Debt Free

You work hard for the money every month. If you're like so many, you find yourself wondering “Where does it all go?” If you're following the financial recommendations of many advisers and PF blogs, you'll have a budget. That's great financial advice, but did you ever wonder how much the average person in the U.S. spends on their little slice of heaven every month? Even more important, how does that distribution break down for the average person and those who are financially successful? Do those who have “made it” spend differently? How about those that had it given to them, like lotto winners, vs. those who earned every last dime the hard way? The latter group are those you need to be concerned about, because lightning's not strikin' you any time soon, brother!

In the last fiscal quarter, Americans spent $9,229.6 billion on personal consumption items. That's pretty large, but next time you think you've really made it, toss this thought around in your noggin. With his net worth hovering around $50B, Bill Gates could cover all the expenses of every American for a year and still be in sole possession of #12 on of the Forbes 400 list of richest persons. According to the U.S. department of Commerce, in Q2 of 2006 the average(?) American spent the majority of their personal income on, and this was a big surprise, medical care. That's right, you've got to pay the doc. If you thought it was your imagination that medical care was ridiculously expensive, you're wrong. Your imagination's not that good. American's spent more on medical care last quarter than any other single spending category. Staying alive, and, one would assume, reasonably healthy, consumed over 17.1% of our consumption dollars!

Housing, a category you'd think was the largest, came in a distant second. Keeping a roof over your head demanded, on average, 14.8% of your personal spending. Well, at least for homeowners in most locales, the outlay for housing doubles as a healthy investment. Historically, home appreciation has averaged about 2% over the rate of inflation, and home ownership offers some nice tax benefits to boot. If you live in So. Cal, the Bay Area, Boston, Seattle, or Las Vegas, you've beat the average handily over the last few years.

Fish gotta swim, birds gotta eat, and so, food was the third largest personal consumption category. Tasty victuals persuaded a hair over 13.8% of your dollars to jump from your wallet. Walkin's no fun either, unless it's on a beach at sunset, thus the American love affair with Benz's creation cost the average Joe/sephene about 4.8% of their paycheck each month. Keep in mind that, according to the USDOT, over 8% of U.S. households don't own a motor vehicle. This means that those households that do have one or more cars spend more than 4.8%.

That would have occupied forth place on the list, but it was actually eclipsed by the crazy desire of people to keep their home warm and cozy, and not to trip over the kid's toys in the dark. Keeping your home comfy isn't worth much if it burns down, or is swept away because you built it in a flood plain either, so the bank demands you keep it insured. Home operation expenses caused you to fork out, on average, 5.3% of your personal expenditures.

These are the U.S. averages for personal spending. What is different for those who are a bit better than average on the financial security ladder? What do they do differently than Joe Average? First of all, many of those who find themselves with a sudden windfall tend to experience a pretty bumpy ride. Despite what you'd think, may who win money are soon broke, or close to it. The causes seem to be lack of education and fiscal restraint. The primary culprits are, surprise, surprise, overspending and poor investments. By the numbers, those who play the lottery tend to be poorly educated, thus, many of those who win are also poorly educated. They are, therefore, poorly equipped to handle what most would think to be a bit of good fortune. The media is replete with lotto winners losing everything to, and these seem to be the most common sources of financial demise; gambling, drugs, poor investments, giving money to family, cars, vacations, poor investments. Most of those who frequent PF blogs would probably fare much, much better.

How about those who made their fortune by actually working hard, saving, and investing? Where do they spend? First of all, according to a 2003 study of America's wealthiest consumers performed by the American Affluence Research Center (yes, it really exists), the average American with a net worth of over $1,000,000 doesn't earn as much as you'd think. Many (92%) earned less than $100,000/ year. This figure is slightly misleading, because one of the leading ways for them to have attained their wealth was through entrepreneurship, and many had already sold their businesses for a handsome profit. They now lived on fixed incomes, thus the low annual income figure. 12% of those surveyed in this demographic however, continued to run their own businesses. Others, and this figure has probably increased dramatically in the last few years, had a substantial portion of their net worth in their residences, and that was how they achieved their net worth. Most did it the old fashioned way, by living a fairly frugal life for many years, saving and investing wisely and consistently, and only occasionally splurging. The average of this group was 55.

So, where do these millionaires and almost millionaires spend their money, and what do they do? Much the same way as the rest of us, but on nicer things. It's very important to note, however that they are usually rewarding themselves after a fairly frugal lifestyle. This group is 328% more likely than the average consumer to own a Cadillac (possibly reflecting the older age of this demographic, sorry GM), and 162% more likely to drive a Benz. They tend to be patrons of the arts and give much more to charity than the average. They are 127% more likely to be involved in civic issues than the typical consumer. They are voracious readers, with two of their favorite magazines being Kiplinger Personal Finance and U.S. News & World Report.

Of those that are substantially wealthy, with net worths exceeding $2 million, 11% are self employed, only 5% are retired, and nearly all have incomes in excess of $100,000, with most far above that figure. 81% have a college degree. While those affluent consumers in the previous group can be found throughout the U.S., those in this wealthy group are concentrated in the major metro areas such as NY, NY, Boston, San Francisco and Los Angeles. This group spends big bucks on home improvements. They are 333% more likely than average to spend $5,000 or more annually on home improvements to their palatial residences. If you're watching the U.S. Open and remember Wimbledon, you doubtlessly noticed that half the ads seemed to be for luxury cars or investment companies. There's good reason for that. Those in this demo really do spend quite a bit of time and money on golf and tennis, just like the stereotype says. They love good beer too. Their fav domestic is Sam Adams. Like the others in wealthy demographic groups, these folks spend substantial monies on charitable causes.

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Mahmoud Ahmadinejad's basis for Iran acquiring a nuclear capability is that "No one can deprive a nation of its rights based on its capabilities." Following a similar line of reasoning, the U.S. should deprive Iran of it's nuclear capabilities because we have the capability to do so. This train of thought could be followed to the logical conclusion that we have the right to be free from potential nuclear terror attack, and the elimination of Iran's budding capability would make such an attack less likely. Furthermore, the sooner this operation is carried out, the less likely there is to be massive collateral damage.

Well, it's probably not a great idea to go about salting the Iranian landscape with GBU-28s, cluster bombs, and such when we could use massive diplomatic and economic sanctions to achieve the same ends. Can we really achieve those ends with diplomatic and economic sanctions, however? Without the help of the Chinese and Russians, is it really possible to levy effective sanctions on the Iranians? Chinese – Iran trade breaks records every year. Up from $5 billion in 2003, over $10 billion dollars worth of goods changed hands between Beijing and Tehran in 2005. This, and China's newfound thirst for oil, is a powerful incentive for this relationship to continue unabated. China has continued to oppose economic sanctions on Iran, and we probably can't count on help from the Chinese any time soon.

Russia, on the other hand, while continuing to oppose sanctions against Tehran, has actually experienced a decrease in trade with their neighbors to the south in the past year. They are still an important trading partner to Moscow, and baring blatant aggression on the part of the Iranians, support of sanctions by the Russians is probably not in the cards at this time.

What of U.S. trade with Iran? Are we in a position to withhold anything in the name of economic sanctions? From almost nothing in the mid 1980's (understandably), U.S. exports to Iran grew to over $700 million in 1992. We imported virtually nothing, and thus had a healthy trade surplus. Over the next few years, our exports to Iran nearly stopped completely. We sank to a low of under $10 million in 2001. Some people spend more than that every year on cars and vacations. Our imports, however, slowly grew from almost nothing to the point when, in 2005, the U.S. imported almost $175 million worth of goods from Iran. Very small by world trade standards, but considering the steady growth, it sounds like we are not applying too many sanctions on Iranian export industries ourselves.

Note that during the same time period, Iran decided not to return the favor, and bought virtually nothing from U.S. businesses. So we're applying sanctions by denying U.S. companies the Iranian market, while simultaneously increasing our imports of Iranian goods. If we really wanted to apply a bit of pressure, shouldn't we be refusing to send any money to Iran? Close down all U.S. purchases of Iranian goods. We've bought no oil from Iran since 1991, but there are plenty of other willing takers of Iranian oil. In addition, their exports of non-petro products has been steadily increasing, to the point where last year it hit $12B. So, it seems that not only is our paltry $175 million very small percentage of their economy, we're getting negligible support from the rest of the world on the whole sanctions idea.

It might be concluded that Ahmadinejad is just suffering from a bout of short man's disease. Maybe he's just a nationalistic, religious zealot that would rather Israel be turned into a billiard table of fine Atomsite (with the U.S. not too far behind). He's said as much, and I'm not putting any words into his mouth. Whatever his true motivations, it would be prudent to learn from the past. When dealing with such leaders, cut them no slack. Giving a dictator room didn't work 70 years ago, and didn't work 20 years ago, and it won't work now. We need to increase the pressure, but with the help from the rest of the world community. They've got to stop feigning indignation at the Iranian nuclear ambition while continuing to cultivate stronger trade relationships. You know who you are, Germany ($5.67 billion or 14.4% of exports to Iran), Italy (7.5%) and France (6.2%). Get off your ass and help, or do you remember nothing of the events that happened last time the shit hit the fan? Such short memories. Iran won't stop blustering, exporting terror, and pushing the envelope on it's nuclear problem unless we stop them.

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All of you that are slaves to your mortgage every month will love this. Did you know the term “mortgage” actually has its roots in the French words “mort” (death) and “gage” (pledge)? HaHa! You've signed up for a death pledge. I bet you really want to pay it off now. If you're fortunate enough to live Down Under, you can take advantage of a special bank account known as an “offset account”. It can be a savings or checking account. This financial vehicle allows a savings account to be linked to your mortgage.

The effects are very powerful. Instead of the mortgage interest being calculated on the entire balance of your mortgage every day, they're calculated on the balance of your mortgage minus the amount in your offset account. For example, if you had a mortgage with a $150,000 balance and an offset account with a $20,000 balance, you'd only pay interest on the $130,000 difference. Depending on your mortgage and savings balance, you can easily cut your mortgage repayment time and total payments in half, and this with an offset account balance only about 10% of your beginning outstanding mortgage balance. To make it even more attractive, the interest savings are not taxed as is the interest income in a regular savings account. Wow! Kylie Minogue and 100% linked accounts. Those Aussies have it all. Obviously, such an account would be extremely attractive to U.S. mortgage holders as well. Contact your congressman/woman ASAP. Your linked account would be a great use for your emergency fund.

Create a debt reduction “Count Down”. This will allow you to see exactly how long it will take you to become debt free, as long as you don't increase your debt any more. It's great to watch as the magical day gets closer and closer. To do this, you must make a chart with all your debts. Put the highest rate obligations at the top. You'll tackle these first. Pay the minimum payment on all your debts except the one at the top of the list. Set aside as much of your disposable income as possible after paying all your bills as you can. This is the additional contribution you'll make toward the top debt on the list each month.

As soon as the first debt is completely paid off, you can shift all the money you were previously paying toward that debt to pay off the second debt on the list. These monies will be in addition to the minimum payment you were paying already. When the second debt is paid in full, you shift all the money to the third, and so forth. You keep going in this fashion until you're completely debt free. You can include your mortgage or not in this program. Your inclusion of your mortgage depends upon weather you subscribe to theory of using your mortgage as relatively cheap investment funds or you'd like to completely debt free. That argument could probably start a war in some circles.

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Debt reduction and financial security strategies

There are only three ways to reduce your debt, increase the balance in your savings and investment accounts and contribute to your financial security. Everything toward these ends is a combination of one or more of these financial strategies. They are:

• Increase your earnings – If you maintain your expenses at their current level and increase your earnings, you'll obviously have more money to pay down debt and make savings contributions. You can increase your earnings with a number of strategies, but basically you must either earn more at your present job, get a new job with commensurately higher pay, or add income streams. Adding income streams has the additional benefit of diversifying your income. As with diversity in investments, diversity in income reduces the likelihood that your income stream will be interrupted. It also reduces the effect that a single event will have on your income. You can start one or more small businesses, do consulting work, or get a second job. Keep in mind, however, that free time has merits of it's own. If you take a second job, make sure that the additional income it generates is worth the additional time commitment.

• Decrease your expenses – Your disposable income is your after tax income minus your expenses, so if your expenses are reduced, it stands to reason your disposable income will increase. They key to maximizing this strategy is to contribute all your newly found income toward debt reduction or investments. It makes no sense to reduce your expenses in one area, only to increase them in another, even if that new plasma TV or pair of Stuart Weitzmans looks really tempting.

• Increase the leverage of your existing finances – You can do more with your existing finances. Leverage is one of the most powerful principles in wealth generation. You can leverage any resource really, weather it is time, human resources, plant and equipment, or finances. Leverage allows you to control a large amount of an asset by using a small amount. You then benefit from the asset appreciation of the entire asset, even though you only contributed a small percentage.

  The most common use of leverage for most people is in real estate. For example, if you buy a $200,000 home with 10% down, you control the entire asset, even though you only contributed $20,000. If the home appreciates 10%, you experienced a gross appreciation of $20,000, or 100%! That illustrates the power of leverage. In reality, you'd likely have expenses that would be charged against that. But you'd also have tax benefits. Businesses use leverage every day with their employees. They leverage the power of their employees to create wealth. In theory, the employee generates more for the business owner each day than they are paid, thus contributing to the bottom line of the business.

You can, and should use a combination of all three strategies for maximum effectiveness. Maximizing the combined effectiveness of these techniques will ensure your financial future.

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Today's the day Mohammad took the trek to the furthest mosque, way out in Jerusalem. Naturally such a difficult journey deserves commemoration, and that's just what Iranian president and current Middle Eastern Head Whack Job, Ahmadinajead (بعض [هيتلر] الثانية) is proposing. Or is he?

The whole thing actually got started when Farid Ghadry, head of the Reform Party of Syria, wrote a quick little ditty on the Media Line web site claiming that the U.S. State department take the night of the 22nd seriously. Why? Because that's the Night of the Sira’a and Miira'aj on the Islamic calender. The night Prophet Mohammed ascended to heaven from the Aqsa Mosque in Jerusalem on a Bourak. After a little jaunt through heaven and hell, he made a graceful touchdown at Mecca.

What Ahmadinajead proposed is that, as an answer to the uranium question, he'd deliver a light in the sky over the site of Mohammed's ascension. He picked the date of his response, August 22^nd, to coincide with it. So he may be proposing a commemoration, but he really wants to lead the west, and the rest of the Arab world, down his little, predetermined path that culminates in his supreme control over all things in the region. If it takes a little fission demonstration, oh well.

His neighbors in the region should be even more afraid than those in the west, as his goal is subjugation of the whole peninsula, with some of the surrounding areas thrown in for good measure. He'll have the oil, demand for which isn't likely to ebb any time soon. Ahmadinajead is thus ensured a revenue source for years to come. China, whose demand for petro products is climbing, according to a CBO report, between 3.5% and 5.8% annually for the foreseeable future, will contribute mightily to those revenues. A major fly in the world's ointment is precisely this Chinese demand for oil and other petro products. Their ballooning economy depends on an unobstructed flow of crude from, among other places, Iran. Not wanting to let their economic engine misfire, they'll do what's necessary to ensure that flow.

So what we may be looking at in the not too distant future, is a shift in the economic and political order of things. A strange partnership of China and Iran, in bed together like two sex crazed teenagers that aren't really too enamored of one another, but are too physically attracted to each other to stop. For the Chinese, their insatiable demand for oil was initiated by the burgeoning development caused by their shift to becoming the world's producer. Who are they producing for? Well, the U.S. of course.

That is the conundrum facing the U.S. We are flat on our backs with the Chinese as well. Our demand for cheap goods has a long history, but as price pressures on marketers becomes ever stronger, and China's production capacity has become more sophisticated, the flow of Chinese goods through Bentonville, among other places, has reached epic proportions. American consumers are addicted to inexpensive Chinese products like a drug, and are unlikely to switch to Methadone any time soon. As the quality of Chinese goods improves, they continue to tighten their hold on American consumers.

So here's where we may be in a few years. Ahmadinajead, having made good on his promise to eliminate that thorn in his side, Israel, now runs the Middle East. The U.S., having grown into a left-leaning nation unwilling to fight for anything because someone might get hurt, now kowtows to His Nuclearness. China, having assumed the role of the world's preeminent economic and military power (using money they obtained from U.S. consumers), happily slurps up the Middle Eastern oil provided by Iran, courtesy of the Iranian Confederation of States, consisting of old Saudi Arabia, old Iraq, and old Kuwait (we're not going back there again). Syria, having no real oil, is Iran's buffer state to the west. Ahmadinajead uses his power to quell Sunni rebellion throughout the region, in a manner similar to Sadam's oppression of the Shia.

It is indeed fortunate that different attitudes existed in the U.S. 70 years ago, lest we be speaking Deutsch today. In today's political climate, we may never make the difficult choices necessary to be victorious against a powerful enemy. The tools and strategies we used to emerge on the side of victory in the Second World War would be eschewed by many on the left, and thus our defeat of evil in that time would be very much in doubt, much as it is today. Moral equivalence renders all life equally valuable, thus you cannot take life, when necessary, to ensure your survival.

To those on the far west side of the political spectrum, peace means only the absence of war, not the liberty necessary for a true peace. If Ahmadinajead continues his posturing, and the rest of the world allows him to negotiate his way into a nuclear arsenal, we can only hope someone ultimately steps up to the plate who can stop him. The only other alternative, if he continues to emulate Hitler in the 1930's, is to hope he too has his own Barbarossa, with similar results. If that fails, Ahmadinajead backed Muslim extremists could make our world a rather rough place.

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With all that goes on in your financial universe, you need to put some unconventional strategies into place that will assist in boosting your earnings, savings and getting your retirement accounts where you need them. Here are some ways you can get the edge you need. These financial tricks may be just what you need to push you over the financial hump.

1. Get a seller concession when you buy a home. A seller concession enables you to roll your closing costs into your mortgage by adding the closing costs to your mortgage. You have the seller add a percentage to the price of the home that is equivalent to the amount of the closing costs. That allows you to pay for them using the mortgage, with its tax deductible interest. If you're paying 7% for your mortgage interest before taxes, you should easily be able to make this strategy work for you. The key is to get a greater investment income on this money than what you pay for mortgage interest, after the tax consequences. One caveat for this strategy. Your home must be able to appraise for the total of the original selling price and the seller concession combined. The benefit is that it costs the seller nothing, and you avoid having to come up with a hefty amount of cash for closing costs. Obviously, the best scenario is to get your seller or mortgage company to eliminate the closing costs altogether, but failing that, you should try to get a seller concession.

2. Insurance is one of your largest financial obligations. You pay insurance on everything; your home, car, jewelery, yourself, health, etc. It really adds up, and fast. There are some easy things you can do to minimize the tremendous amount of money you shell out for insurance every month. After all, the insurance companies have plenty of money, you, on the other hand, probably don't. Let's put the balance just a bit more in your favor. First, shop different companies for the best rate. Some companies are better on different types of insurance than others.

   After you've got insurance from the company that you found to give the best value, the easiest thing you can do is to raise your deductibles as high as possible. In most cases, you try to avoid claiming anything relatively minor anyway, because the insurance company will just stick it to you with increased payments in the future. Sometimes they'll even deny you future insurance if you're too eager to make claims. You'll typically save at least 10% by increasing your deductibles.
   

Next, make sure you get every other discount you're eligible for. It sounds stupid, but many people are eligible for many discounts they're not getting. Go over everything with your insurance providers. For your auto insurance, you should get a multi-car discount, non smoking discount, multi-line (if you've got home owner's with the same company) discount, and a discount for good grades if you're still in school. If you're about to buy a new car, look at the insurance rates for that particular model first. Rates vary widely between models, and not always for the reasons you'd think. Compare before you buy, and it could save you big money.

Your home owner's policy is also a good candidate for review. Make sure you're getting all available discounts. Look at discounts for monitored security and/or fire alarm systems. They're starting to get pretty hefty. Ask your provider about anything else you can do to your home to lower your rate, such as earthquake preparation. If you're retired, check if your insurance company offers a discount for retired persons. Many do. As with your auto policy, you can raise your deductible to obtain a discount. You don't want to make claims for anything but major damage to your home or property anyway. You'll regret it.

1. Pay your bills online. You get multiple benefits from this strategy. First, you save time. Time is irreplaceable. Now you can do something constructive with that little bit of it. You'll save postage. It may not sound like much, but every bit adds up. The big benefit is never having to worry about a check for a credit card payment getting lost in the mail. One lost check could cause a bad chain reaction of late fees and increased credit card interest rates.

   A similar approach is to have the minimum payment on all your credit cards withdrawn automatically from your checking account. You'll never have to worry about making a late payment again. The secret is to make the same payment you were making before, in addition to the minimum (you say those are the same amounts??). This will eliminate your credit card bills much faster, because the minimum payment really just pays the interest and a small amount of the principal.

2. Make (and stick to) a savings plan. Just like a business plan works to lay out the financial details of a business, a savings plan will show you where, and how, you can save money. A savings plan is similar to a budget, except that it is dedicated to finding ways to put as much as possible into your savings and investment accounts. You'll find all sorts of leaks that can be funneled back into your long term financial future, instead of into the tip jar at Starbucks.

3. Start a business. Even a small business will offer substantial tax benefits (check with your tax accountant to be sure all is on the up and up). It will also allow you to diversify into multiple streams of income. Corporate stability isn't all it used to be. You could be downsized or acquired by the time you return from lunch, so be ready. Start with something small that lets you get your feet wet in the business world and requires little or no capital to get started. You aren't going to run out and start GM or Pizza Hut tomorrow, so don't waste time or money trying. Look at something you're really interested in, and hopefully good at. Begin on the side, in your spare(???) time. Make a business plan that covers all the details. There are many books and good software available to assist you. If you have MS Powerpoint, there is a basic business plan template included.

4. Finally, change your mindset. Yes, just like that! Make becoming debt free and financially secure a goal that you're addicted to. Work to make yourself actually feel uncomfortable when you're not actively pursuing the goal of financial independence. If you find yourself wasting money, mentally punish yourself. Soon you'll become addicted to the rush of earning money and watching your savings grow. It can be just as much of a rush as buying that new pair of Manolo Blahnik's or that new Winston bamboo fly rod you've just got to have.

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The current UN brokered ceasefire between Israel and Hezbollah is tenuous at best. It can be likened to a pair of hippos trying to walk down the edge of a machete. Before too long, one or both will certainly fall. As could have been predicted, those in the Arab world are crying victory for Hezbollah and it could be argued that they are correct. Israel got almost nothing from the UN for its efforts. Rather than an emasculated Hezbollah withering on the vine, the group sits patiently to the north, waiting for their next opportunity to lob 122mm packages of love into Israeli cities. Columnists throughout the Arab world trumpet the success of the Hezbollah offensive, which will surely embolden future aggressors seeking to eliminate the Jewish state.

The only time Hezbollah and their supporters deviate from their victorious rhetoric is when they take advantage of an opportunity to declare themselves victims. Their cry of victimhood is a weak attempt to engender sympathy that is, unfortunately, all too often successful. After all, those on the left throughout the world love to be portrayed as supporting the victim.

According to S.M. Hassan of the Iran Daily, Israel “has seriously eroded the 100-year-old accomplishment of humanity which prohibits use of force for solving international disputes.” Mr. Hassan seriously overstates humanity's accomplishments, especially the radical Muslim contribution to resolving our differences, as they seem to turn to violence as a first resort. Apparently the irony of his prose escapes him, as groups backed by Iran contribute mightily to using force when resolving disputes. It could, however, be argued that these disputes are not truly international, because all parties concerned are not truly nations. Or, possibly, these folks just like to blow things up, like your drunk brother-in-law at a 4th of July party. Observing their behavior for the previous decades could easily lead one to that conclusion. In any case, most unbiased observers would have trouble determining that radical Muslims have turned their backs on the use of force to resolve their differences, however unreasonable these differences may be.

With deference to the esteemed Mr. Hassan, the track record of the radical Muslim community indicates only that they will continue to kill everyone in their path. Since they exclude nearly everyone from their definition of innocent, their own harangue to their followers and actions throughout the world demonstrate that no one is safe. They endeavor to exterminate anyone with the slightest difference of opinion or any unfortunates who occupy land the radicals deem to have some tenuous claim on. The Imams in Britain whip their followers into a frenzy, urging them to use whatever means necessary to achieve their goals. Unfortunately, the Brits have too often let such inflammatory diatribes go unpunished.

When statements from Muslim political leaders and clerics are often indistinguishable from those uttered by Hitler 70 years ago, one wonders why so many of the world's liberal journalists, leaders and entertainers have trouble supporting efforts to rid the world of this menace, preferring instead to negotiate. Negotiation with those who do not respect you or your positions is impossible and should be avoided. It's a waste of time for all concerned. Interviews such as Mike Wallace's of Mahmoud Ahmadinejad serve only to advance the cause of the Muslim radicals. He might have given similarly glowing reports while speaking with Adolf, had he been interviewing world leaders in 1934.

Numerous cease fires have been perpetrated throughout the middle east for decades. They have accomplished little, save the opportunity for both sides to regroup and rearm. This one will prove no different. Next time the Hezbollites will use longer range missiles. It's ironic that when Israel destroys Lebanese buildings and causes loss of Lebanese life as collateral damage from aimed fire there is a great hue and cry from the world community. When, however, the Katusha rocket, a weapon that has no possibility of being aimed at anything other than a general area, causes the deaths of Israelis, many in the world say little or nothing. Sadly, it's not over yet.

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You look at your credit account balances and want to jump off the nearest bridge! Take it easy. There are some things you can do to help yourself get toward the goal of being debt free, even with the money you make now. These steps on your path to debt freedom will cost you nothing.

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Donations – Look Before You Leap, or Give Even One Red Cent!

You work hard for your money, and many of you like to give back by donating some of your earnings to charity. That's one area where Americans can be legitimately proud. According to the organization Giving USA, Americans donated over $260B to charity in 2005. A huge number to be sure, and an increase of over 6% from 2004, so we're getting even more generous at a level that outpaced inflation. Where's the problem? For many there's no problem, but some of your money went to line the pockets of some rather shady individuals, instead of helping those whom you intended. Nothing brings the hucksters out of the woodwork like a major disaster ala Hurricane Katrina or the SE Asia Tidal wave of 2004.

How can you be sure that the money you're giving to help legitimate charities or disaster victims is actually helping those in need and not buying the latest from Delta Marine for some scam artist? The easiest way is to only give your money directly to the charity itself. Make sure it's a recognized, national or international charity. Mail (how quaint!) the donation directly to them or donate on their website. If giving on the website, type in their URL directly into your browser's address bar, instead of clicking on a link. This is especially true with regards to email links. Don't trust email links. They are a favorite weapon of scammers worldwide. If you're unsure of how to give money to help specific disaster or terrorist attack victims do some checking first.

Major charities such as the Bill and Melinda Gates Foundation are well known for carefully scrutinizing the recipients of their donations, so these types of charities are safe if you just want to give a donation to a general charity and let them distribute it as they see fit. Others such as Mercy Corps and the Red Cross are well known for ensuring that the money gets to where it's supposed to.

What about giving money through your church? That can be fine, but churches are notorious targets of scam artists and swindlers. See this recent article in the Washington Post 

There was a famous case a few years ago where some enterprising young gamblers sold $21M worth of non-existent cars (at a great discount!) to parishioners. The cars were supposedly part of a large estate of a wealthy car collector. I even had one offered to me as a gift. I never got to go pick it out and then found out why. It was never there. Church goers have been scammed for years, either by criminal pastors directly (remember the Bakkers?), or by thieves that first con the pastors, who then get donations from the congregation. You may think it can't happen at your church, but it's estimated that between 1998 and 2001, over $2B (source:Christianity Today, “The Fraud Buster,” January 2005 )was taken in church related cons.

The bottom line is: You worked hard for your money. If you've gotten to the point where you feel you should give something back, bravo! You just need to be sure your money goes where you point it.

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To the uninitiated it can be kind of confusing. Wouldn't you want both value and growth in your investments? Why can't you have both? Do stocks that are a good value not grow? If they don't grow, why not? Well, as with many things, with equity investments the nomenclature may not really describe exactly what's going on. Value stocks certainly can grow and growth stocks can be really good values. If you've been investing in the stocks market for a while, you're well aware what the different descriptors indicate.

While most people are familiar with the Dow Jones Industrial Average, there are many more stock indexes that aren't reported on the news every night, unless you are a regular to Bloomberg or CNBC. While the Dow Jones Industrial Average looks at only 30 different blue chip companies, there are other indexes that encompass different segments of the market.  The Russell 2000 is one widely used index for small cap (generally, stocks with market caps of under $2B or so, but over $300M) stocks. According to Russell: “The Russell 2000 Index offers investors access to the small-cap segment of the U.S. equity universe. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.” It is actually a subset of the larger Russell 3000 index, including the smallest 2000 stocks of it's larger sibling.

Another index that has gained considerable favor of investors over the past couple of decades is the S&P 500 index. The S&P 500 index was created by the brokerage firm Standard & Poors. It is viewed by many investors as giving a better picture of the actual U.S. stock market. The S&P 500 includes stocks of many different sized companies and is weighted, with those of larger market capitalization being given more influence on the index's result. S&P also has an index exclusively for small cap equities, the S&P 600. The Russell 2000 is also a weighted index and includes stocks with many different characterizations. The S&P 600, on the other hand, is a much more exclusive club. Entry into the S&P 600 requires undergoing a bit of looking under the hood, as it were. The individual equities are examined to be sure the companies have some standards to meet. In addition to meeting the definition for a small cap, firms must meet certain criteria such as, having a U.S. headquarters,  financial viability and liquidity. The S&P 600 index has actually outperformed the Russell 2000 index by 2% over the last 5 years. Return for the past five years (2001-2005) has averaged about 11% annually, where the Russell 2000 has averaged 8.99%. This is most likely due to it's makeup of stronger companies, due to the more difficult inclusion requirements.

Two widely tracked subsets of the Russell 2000 are the Russell 2000 Growth and the Russell 2000 Value indexes. Growth stocks are those whose earnings growth are expected to exceed the market average earnings growth. Value stocks are those that investors feel offer basically a good deal, based upon their fundamentals such as P/E ratio, dividend yield, net income and outstanding debt. If the stock  has a low price compared to others with similar statistics, it is considered undervalued relative to the market, and termed a “value stock”.

There are many examples of successful investors following both value and growth strategies. If one looks at the performance of the market indexes over the past decade, there are definite differences, and some interesting trends emerge. For the period of 1996 – 2005 we saw both ravenous growth and some precipitous declines. The declines gave more than a few people some sleepless nights, especially in the small cap sector, where more of the stocks were of the variety affected by the Internet bubble.

For the 1996-2005 decade, the Russell 2000 value index gained an average of approximately 14.3% annually. While impressive, it is all the more so, considering there were some frightening periods included in that decade. For example, for the 1998 – 99 time period, the index declined an average of about 4% per year, and, in case that didn't get your attention, it stripped over 11% from your investment accounts in 2002.

For the same time interval, the Russell 2000 Growth index returned an annual average of just under 7.4%. In addition to the growth index's lower average return, it was much more volatile. On a list of 8 key indexes of both large and small cap stocks, the 2000 Growth gave the best annual rate of return for two of the 10 years and the worst for 2 others. It gave the highest percentage increase of all the indexes tracked for the decade, 48.54%, in 2003. It would have a taken a year like that, however, to bring you back from the brink if you were in that index, as the previous year it fell over 30%, lowest of all the tracked indices for the decade.

The Value index, however, was no stranger to volatility, snagging the highest return for the 8 indexes three of the ten years, but chipping in two of the lowest annual return figures as well. Interestingly, in 1999, a year that the Russell 2000 Growth Index posted the year's best return numbers, 43.09%, the Value Index took the honors(?) for the lowest, at loss of 1.49%. The following year, the indexes swapped positions, with the 2000 Value returning the highest rate of the indexes tracked, at 22.83%, while the 2000 Growth slinked off with a -22.43% showing. In 2001, the 2000 Value was also the first place finisher, while the 2000 Growth still lost impressive numbers, -9.23%. That year was not pretty, however, and other indices lost considerably more, sparing the 2000 Growth Index from finishing in the cellar.

What does this mean for you? Well, in my opinion (opinion only, I'm not a financial adviser ) you can't go wrong with strong fundamentals. It's true for sports, and it's true for equities as well. Couple that with something that's always attractive, a low price relative to what other's are charging for something similar, and you've got a potential winner. If you're of a mind to try and pick individual stocks, look for those value oriented stocks in industries with solid future potential.

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So becoming debt free is getting to be an obsession? You can't contribute to your debt free and/or retirement fund fast enough? Here are some money saving ideas that can add up big time, but most people are not cheap enough or too proud to try them.

• Cut your own hair. - OK, you probably do this for your kids, but what about using this money saving technique for yourself? (Men, don't try it for your wife!) Get a good set of clippers with guides and go to it. Not only will you save significant cash, but think of the time you'll save by not going to Fantastic Sam's or Hair Masters once a month. Savings = $18.00 / month + the hour and a half you get to use for whatever you want. If you take your kids in too, stop that as well. The savings will add up even faster.
  

• In the summer, dry your clothes the old fashioned way; on a clothes line. Your dryer is one of the biggest energy users in your home. This will save energy in two ways: The energy you don't use in the dryer, and the energy you save by not having to cool your house so much. The neighbors may look at you a little sideways, like the looks Jed and the clan got when they relocated to 90210, but who cares?
  

• Analyze how much things really cost before you do them. Include all those hidden expenses, like fuel and parking. This will just about make sure you never go out to do anything fun ever again! Seriously though, your entertainment dollars should be thoroughly scrutinized. For example, taking the family out for a movie once a month on Friday night, with those over priced treats, can get rather spendy. A family of five can easily drop $80 on a simple movie night in most metro areas. If you feel the cultural value of sitting in a dark theater together outweighs staying home and watching a DVD, at least make it a matin'ee.

  Add those figures in your noodle for a second. $80 multiplied by 12 months is just a gnat's whisker shy of $1000! Every year! If you really want to spend money on something, it's predicted by industry insiders that loss leader 42” plasma TVs will by under $1,000 by this holiday season. You could skip the movies for a year, then stay home and watch the show on one of those! You'd at least have an asset, instead of movie memories, like fighting for a parking place and hearing the teenagers mashing behind you. In addition, flat panel TVs probably won't be able to depreciate too much more than they have already.

• Stay focused when you go to buy something you need. It's so easy to spend twice what you intended by getting sucked in by POP displays or those sale tables. Treat shopping for a single item like a military mission. Go in quickly, stay focused on the objective, and get out. Home Depot and Lowe's are especially bad for me. They always seem to have so many things on those discontinued, returned or blem tables. Remember, you can't always save money by spending it, although it sure is fun to try!

Keep saving! Remember, the value is in the compounding of those savings over time.

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The latest projections for tropical storm Chris show it’s likely to miss the majority of Florida and stay closer to Cuba (may be some other type of storm there soon too). There’s some doubt as to weather it will even be much of a storm, with its recent downgrading to a tropical depression. Is this a weather report blog now? Not bloody likely, but it brings up an interesting point. 

Experts strongly advise preparation for emergencies of  all types, weather it is an earthquake, storm or terrorist attack. This preparation goes beyond what you see on the nightly talking head shows. You should have at least 3 days of supplies, but a couple of weeks is more likely to keep you and your family feeling warm and fuzzy, while the neighbors bemoan the fact Safeway and Starbucks are still closed.

Your supplies should include plenty of drinking water, non-perishable food, any prescription medications you may need, toilet paper (go without it and you’ll see how nice it really is), plenty of warm clothes and blankets(if the climate warrants it), spare batteries, a radio and flashlight to use up said batteries, a good first aid kit, waterproof matches and a lighter, and a bit of cash (banks and cash machines may be closed for a while and checks may not be accepted by everyone). You should keep your emergency kit in a safe and easily accessible location. Go through it and replace the food and water every so often to ensure its freshness. Some experts advise you actually have enough food and water to last 3 to 4 weeks in case of severe disaster or disease pandemic.

A more controversial recommendation, and one I personally subscribe to, is that you should have some type of firearm for both self defense and, if necessary, providing food. You should also be trained on its use and practice with it regularly to ensure your proficiency and safety (and that of others). As victims of many disasters and riots can attest, when society breaks down, law enforcement is overwhelmed, and a mob mentality is in effect, personal and property protection is often necessary. Law enforcement officers will be severely overtaxed (they are now, in more ways than one), and may not be able to keep the peace. You may have to.

You should also give some thought as to how such a disaster or attack could affect your job and employer. A report in the SF Business Times indicates “[M]ore than 25 percent of businesses that close after disasters never re-open, and 40 percent go out of business within five years.” In addition, it’s been found that if a business stays closed for more than three days after a disaster, it has a 40% chance of never opening its doors again. Obviously that has a potential impact on your financial situation. This is even more problematic if you work for a small company, as those statistics are an average of all firms, including offices of large national and multi-national corporations. If you work for a small business, the odds are less in your favor that your employer will survive a major disaster. Make sure your business has an evacuation plan in place, especially if you work in a large structure. This plan should include a point of assembly after the evacuation, and an accounting to ensure all employees have gotten out safely.

There will, of course, be opportunities after a major disaster, especially in business tasked with rebuilding and recovery. Construction and supply related businesses tend to do particularly well in post disaster periods. Just as you have a plan for riding out and recovering a disaster, your business or employer should as well. There should be a business continuity plan developed and in place to ensure a smooth transition to post disaster operation. The plan should include a risk analysis and an in-depth list of activities necessary for recovery. A team should be in place to implement the recovery plan. If your business or employer doesn’t have such a plan, it is incumbent upon you to either see one is initiated or, at the least, make your own post disaster employment plans. Let’s hope we never have to test the efficacy of our disaster planning.    

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If you work in the U.S. auto industry, look out! George Soros, Democratic uber-donor and first class hypocrite, is at it again. While trying to single handedly bankroll the democratic party with one hand, with the other, he's hedging his bets a little by reportedly investing $200 million in a venture to bring inexpensive, Chinese made cars to the U.S. If this doesn't get members of the UAW a bit hot, I don't know what will. Apparently a bit discontent that China isn't overtaking the U.S. more rapidly in economic might, Soros has decided to facilitate things a bit. According to several published reports, he's teaming with Maurice (we don't need no freakin' air conditioning) Strong to make sure you and I can buy a sparkling, new Chery from dealer showrooms everywhere by then end of 2008.

They plan to thank the UAW for all their Democratic votes throughout the years by ensuring the U.S. auto companies have to contend with yet another foreign competitor. To make it just that much more challenging, this time the competition's cars will be built in state-sponsored factories, with infinitesimal labor costs. Thanks for nothing, UAW. It seems that Soros' involvement with Moveon.org must not have occupied too much of his time, or satiated his desire to transform America into his personal vision of (our)hell.

The Chery Automobile Co. has already entered into an agreement with Malcom Bricklin's Visionary Vehicles to market their products in the U.S. While best known for importing the pint sized, P.O.S. Yugo in the 1980's, Bricklin also introduced Subaru to U.S. car buyers. As R.E.I. clad drivers in Washington State and Vermont can attest, his Subaru venture was considerably more successful. We can only hope that his Chery venture will meet with results more akin to the Yugo debacle. With the strength of the Chinese economy behind it, instead of a communist Yugoslavian regime from the '80's, I fear the Chery has a much better chance of success. We'll let the market decide. If it's good, and more importantly, cheap, people will buy, no matter it's origin. Just look at the products lining the shelves of your local Bentonville Boutique.

In a related story, GM has filed a lawsuit against Chery Automobile Co, claiming they pirated one of Daewoo's (a GM property) designs for production in China. I'm sure we should apply the “innocent until proven guilty” standard to this, but the Chinese are nothing, if not expert product counterfeiters. So, unless Chery is borrowing members of the O.J. defense team, the case should be a slam dunk.

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What if you're trying to get a leg up by starting your own business? Not a project for the faint of heart, that one is. It scores high on potential though. Many enter the home business arena with big dreams but little or no idea of what they're really doing. Far from a recipe from getting debt free, such ignorance is really a recipe for disaster. The beauty of the Internet is that prospective and new business owners have a level of information at their fingertips that was undreamed of only a decade ago. The Internet is also, itself, an arena for new businesses. It's been a boon for those wanting to just dip their toe into the small business waters without having to dive right in.

That ease of entry has also been part of the curse for small business owners. Because it's so easy to enter the small business world now, it allows those without adequate preparation to jump right in, no matter their level of expertise or experience. A boon for some, and the success stories of those who do make it big draw in others like lobbyists to a congressional mixer. The American spirit of entrepreneurship and resourcefulness demand that we forge ahead into new frontiers. Small business is just the latest wilderness to conquer for the American adventurer.

Being involved in your own small business can be a great thing. The feeling of accomplishment and independence are second to none. To make it so, however, you need to jump in with both eyes open. The most important thing is planning. Before you make the decision to strike out on the trail of small business, you need a plan, otherwise you're throwing your start up capital in a Cuisinart and hitting “puree”. A detailed business plan will include all aspects of your business, such as sources of funds, uses of funds, a marketing plan (what will you be selling, who will you be selling it to, how will you promote it, and where will you sell it), 1,3 and 5 year financial plans, resource requirements (personnel, financial, equipment, real estate), etc. There are entire books written on how to make a good business plan, and some great business plan software is available too.

The bottom line is that a business plan will give you a path to follow. It will also help you think through all the details (there are many)of the journey on which you're about to embark. In addition, if you'll be seeking any funding, the investors or financial institutions will want to see it. You'll no doubt have to revise your business plan many times over the years as your business grows and evolves, and you should. Unlike the U.S. Constitution, your business plan is a living, breathing document.

Unless you are one of those who's accumulated enough wealth to have a year's living expenses or so, not including your new business capital, or your spouse makes enough to support the family, don't quit your day job just yet. If you're beginning a business with an existing customer base, and you can hit the ground running, you may be able to fudge this rule a bit. You'll have enough financial stress associated with your new business when it's in the start up phase, you don't need the additional stress personal finance problems can bring. Many businesses have been successfully bootstrapped with insufficient startup capital, but many more have dismally failed. Avoid having insufficient start up capital. Lack of capital is a very common mistake.

Once you've all your ducks in a row, start shooting. You'll probably have many people who say you're crazy for starting your own business, tell you to get a real job, or say you can't succeed. This is normal. It's the “crab in a barrel” syndrome. If there are a bunch of crabs in a barrel and one tries to climb out, the others will try pull it back in. That's what many friends and family will try, even if only in the guise of concern and caring. Don't listen! Having your own business can be one of the most rewarding and fulfilling experiences of your life, but you've got to stick to it. There will be times when wearing all those hats can make your head hurt, but you've got to just tough it out. It will take perseverance, focus and persistence, maybe more than you thought you had. You've got to have drive to succeed, and you need the will to win.

If you've planned well and you're offering something that people want (itself part of the planning process) you will succeed. You need to find what you can provide that people want or, use another winning strategy, make them want it. It's a combination of marketing and organization. If you don't think you have those talents, then maybe you shouldn't be doing this. On the other hand, you may surprise yourself. You may have an undiscovered talent that is waiting to be set free. You may be able to make up for a relative lack of talent with persistence and hard work. Many have taken that path to success. The reality is that everybody has some sort of talent, and you're no different. You've got to get started, go for it, and don't ever stop. Don't expect overnight success. It may take years before you find yourself enjoying the superb vistas from atop the mountain, but you'll enjoy them.

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No Credit Needed wants everyone’s very best money saving tips. Sounds good to me! Here goes:

There are so many ways to save money. The key here is tips that are easy to do every day. I thought about choosing avoiding credit card late fees as my tip, because the fees and the attendant rise in card interest rates can cost you big money. In the end, however, I went a different direction. I did this because some people don’t have credit cards, and others have never paid their cards late, and probably never will. Everyone, however, has to stuff their gullet, so my best money saving tip is:

Shop at warehouse food stores. This takes buying generic to a whole new level, and the best part is, you don’t have to. You can get fantastic savings on name brands. Sometimes there really is a quality difference, so now you can have high quality and low prices (I know, it sounds like an ad). Most areas have warehouse type food stores and the savings can be substantial. If you want even more savings, they also have their own store brands. How much can you save? It can be over 50% on some types of items. As an example the one near me has 12 packs of pop/soda for $1.98. Sometimes it’s even less! They also have 1lb of grated parmesan cheese for $2.19 with Kraft brand for $2.99.A gallon of 2% milk is only $1.99. The average seems to be about 30% savings on similar items (identical where possible) over big, national chains such as Safeway and Albertsons. To make matters even better, many of these stores have a really great selection.

Happy Saving! 

 

 

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AOL, stalwart of the Internet that time seems to have passed by, is going to start it's own video Internet portal. Taking a cue from the success of YouTube, AOL says it will have user produced content in addition to programs from some of it's cable properties. YouTube has been one of this year's most prominent Internet success stories, capitalizing on people's need to publicly embarrass themselves in search of their 15 minutes. Sensing that this sentiment is so strong one Internet site couldn't possibly fill the need by itself, AOL will jump into the fray this week. Having professionally produced content can only bolster the new portal's chances of success. 

Does the Internet need another portal? Probably not, but having the video angle will increase the AOL versions chances, even if only among the “Jackass” set. This seems to be the direction much new entertainment is taking these days though. It all makes sense, when you consider America's obsession with celebrity. Why wouldn't everyone want to be one? Well, they wouldn't, but enough do that it makes these kinds of sites raging successes. Just take a look at the prime time TV schedule any weekday. Reality (?) shows dominate. Everybody wants instant fame and fortune, in varying degrees. The shift in attitude has conspired to make too many young (and not so young)Americans lose focus on the traditional methods for accumulating wealth and a solid retirement nest egg. Don't fall victim to this sense of immediate entitlement and accelerated self worth.

If it's well executed, this new addition to AOL may turn it around, even if just a bit. After a dive somewhat reminiscent of Bo Peng in Athens, and a small rebound, Time-Warner's stock has been rather stagnant since the beginning of 2004. Wall Street didn't seem to react to the news of the new portal with much enthusiasm, however. An hour after the announcement, the stock was trading down almost half a percent. Later in the day, the stock was up over one percent, although that could have been on anticipation of the pending completion of the Adelphia deal T-W is involved in.

A Washington Post story on the introduction goes into more detail here:

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/30/AR2006073000572.html

 

 

 

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