Personal Finance Blog by Debit versus Credit

Weekend Reading: June 28th

June 28, 2008 | Filed in: Weekend Reading | No comment

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There’s been some great reading online this past week.  A lot of the links that I’m posting this week are related to simple ways to save money, which should come in handy with the quickly increasing cost of living that we’re experiencing here in the U.S.

David at Moneyning posted some fantastic advice on how to take advantage of the wonder that is google, specifically google alerts, by setting up alerts for when coupons and deals are taking place for items that you have been searching for.  Check out Setup Google Alerts to Get Coupons and Deals.

Pinyo at Moolanomy is looking out for those who are looking at potentially buying a house in the near future.  He gives some fantastic advice on how you can test your finances and see if you can really afford that house payment.  Check out Test Drive Your Home Ownership Experience.

Is the price of gas killing your finances lately?  It’s getting warm outside now too… what are you going to do about your increased energy bill?  Trent at The Simple Dollar has some practical advice about using ceiling fans in order to be able to use your air conditioning less.  Check out Ceiling Fan Hacks: Save Big on Energy Use.

Here’s one for those of you interesting in investing ideas. Jonathan at My Money Blog posted an update talking about a new global index fund from Vanguard.  Might not be a bad fund to invest in if you’re interested in diversifying into the global market.  Check out Vanguard’s New Global Stock Index Fund.

That’s it for this weekend.  See ya next week!  ^_^

Tags: vanguard, Weekend Reading

The Automatic Millionaire: Chapter 5

June 27, 2008 | Filed in: Finance 101, Friday Book Club | No comment

Now that I’m finally back in the swing of things here at Debit versus Credit I’m ready to bring back a popular feature (and one which I enjoyed very much): Friday Book Club. I began Friday Book Club in November of 2007 with three goals.  First, to be able to share what I’m learning with all of you.  Secondly, to absorb the material that I’m reading more efficiently by reviewing it and summing it up in a matter of just a few paragraphs.  Then finally, to be able to apply what we’re learning to our personal financial lives and share with each other experiences that relate to the lessons and topics at hand.  These are my goals and I hope that you will share these common interests with me.  Now then, where were we?

Today’s Friday Book Club will feature chapter 5 of The Automatic Millionaire which was written by David Bach, the New York Times Bestselling Author of Smart Couples Finish Rich and Smart Women Finish Rich.  Chapter 5 is entitled Automate for a Rainy Day and is all about creating an emergency fund, or a rainy day fund, for protection.  I’m a big believer in this.  In fact, my wife and I are already well on our way to having a six-month emergency fund saved up.  We’re about halfway there right now and it has been one of the easiest things that we’ve ever done.  You see when we got married we decided that we didn’t want to be like some of our friends who got into financial troubles (even little ones sometimes) and didn’t have any way to cover these “emergencies.”  So we decided that before we did anything else with our money that we’d establish an automatic savings plan which would begin an emergency fund for us.  It’s paid off quite well for us and we have peace of mind now if anything bad were to happen.  On to David’s advice then…

The “Sleep Well at Night Factor”

“How can you provide yourself with some financial security today?” is the question that David asks within the first few paragraphs of this chapter.  Are you prepared if something were to happen?  Could you pay your bills if you lost your job and were unemployed for two months?  Things happen and as he says, “circumstances change.”  So what can you do to provide yourself with some insurance against this chance of risk?  Of course the answer is quite simple.  By setting aside cash as an emergency fund you can help protect yourself and your family from any financially devastating changes.  How well are you prepared to weather any storms that life might throw at you?  David asks just a few simple questions where you can easily figure out the answer to this question.  I’ll ask them as well.

• My monthly expenses currently total: $_______________
• I currently have $_______________ saved in a money market or checking account
• This equals _______ months’ worth of expenses

How’d you come out?  I’ll do it with you.  My monthly expenses currently total (roughly) $1,162 dollars.  This includes some items which I could drop if needed (such as the internet and my phone).  I currently have $3,299 dollars saved in an emergency money market.  This equals 2.84 months worth of expenses.  Not the six months that my wife and I are shooting for, but like I said it’s a good start. (more…)

Tags: Emergency Fund, Friday Book Club

Finally! No New Rate Cut!

June 25, 2008 | Filed in: Personal Finance | No comment

Ben Bernanke and the Fed decided today to leave their federal funds rate at its current level of 2%.  They’re finally starting to worry about inflation and seem to think that there is much more upside risk (by inflation of course) than downside risk (recession and a slowing economy) at this point.  I’m inclined to agree with good old Bernanke on this one.  Although I’ve been thinking that this was the case over the past several rate cuts that the Federal Reserve has made.

The question that I’m asking at this point however is: is it too little and too late?  I’ll admit that the financial markets have been arduous lately.  I know this more than a lot of people, because I work at a credit union in Phoenix, AZ.  I’ve seen the massive slowdowns and read about the increasing loan delinquencies and writedowns that are taking place.  This with a relatively small (relatively speaking) and very conservative credit union with around $3 billion in assets.  Things must really be difficult for a lot of the larger financial institutions.  It’s obvious they are actually from the constant news of new write-downs.  This so-called recession has even taken from us one of the largest investing companies in the U.S., Bear Stearns.  Things are definitely crazy, but have these huge rate cuts been helping?  Or have they actually been hindering the recovery process?

These Things Take Time

Anyone who’s studied even the most basic of economics knows that market changes don’t happen overnight.  They also don’t happen in a week, or even a month.  Large changes in the financial markets can take months and even years to happen.  Keeping this in mind, one would ask why the Fed cut rates twice to a total of 1.25% percent over a matter of about a week and a half not too long ago?  These things take time, right?  So why so much over such a short amount of time?  I understand their reasoning.  They were hoping to restore confidence to the financial markets… specifically the stock markets.  Something that’s not exactly in their job description.  However I won’t go into that as it’s a completely new topic.  My point in bringing this up is that I’m actually fairly convinced that these large and frequent cuts have done much more harm than good.  All opinions are welcome on the matter, and keep in mind that I am no economist and this is only my opinion.

Have you seen the price of oil lately?  Or the consumer confidence index?  They’re at an all time high and low, respectively speaking.  Obviously there are many factors going into these things, but it’d be foolish to assume or to say that these fed rate cuts have nothing to do with it.  I’m of the opinion that because of the .75% emergency rate cut that the Fed made back in January, followed by the .50% percent cut a week later that consumer confidence was actually hurt.  As a generally uneducated crowd when it comes to finance and the ways of the financial markets we sort of come to expect what’s normal.  What’s normal to us are small and steady rate changes.  .25% here and there up or down are pretty normal in our eyes.  Naturally when we see a much larger change that was initiated by an emergency Fed session we’re going to think something bad is going on.  Self-fulfilling prophesy is a relatively common term that floats around in economics.  In the case of these ridiculously large cuts by Bernanke and company this term might be applied.  As consumers we noticed large emergency cuts and naturally starting to believe that things were much worse than we had previously thought.  Naturally this caused us to become skeptical of the whole situation and we began being more careful with our money.  Self fulfilling prophecy?  I do believe so.

What I’d Like to See

I’d love to see a rate increase in the next few months.  Inflation is going to be a huge problem if the Fed doesn’t do something to try and combat it.  Keeping rates steady will hopefully stop any more increases in the level of inflation, but it’s not going to cut it down.  Not at all.  

Tags: Federal Funds Rate, Federal Reserve, Rants, rate cuts

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