Savvy Frugality

The Savvy Frugality Economic Meltdown Guide, Part Two

Posted by T | 10:30 PM | Great Depression, recession | 1 comments »

I have received emails and comments in response to the first posting of the Savvy Frugality Economic Meltdown Survival guide, and I thought I would continue the conversation. Some wondered how I could be so positive when all of the finance experts on TV and on the radio have been so negative. I received this question:

"What is in store for those who have no emergency fund?"

A lot of people are in this situation. They live paycheck-to-paycheck and they haven't been able to save anything extra. Not long ago, this is how I managed my finances. Unfortunately, for those without an emergency fund, ANY unexpected expense becomes an "emergency", even if it really isn't. I can't address everyone's individual situation, but I can tell you how I built my emergency fund.

1. The first thing I did: I got rid of a lot of stuff in my house. I sold it on eBay or Craig's List. I don't mean I just got rid of stuff I didn't want any longer. I sold everything that wasn't nailed down. The stuff that didn't sell got donated to Goodwill.

2. If I got unexpected money, such as for gifts or a bonus at work, I didn't spend it. It went straight into my emergency fund.

3. I decided that my household was going to start living on ten percent less than the amount of my paycheck. I still budgeted for things like "miscellaneous" and "entertainment", but each payday ten percent of my check went into my emergency fund.

It took me a few months, but I eventually saved $600. Some people recommend having at least $1,000 to start an emergency fund, but if that seems too daunting, start with $500. Don't spend it on anything other than an emergency. If I spend any money from my emergency fund (which I did today, actually), I immediately begin replacing it starting with the very next paycheck.

The other thing I have noticed recently, especially this morning, is how TV commentators and others have been throwing around the term "Great Depression". Without the $700 billion government bailout plan, they say, the U.S. could be headed for another "Great Depression". "Mad Money" host Jim Cramer and "Today Show" host Meredith Vieira discussed this a bit this morning, along with Cramer's own "economic meltdown survival plan". Hmmm, sounds familiar.

No doubt about it...times are tough right now, but it's nowhere near "Great Depression" status. For those who weren't around in the 1930's, this is what is was like living during the Great Depression:

1. Banks closed down, but not because of bad mortgage deals. "Bank runs" were common. People wanted to make sure they had plenty of money, so they would storm their banks to withdraw all of their cash. FDR imposed "bank holidays" and closed the banks to stop the bank runs.

2. Nearly one in every four Americans was unemployed. Nearly half of all African Americans were out of work. This led to the formation of "soup kitchens", which were the sole means of food for some Americans.

3. In the first two years of the Great Depression, the cash supply and the GNP fell by a third. Yes, that is very bad.

So, while our current economic situation is grim, it could definitely get a lot worse, and we aren't there yet. There is one thing that today's economy has in common with the days of The Great Depression, and that is what caused our economic woes. From the Wikipedia entry about "The Great Depression in the U.S.":

"Although the causes of the Great Depression are still uncertain, the basic cause was a sudden loss of confidence in the economic future. The traditional explanation is a combination of high consumer and business debt, ill-regulated markets that permitted malfeasance by banks and investors, growing wealth inequality, and natural disasters such as the Dust Bowl and 1926 Miami Hurricane creating a downward economic spiral of reduced spending and production. "

Today, we are in the current mess we are in because, to put it simply, a lot of people made a lot of bad financial decisions. Bad adjustable rate mortgages were handed out like candy, people who a few years before wouldn't have qualified for a home loan were being handed ARM loans for $300,000. Investors purchased homes to flip, and when the market soured, they were stuck with a home they never intended to live in.

A couple of years ago, I was actually offered an ARM loan. As much as I wanted to purchase a home at the time, I saw it as a bad deal. If the interest rate adjusted beyond my ability to pay, where would I be? Today, many people are asking themselves that same question.

So, how do we cope with our current situation? To sum up:

1. Avoid debt. Pay cash for everything.
2. Save, save, save.
3. If you do invest, pick "safe" investments: good stocks which have been around a long time, high-yield bank savings accounts insured by the FDIC, CDs and bonds.
4. Don't panic. That's when bad decisions are made.

The Savvy Frugality Economic Meltdown Survival Guide

Posted by T | 10:57 PM | recession | 2 comments »

Banks are closing or being taken over by the U.S. government, brokerages are getting massive multi-billion loans, insurers are going belly-up and the Dow Jones has been on quite a roller coaster ride lately. Images of soup kitchens, massive unemployment and doom and gloom come to mind as some wonder aloud if the U.S. is headed for another Great Depression. Yes, I've actually heard economists on TV use those words. Well, I don't think the U.S. is headed for another Great Depression. The conditions which plunged the U.S. headlong into the Great Depression in 1929 simply don't exist today. That's not to say the economy hasn't tanked in the U.S. It sure has. It was exactly a year ago that I expressed my opinion that the U.S. might be headed for recession...many economists just aren't willing to label it as such.

Even so, some people aren't worried. They aren't even nervous. I happen to be one of those people. If you took steps a year ago, or even six months ago, to get your financial house in order, you'll weather the storm just fine. You could even start sorting out your finances now, and you'll still be fine. It just takes calm, cool reasoning...and a game plan. With that in mind, I present The Savvy Frugality Economic Meltown Survival Guide:

1. As always, establish your emergency fund. Start with $500 and then work your way up to $1,000. After you eliminate the majority of your debt you can concern yourself with saving three to six months worth of living expenses.

2. Check your savings and checking accounts and make sure they are FDIC insured. If your bank does go under, your funds are covered as long as your accounts don't exceed $100,000. If you have your funds in an account not FDIC insured, you'll want to shift some funds to an insured account ASAP.

3. Review the Savvy Frugality Recession Survival Guide. I wrote this 9 months ago, and it still holds up today. The only thing I would change in the post today is I think now is a good time to snatch up stocks at low prices, which I have been doing.

4. If you have your emergency fund and have more than enough to pay your monthly bills, start eliminating your debt. Really hack away at those expenses that are dragging down your finances. There is nothing worse for your personal finances than bad debt, and almost all debt is bad (exeptions: debt that will make you money down the road, i.e. your home, education, investing in a business). Some people say you should start with your smallest bill first and work your way up. I prefer to eliminate the highest-interest debts first, such as high-rate credit cards, and get rid of those ASAP. You don't want the clock ticking on your high interest rate debts. Get rid of them. The people who are riding out the current situation just fine are those who are debt free.

5. Avoid debt. Right now probably isn't the time you want to be taking out any large loans. If you have a sterling credit rating, can get a decent interest rate on a house and you're in the market, then you could probably swing it. If you're scratching and scrimping and squirreling away every spare dollar with hopes of buying a house, a car or some other big-ticket expense, you're probably better off hoarding that money in your emergency fund. Just keep it in an account that you can access easily, and again...make sure it's FDIC insured.

6. Fine-tune your resume. Nobody likes to think about losing their job, but it can happen. If it does, you'll be ready. Also, take this time to keep in touch with people in your network...you know, people that might be able to steer you toward a new gig if your job disappears.

7. Don't panic. It's when people panic and start doing silly things like closing their bank accounts or cashing in their 401k that they get into trouble. TV news programs are doing a great job at scaring the heck out of people lately, but if you have planned ahead, or are currently working your game plan to keep your finances solid, you'll have less reason to be worried.

Does It Work? Kaboom!

Posted by T | 10:34 AM | As Seen on TV | 1 comments »

I often see items on those "As Seen on TV" ads that I can't resist trying for myself, for two reasons:

A. I can report about it here.
B. I might actually find a product I can use to save either time, money or both.

Such was the case with Kaboom!, a spray-on tub and tile cleaner pitched on TV by bearded pitchman Billy Mays, the guy who yells a lot and makes everything look like you just can't live without it. Kaboom! was initially sold for about $10 (or the low price of TWO bottles for $15!, according to Billy Mays). I bought my bottle for $3.98 at Wal-Mart.

As it turns out, I had a shower at home covered in soap scum, and the bottle of my usual homemade cleaner of vinegar and lemon juice was empty, so on a whim I purchased Kaboom!

I brought the purple bottle home and read the instructions. It says you are supposed to apply with a damp sponge, wait 1-3 minutes and then rinse. I sprayed Kaboom! on my filthy shower, spread it out with a damp sponge, and waited all of a minute. Yes, I was being impatient. For a brief moment I wondered if I should be handling such a powerful cleaner without the benefit of rubber gloves, but Billy Mays doesn't use gloves on the commercial. If it's safe enough for Billy, I should be just fine, I reasoned.

I then wiped off the product with a soaking wet sponge, and then used a squeegee to remove the excess liquid from the clear glass walls of my shower. I stood back and looked at the results. It was crystal clear and clean, with virtually no effort. No scrubbing, no elbow grease.

So, does Kaboom! work? Yes, it does.

Disclaimer: This review was not endorsed or paid for by Kaboom! or Billy Mays. I don't even know those people. However, if they want to send me some more Kaboom!, I won't turn it down!

This car gets 65 MPG...and You Can't Buy It

Posted by T | 3:16 PM | gas prices | 2 comments »

With the price of gasoline hovering around the $4 per gallon mark, more people are thinking about affordable transportation which is more efficient on fuel. It's a basic rule of economics. There isn't more supply to bring the prices down, so consumers find a way of conserving and cutting costs, thereby reducing demand for gasoline. Automobile manufacturers are beginning to respond, among them: the Ford Motor Company.

Ford has produced the 2009 ECOnetic Fiesta. It's a subcompact which seats five and gets a whopping 65 miles per hour. So why aren't Americans flocking to their dealerships to buy this fuel sipper. Simple. They can't.

The ECOnetic is only offered in Europe. Why? Because this car doesn't burn gasoline. It's powered by diesel, a fuel choice generally not favored by Americans, even though technology breakthroughs have made diesel automobiles a cleaner, more powerful mode of transportation.

Diesel automobiles have actually become the cars of choice in Europe, where gasoline prices range from $6 to $12 per gallon. Volkswagon and Mercedes-Benz have been producing so-called clean-burning diesel cars for years. According to Business Week, only three percent of the cars on the road in the U.S. use diesel fuel, mainly because diesel costs 40 cents to a dollar a gallon more than gasoline due to taxes aimed at commercial truck fleets.

If Americans truly want automobiles which burn cleaner and get more miles-per-gallon, they will have to vote with their pocketbooks. The technology doesn't yet exist to have efficient electric or hydrogen-powered cars. The infrastructure doesn't exist to easily refuel natural gas burning cars. Diesel is widely available now. Hybrids are an option, but they still burn gasoline. If more Americans purchased diesel powered cars and lobbied their senators and congressmen to reduce the obscene taxes on diesel fuel, we too could have access to automobiles which are easy to refuel and get very high fuel economy.