big people, are content with their lifestyle, live in holes, and find strength when placed under moral pressure to survive a war that threatens to devastate their land.  

Here are 6 reasons you may be a financial hobbit:

1. If you are in debt, throw your bills away, avoid calls from creditors, screen your calls or are in denial about your financial situation, you are digging yourself into a deeper hole of debt. 
2. If you are shy about your financial situation and are afraid to talk to anyone about it.
3. If you feel like a criminal or outcast, feel small or become afraid when you come near to those who appear larger than life or appear to be doing better than you and quickly remove yourself from their presence.
4. You feel comfortable accepting your financial situation, you are in a comfort zone and the fear or doing something to get out of your situation frightens you.
5. When placed under intense pressure from a creditor which threatens to change your life drastically, you at the last minute decide to take action to improve your financial situation.
6. You are like Biblo that goes from a place where he is never hungry to a place where everyone is always hungry. You were living a decent life but then you started to live paycheck to paycheck and are now concerned with the high cost of food and other items and wonder how you will manage.  He goes from a place where he is never far from the ground to a place where everyone is always dangling far above it by their fingertips. You go from never worrying about your finances to hanging from a thread wondering when you will fall into a financial hole.

Here are 7 ways to stop being a financial hobbit:

1. Admission. Admit that you have a problem, make a plan to fix it and stick to it.
2. Become a warrior.  Don’t get depressed, shy, afraid or stressed about your situation. Know that you are not alone and that you have the strength of ten hobbits and can overcome your situation.
3. Come out of your hole.  You can’t hide from your debt.  Face your fears and responsibilities.  Call your creditors to setup payment plans to pay off your debt.
4. Don’t be shy. Let those close to you know that you are having financial problems.  Consult a professional to get assistance if you are not able to resolve the issues on your own.
5. Become allergic. Become allergic to getting into financial problems.  Make a permanent change to ensure you avoid filing for bankruptcy or foreclosure or have legal action taken against you because you make a financial mistake.  Create a financial safety net to ease future unexpected financial situations you may encounter.
6. Don’t disappear.  Don’t avoid contact with your loved ones because of your situation. Talking to others about your problems helps gain insight to see the “big picture” and your situation may not seem as bad as you think.  Rally around your loved one for support and encouragement.
7. Find “big people”.  Don’t be afraid to interact with people who are doing well financially.  Share your experiences and seek advice from those that have good financial habits.  Ask for resources to help you with your situation.

Make Your Finances Fiscal Cliff Proof

                                                                   

The “fiscal cliff” is a term referring to the effect several laws enacted under President George W. Bush which if not changed would have on the economy that could result in tax increases for families making over $250,000 and individuals making over $200,000, huge budget cuts, stoppage of extended unemployment benefits on January 1, 2013, and a reduction in the deficit starting in 2013. 

In late February 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, promoted the term "fiscal cliff" for the fiscal crisis. In front of the House Financial Services Committee he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013.

Some analysts argued that the term “fiscal slope” would be more appropriate because although the economic effect would be extensive, it would not occur on December 31, 2012 and would be felt gradually over time.

The fiscal cliff is the result of the "trigger" idea that became popular a few years ago.  Triggers are policy changes that are passed into law in advance of when they are scheduled to go into effect and only if other usually unpopular policy goals are not met.

Most Americans believe the term “fiscal cliff” means the government will run out of money on December 31 because the deficit is so large and they fear that another recession will occur.  Media and other so-called experts have been screaming about the “fiscal cliff” for several months.  Politicians and others hope to scare Americans so they can push their own agenda and get away with it. The media has not been explained the term “fiscal cliff” so Americans can really understand the impact, instead the media continue to keep Americans in the dark.

The only ones that would benefit from the “fiscal cliff” budget cuts are big corporations such as Goldman Sachs, Wal-Mart, ExxonMobil, Shell, Fannie Mae, Berkshire Hathaway, UnitedHealth Group (parent of United Healthcare insurance), Bank of America, Ford, and the rest of the Fortune 500 corporations who are also involved in the effort to scare and misinform Americans.

According to an analysis by the Institute for Policy Studies, the Campaign to Fix the Debt has organized dozens of corporate CEOs to advocate for over 130 billion in tax breaks for the Fortune 500 companies as part of a deal to avoid the fiscal cliff.  The Alliance for Savings and Investment, is one of several corporate lobbying groups that are pushing to include tax perks for the wealthy and large corporations in a deal to avoid the fiscal cliff.  

Some governmental programs such as Social Security, Medicaid, federal pay (including military pay and pensions), and veterans' benefits, are exempted from the spending cuts. Spending for federal agencies would be reduced if Congress does not act.

Congress is being pressured to extend some or all of the tax cuts, and to rethink the wide reductions with more pointed cutbacks by December 31, 2012.  Democrats want to prevent cuts to social welfare and entitlement programs.  Republicans want to prevent tax increases and defense cuts. 

Congress should play nice and focus on developing programs and policies that create jobs and reduce the deficit over time instead of looking for quick fixes that don’t last and don’t work.  Here are 11 ways to make your finances fiscal proof. 

1. Create a budget. Create a budget to determine how much you earn, how much you owe and how much you are spending.   Include savings in your budget.  Ensure that everyone in your family follows the budget. Track your spending daily, weekly or monthly.
2. Reduce expenses. Reduce your expenses by determining areas where you can reduce spending by buying more needs vs. wants such as bringing your lunch to work, shopping at discount stores or buying generic brands or downsizing to a smaller car or home. 
3. Don't hide from overdue bills.  Call your creditors right away to setup payment plans to get current on old bills to prevent harassing calls or letters from creditors, damage to your credit report or legal action. 
4. Pay down debt.  Pay down debt and keep credit card balances at 20% or less of the credit limit which helps increase your credit score.  Don’t open any new accounts or incur any additional debt if possible. 
5. Pay bills.  Pay bills on time or before the due date to increase your credit score.  Pay bills online or through automatic deduction to save money and avoid late fees. 
6. Establish an emergency fund. Create an emergency fund to cover bills and monthly expenses for 12-15 months to prevent going into debt. 
7. Plan for retirement. Contribute 10-20% towards a retirement fund each month.  Contribute to a retirement account through your employer or make automatic contributions to an IRA if you are self-employed or if your employer doesn’t offer a retirement plan. 
8. Get Protection. If you don't have health, life or disability insurance consider getting at least basic health and life insurance.  Bundle services with the same company to save money. 
9. Find stable employment. Find a stable job or get a part-time job to get additional income.  Do research on a company to see their annual finance report, see what the company's plans are for the future and ask others if they have heard about the company to ensure you are working with a stable company.  If you hear rumors of layoffs dust off that resume and start looking for a new job. 
10. Extra Income.  Find ways to earn extra income either through a part-time job or start a business. 
11. Plan for the unexpected. Plan for the unexpected. Reduce spending by 30-50% and have a plan A and B.  Think of possible scenarios and action plans for each such as illness, death, divorce, unemployment, etc.

Do whatever you can to make sure whatever is going on in the world does not control your environment or finances.