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Personal Finance From a Biblical Perspective

Are You Preparing for the Next Recession?

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This is a bit of a depressing topic, isn’t it? After all, we’re in the middle of summer and it’s just about the peak of the high vacation season, right? Why try to throw cold water on everyone’s good times?

Three reasons:

  1. The economy is already showing signs of slowing,
  2. The presidential election will be over in three short months, and no matter who wins it’s anyone’s guess what will happen after that, or even
  3. I’m a mean person who’s trying to rain on everyone else’s summer fun.

I’m not sure that we ever really got out of the last recession, or if the last one wasn’t just an uglier continuation of the one before that, but the reality is that we have a downturn every few years. Since the last one officially ended sometime during 2009, 2013 seems like a good guess on the arrival of the next one. That gives us about a year to prepare, and that’s Reason #4 why I’m writing about this topic.

In the strange way that life works when we’re prepared for trouble, it never seems to happen! So how do we prepare for the next recession?

Coming Economic Recession

Avoid (or Tone Down) Major Purchases

Major purchases do two things that hurt us when the economy turns bad: 1) they drain savings, and/or 2) they put us in debt. I’m talking about cars, houses, furniture, boats—anything that has the potential to cost a couple thousand dollars or more.

Before making any major purchases, ask yourself the following questions:

  1. Do I actually need this item, or do I mostly just want it?
  2. Will this item put money in my pocket? (for example, a car for work, or a computer for business)
  3. Were I to lose my job six months from now, will I regret having made this purchase?
  4. Even if it’s something we truly need, do we have the ability to buy it without draining our savings or adding more debt?
  5. Would a decent second-hand model get the job done?

Major purchases can’t be easily undone—especially in recessions.

Find Income Sources Outside Your Job

For most of us, the biggest threat from recessions is the loss of a job. One of the best ways to deal with this (in advance) is by creating income sources outside your job. It’s not just a matter of adding more income, but also of exploring and developing other career directions. This is especially important if the business or industry you’re in is already wobbling.

{Learn how to honor God in the workplace}

Working outside your job will give you the experience and business contacts and references that might enable you to transform a side job to your next full time position. Get your foot in the door before the economy takes another slide.

Another option is to start a side business. You can start it and grow it while you’re still on your employer’s payroll, but if you lose your job you can ratchet the business up to full time.

Say NO to New Debt

The last thing you ever want to do is to create financial obligations during good times that you’ll have to pay for during not-to-good times. This is what drives foreclosures and car repossessions. If you want to avoid that fate, don’t add any new debt.

And while you’re at it, start working on paying off old debt. Debt is a big enough pain during good times, but its pure excess baggage you don’t need to be lugging around during the bad ones. If you lose your job, you can always cut expenses quickly, but debt takes time. You have that time right now.

Build Up Those Savings

At a minimum, a fattened bank account can give you breathing room to deal with a sudden job loss or other financial calamity. It enables you to face problems without having to borrow from banks, or beg from family. Start working on increasing your savings now.

Remember those major purchases I recommended that you not make? You can add to your bank balance with the money that you didn’t spend on them. And the extra income from your side job or side business can go right in the bank too. A year from now you could have a few months living expenses sitting in the bank, and that’ll feel good.

Get In Shape

This reads like my most ridiculous preparation, but actually it isn’t. In fact, it’s far from it. Exercising, dieting and improving your overall physical condition are always important, but never more than when hard times hit.

Consider:

  • If you’ll be in the job hunt sometime next year, you’ll be glad lost a few pounds and toned up a bit. When jobs are hard to get, they often go to those who look the most capable of doing them.
  • In the event you have to juggle two or three income sources, you’ll need the increased stamina getting in shape can bring.
  • The healthier you are, the less you’ll need to spend on healthcare, and the less time you’ll lose from work.
  • Concentrating on your health could be the significant distraction you need that will boost your mental and emotional state at a time when finances are getting difficult.

A recession will come whether or not you’re prepared. But if you are prepared, there’s a good chance it won’t be your recession! And if it doesn’t come, you’ll be better prepared for what ever else you want to do in your life. Like that run for financial independence you may have been putting off for a few years.

photo credit: Freedigitalphotos.net

Why A One Day Gas Boycott Wont Lower Gas Prices

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For more than a decade now, people have used the internet to spread the idea of staging a gas boycott in order to lower gas prices. Every time I get one of these emails, I cringe at the thought that people really expect this to work!

[Here are some great tips for how to save money on gas, and save money on car costs]

As you may have noticed, gas prices have recently increased by large amounts, very quickly. Because of this, I have actually been on the lookout for this type of email for the last few weeks.

Gas Boycott On Facebook

I have to admit that I was a little disappointed when I didn’t receive a flurry of “don’t buy gas on this date” emails in my inbox recently. But then I received an invitation on Facebook for an event entitled, “DON’T PUMP GAS ON MARCH 11TH 2011 “GAS OUT” DAY”! Here is the description of this event:

Don’t pump gas on March 11, 2011. .In April 1997, there was a “gas out” conducted nationwide in protest of gas prices. Gasoline prices dropped 30 cents a gallon overnight. On May 15th 2007, all internet users are to not go to a gas station in protest of high gas prices. Gas is now over $3.50 a gallon in most places. There are 73,000,000+ American members currently on the internet network and the average car takes about 30 to 50 dollars to fill up.

If all users did not go to the pump on the 11th, it would take $2,292,000,000.00 (that’s almost 3 BILLION) out of the oil company’s pockets for just one day, so please do not go to the gas station on March 11th and lets try to put a dent in the Middle Eastern oil industry for at least one day.

If you agree (which I can’t see why you wouldn’t) resend this to all your contact list. With it saying, ”Don’t pump gas on March 11″

As I write this, there are over 16,000 [edit: there are now over 19,000] people confirmed for this “event”! That might not seem like a lot, but just think about how many people probably started their own similar events to get the word out!

I remember when I was younger, people always talked about staging boycotts of local gas stations that had high prices. Then as time moved on, consumers used mass emails to build support for these events. I have even received text messages in the past urging me to avoid purchasing gas on a particular day.

So I guess using Facebook (and probably Twitter) is just the next step in our futile attempt to lower gas prices!

Why A One Day Gas Boycott Wont Work!

Well, before I address the economic fallacy of a one day gas boycott, I wanted to see if there really was a significant drop in gas prices during April, 1997. According to an article on MSNBC, there wasn’t one:

In the first week of April 1997, the average price of a gallon of gasoline nationwide was $1.248. By the end of the month, the weekly average was $1.24. If there was a one-day drop of 30 cents a gallon, it doesn’t show up in the statistics compiled by the Department of Energy.

So now that that’s out the way, we can get down to why holding a “gas out” won’t work.

The idea of a boycott is where you don’t buy a particular item, or from a particular store until the change that you are seeking has been made! You are showing the company that you are so serious about your demands, that you are willing to go without their product until they change! However, in these gas boycotts, all you are doing is avoiding buying gas on a particular day.

Think about it: You have to fill up your tank whenever it gets empty (unless you find an alternative to driving), so if you need to fill it up near the day of the protest, you only have two options. You will either fill it up the day before, or the day after!

All you are doing is pulling forward demand, or in some cases pushing it back! This is a fancy term that economists use to describe the phenomenon when demand for an item or service is shifted into a different period. Usually, this happens when something is done to artificially increase demand for a period (think cash for clunkers, or the homebuyer tax credit) – the influx of customers are just people who planned to make purchases at later dates.

The problem with pulling forward demand is that there isn’t actually a change in demand over a given period of time.

For instance, if you reduce an oil company’s revenue on a particular day by $2 billion, all that will happen is that their revenue will increase by $1 billion on both the day before and the day after – because you can’t go without filling your tank!

So, at the end of the week/month, the oil companies will see no change in revenue whatsoever! It doesn’t matter if it’s a small corporation, or large companies rated AAA, a “gasout” won’t work! You are better off using your credit card benefits to earn some cash back on your gas purchases!

photo by bitzcelt

Reader Questions

  1. Have you ever participated in a gas boycott?
  2. Why do you think this idea keeps coming up even though it doesn’t work?
  3. What steps, if any, have to taken to lower your fuel costs?

Social Welfare Program Payments Account For Over One Third Of U.S. Wages!

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According to a recent article by CNBC, various government welfare payments account for more than a third of all salaries and wages across the entire population of the United States! That is an amazing statistic when you stop to think about it what a social welfare program really is.

Welfare Payments Gone Wild

Now, when I speak of welfare payments, I am not just referring to payments made to the poor. Social Security, Medicare, and another popular social welfare program – unemployment – are all included! Here is what the article had to say about the numbers:

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

So 35% of total wages and salaries will be nothing more than government handouts! The fact that this number was only 10% just a mere 40 years ago should alarm many!

What this means is that if you are in a room with 99 other people (say at a supermarket), 35 of them would completely rely on a social welfare program for their wages! There is no way that this nation can continue to function in this state for much longer!

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients.

Instead of being a nation of people who worked as hard as we could in order to support ourselves, and making sacrifices whenever needed, we are now people who depend on the government to support us, without any real effort on our part! I would say that we are not just dependent on government support, but we actually feel entitled to it.

Now, obviously Social Security is different because most of the people who are collecting benefits are retired and are receiving income based on contributions they made while working. The system is set up so that current workers support those who are retired, so this assessment doesn’t really apply to them.

A Social Welfare Program In Trouble

Even though I stated that Social Security should be seen in a different light than the other welfare payments, the thought of it should immediately bring to mind all of the baby boomers that plan to retire within the next decade or so!

Many people are simply not prepared for retirement, which means that they will depend even more heavily on Social Security to support even the most basic needs. Whether you are a baby boomer or not, take a look at the current IRA contribution limits and 401k contribution limits, and prepare yourself for retirement!

One of the proposed ways to fix this problem has been to reduce either Social Security or Medicare…or both! Unfortunately, most people are blindly hoping for another way…

A Wall Street Journal/NBC News poll released last week showed that  less than a quarter of Americans supported making cuts to Social Security or Medicare in order to reign in the mounting budget deficit.

Those poll numbers may be skewed by a demographic shift the likes of which the nation has never seen. Only this year has the first round of baby boomers begun collecting Medicare benefits—and here comes 78 million more.

So, we are already at 35% of the population receiving welfare payments, and now we are expecting about 78 million more retired baby boomers!?!? I honestly don’t know if there is anything that can be done to turn this around – unless we make some major changes to how our economy functions!

Most people are aware of the fact that we won’t collect enough in Social Security taxes to cover outgoing benefits in the future (and the current payroll tax holiday sure isn’t helping)! Here is how the article summarizes our current crisis:

Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?

That’s the key question! Not only will we have a huge surge in the amount of retirees looking for government benefits, but because of the tremendously weak (and it will weaken more in the future) housing market, high unemployment and underemployment, and increasing public healthcare costs, we will surely face an unprecedented amount of citizens looking for complete government support!

Unfortunately, most politicians are only interested in the short term, so the future looks pretty bleak! What’s even worse is that many of the developed nations are facing the same problem! Here is another quote from the article:

At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.

“No matter how bad the situation is in the US, we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,” said Steve Cortes of Veracruz Research. “On a relative basis, America remains the world leader and, as such, will also remain the world’s reserve currency.”

If we existed in a vacuum, then maybe we could feel good about our nightmare not being as scary as others. However, since many of the world economies are so connected, this means trouble for the entire world population! So while we are focusing only on ourselves – thinking about various credit card benefits, finding a cosigner for our loans, and identity theft – the economy could very well be crumbling before our eyes.

photo by renjith krishnan

Join The Discussion:

  1. Are you shocked that 35% of all wages are based on payments from a social welfare program?

  2. Do you think that there should be a limit to these welfare payments?

  3. Do you find comfort in the fact that other nations are doing worse?

  4. How do you think we can return to being a nation full of people who support themselves?

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The Monetary Policy Debate: Austerity Or Stimulus?

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The Monetary Policy Debate: Austerity or Stimulus?

The global economy is unchartered waters at the moment.  The world has never received a systemic financial shock like it did in 2008 when the Global Credit Crisis erupted and nearly destroyed the current global economy as we know it.  Literally, there was a stretch of a few days during the fall of 2008 when the outcome was uncertain.

There was a small window of time where complete and utter chaos and economic collapse seemed imminent.  However, global leaders gathered together and acted in unprecedented unity in order to stave off a financial Armageddon, as developed nations around the world slashed interest rates and injected trillions of dollars into their economies in an attempt to free up frozen credit markets and stimulate economic growth.

Now, over two years after the near-collapse, the global economy is still struggling to find a sure footing.  The United States economy has definitely rebounded well of its lows of early 2009, but the long-term prospects are still daunting.  The Federal Reserve had to inject a second round of quantitative easing into the economy in November 2010 in order to, hopefully, spur economic growth and job creation, which remain two persistent problems in the U.S.

In the Euro Zone, disaster seems to keep knocking on the door.  First, it was the Global Credit Crisis, second, it was Greece needing a bailout, third, it was Ireland’s banking system needing a bailout, and now, it seems that Portugal, Belgium, and Spain are all in big trouble.  Several peripheral countries in the Euro Zone are still facing recessions and contracting growth.

In the United Kingdom, prices are rising, but economic growth is not.  That is one of the most deadly combinations a n economy can face because rising prices require higher interest rates in order to curb inflation, while a lack of economic growth requires the exact opposite in order to spur economic growth.

Thus, what is a country to do?  Preliminary GDP figures came out in January 2011 a full percentage point lower than the market had expected.

The Monetary Policy Response: Do We Stimulate More?

This is the debate that is raging among economists and experts around the world.  Should struggling countries continue to inject stimulus into their economies in hopes of jump-starting them, or should they rein in government spending and let the free market do its work?

In the Euro Zone, the European Central Bank and International Monetary Fund have opted for austerity.  In order for Greece, Ireland, and other weak countries to receive bailout funds, these countries must first agree to very strict austerity measures.  These measures typically include things like slashing government spending, which generally means cutting government programs and slashing government wages.

These countries do not receive their bailout funds in one lump payment.  Instead, they will receive the funds in several distributions, and at each distribution the struggling country has to prove it has done what it was required to do.  If it has not, then the struggling country will not get the next bailout distribution.

This can lead the euro drop quickly.  A person can search for the best forex broker to find charting packages that allow a person to track the movement of the euro versus other currencies in the FX market. Keep in mind that trading currencies on margin is risky.

The United States, on the other hand, has not adopted any austerity measures.  Instead, it has continued to spend money at a rapid rate.  Currently, the United States has injected about $2.3 trillion into the economy over the last two years.

Back to our original thought in this article—we are in unchartered territory.  The truth is that no one knows what the long-term effects of massive stimulus spending will be.  Some believe that inflation will become rampant, while others believe there will be no inflation.  Unfortunately, we are the mercy of time.  In the end, time will reveal exactly what the consequences will be.

photo by renjith krishnan

No More White Pages!

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It looks like another one of this countries outdated services is on its deathbed. According to a recent story on Yahoo, many states are allowing the phone companies to stop printing the white pages! The white pages are what hold all of the residential listings.

In the past month alone, New York, Florida and Pennsylvania approved Verizon Communications Inc.’s request to quit distributing residential white pages. Residents in Virginia have until Nov. 19 to provide comments on a similar request pending with state regulators.

Since searching for people on the Internet has become so easy, there isn’t much of a need for a listing to be printed out and delivered to tens of millions of homes! Not only can you find many phone numbers and addresses online, but you can also find their Linked-in, Facebook, Twitter, MySpace, and other social network pages!

Seriously, who still reaches for the white pages when you want to find someone’s phone number? The article also contained this cute quote:

“Anybody who doesn’t have access to some kind of online way to look things up now is probably too old to be able to read the print in the white pages anyway,” joked Robert Thompson, a pop culture professor at Syracuse University.

Can you imagine how much the paper, ink, binding, and delivery of these books must cost? Not producing the books at all is definitely the most direct way of cutting printing costs! Not to mention the amount of trees that are cut down each year to produce millions of books [learn how to be environmentally friendly]!

I’m sure that there are still people who get a little nostalgic when they get their new phone book, but they’ll get over it! According to the article, “The first telephone directory was issued in February 1878 — a single page that covered 50 customers in New Haven, Conn.”

There are three things that severely impacted the relevancy of the white pages.

First, as mentioned above, most people run to the Internet (either on their computer or phone) when they want to search for something.

Second, many people are exclusively using cell phones – which usually aren’t a part of the residential listings.

The number of traditional land lines has been declining for the better part of the decade, and now are being disconnected at a rate of nearly 10 percent each year, according to company financial reports. And a survey conducted for SuperMedia Inc. by Gallup shows that between 2005 and 2008, the percentage of households relying on stand-alone residential white pages fell from 25 percent to 11 percent.

Lastly, most people store the numbers of their contacts in their cell phones, home phones (if they still have one), and computers. Much easier than relying on a 3.5lb book! This means that they have little reason to search for a number.

Keep in mind that this is only for the white pages:

Unlike the residential white pages, the business directories printed on yellow pages are doing fine, at least according to the Yellow Pages Association. The industry trade group claims more half the people in the U.S. still let their fingers do the walking every month, and that 550 million residential and business directories are still printed every year.

I’m really not sure why the yellow pages aren’t dying as well. If I want info about a local business, I just do a quick search online for them. If they don’t have a website, or at least a Facebook or Twitter page, then I will go to the online yellow pages.

So, since people don’t seem to be ready to let go of all outdated search methods, the yellow and blue (government listings) pages will still be printed.

For those who think they will be lost without the white pages, the directories will still be published on the Internet and can be provided on a CD as well.

There are a good number of states that this now applies to:

Since 2007, states that have granted permission to quit printing residential listings or that have requests pending include: Alabama, Delaware, Florida, Georgia, Indiana, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Texas, Virginia and Wisconsin. New York-based Verizon’s plan is to seek regulatory approval in all 12 states where it operates land line telephone service. In total, the savings could top 17,000 tons of paper annually throughout Verizon’s service areas, the company said.

I can’t imagine too many people crying over this, but then again, I try very hard to embrace technology that will make us more efficient. Therefore, I can’t speak for all Americans, however:

According to filings with state regulators, AT&T said in places where it has been permitted to provide the white pages on demand, only about 2 percent of customers have requested a copy.

Reader Questions

  1. Do you still use your phone book?

  2. How do you find a person’s number when you need it?

  3. When is the last time you used a public pay phone?

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