Personal Finance Blog by Debit versus Credit

Recession: A Self-Fulfilling Prophecy

October 9, 2008 | Filed in: Personal Finance | 4 comments

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It’s no secret that to many around the world the sky seems to be falling.  There is even talk of a new depression - in fact a recent poll by CNN showed that 60% of Americans think we’re likely to end up in one.  A depression!  Can you imagine?  The great depression was a terrible time for our country and the economy.  Unemployment was around 22-25% - literally one in four Americans were out of work.  As of right now unemployment is hovering at about 7% which may be on the high side for our tastes, but comparatively speaking is a fantastic unemployment rate.

I don’t wish to make light of a serious situation, because the economic crisis our country - and by extension the entire world - is facing is nothing to be taken lightly.  It’s a complex problem that’s been in creation over the last decade or so.  However it’s important to remember that this is not the first time we’ve faced economic crises and it will not be the last.  We will pull through this and we can only hope to be stronger and better because of it.  It’s important to remember that the best thing for our country right now is for the people not to hoard their cash, for businesses not to hoard their cash and for the government not to hoard its cash.  The government is doing a fine job with this task (some might even argue they’re doing too well, but that’s for another time), but as individuals and businesses we have been doing exactly what we should not be doing: hoarding our cash.

It comes down to this: a recession is a whispered and spoken fear of ours that is (unintentionally) a self-fulfilling prophecy.  We are afraid of it and we do exactly what needs to be done in order for it to come to life.  If we are to avoid a deep and serious recession then it’s important that we are educated on what should be done to try to avoid it.  Here’s a list of some things you can (and probably should) do that can help to lighten the crisis that seems almost unavoidable at this point.

1. Don’t Hoard Your Cash. Taking it out of the bank or long-term investments and putting it under your mattress is a stupid thing to do.  I repeat, stupid.  Don’t do it.  Your money is insured in the banks and credit unions and if you’re in it for the long-term in the stock market then you should know it’s impossible to time the markets.  I’ve lost a bundle this year with my 401k and other investments, but it doesn’t matter because over the long-run I’ll still pull in a decent (10-12%) return.
2. Don’t Watch The News. Seriously.  They thrive on bad situations and always know how to throw an even more negative spin on things.  Avoid watching the news day in and day out and you’ll avoid unneeded stress and worry.  This will help you to keep your head cool.
3. Stay Rational and Calm. As I mentioned earlier you need to keep your head cool.  If you become upset you will become irrational and irrational people ALWAYS do things that they regret doing at a later time.
4. Pay Down Your Loans. Paying down your loans will free up cash for banks to use and will also help to get yourself out of debt.
5. Buy That New iMac You’ve Been Eyeballing. That is assuming you have the cash to pay for it.  But now is as good a time as ever to buy things that you want and/or need.  Plus if you actually do buy an iMac it’ll help me indirectly by helping Apple’s profit margins and therefore my Apple stock.

It all comes down to rationality.  Don’t be irrational and don’t make stupid and emotional decisions.  We will all get through this ok, but only by keeping our heads about us.  Good luck out there!

Tags: great depression, recession, self-fulfilling prophecy, surviving a recession

Keep Investing In Your 401k Plan

October 8, 2008 | Filed in: Investing | 5 comments

Here’s a question for you: If you put $5,000 dollars into your 401k plan this year and your employer also puts $5,000 into your 401k plan and over the course of a year your investments lose 40% of their value… assuming all of this, how much would you have lost?

The answer may surprise you.  You’ve actually not lost anything - you’re at a gain on your 401k plan at this point.  Remember that 401k plans are usually matched by your employer, and quite often dollar for dollar up to a certain percentage.  Assuming that the $5,000 you contributed was the maximum that your employer would match you immediately net a 100% return on your money.  After all, you put in $5,000 and so did they.  Now if that entire amount ($10,000 at this point) lost 40% of its value you’re down to a 401k plan value of $6,000 dollars.  All from an initial investment (out of your paycheck) of $5,000.

Guess what that means?  Your 401k plan portfolio has still gained 20%.  That’s a fantastic return on your money by any standard.  Things might be dramatic out there in the world of money, but you have to remember that you are in it for the long run, and with the exception of those who plan on retiring sometime in the next 5 years you ought to maintain your 401k plan investments.

Don’t let the news frighten you, don’t check your investments daily and most of all don’t go looking for bad news without thinking about what good can (and ultimately will) come from the difficulties we are now facing.  But most of all don’t sell out of your 401k plan and PLEASE OH PLEASE continue to invest in it.  You’re practically guaranteed a positive return, even with negative stock returns in the 30-40% range.  After all your employer is likely giving you FREE money, just for taking advantage of their 401k retirement plan.

Tags: 401(k), 401k plan, Investing, Retirement Planning

Happy Birthday to Debit versus Credit!

October 6, 2008 | Filed in: Miscellaneous | 13 comments

Honestly I can’t believe that it’s been a year already.  I started this blog a year ago today with the intention of sharing my thoughts and advice on finance, money and the business world.  Looking back I’m really proud of what I’ve accomplished, not only with the content I’ve provided but with how much this blog has grown and even all I’ve been able to learn about internet marketing, web programming and design.  I’ve truly had a good run and I’m very much looking forward to another great year.  To celebrate the birthday of Debit versus Credit I’m sporting a brand new redesigned website and sponsoring a great contest as well.  Keep reading for the details!

I’ve been working on creating a custom Wordpress theme to power this blog with over the past several months, and while I’m going to say it’s still not complete it’s good enough I think to kick off year 2 with a bang.  May I present to you a brand new redesign for Debit versus Credit!  How do you like it?  Please leave me your comments and vote on the poll in the sidebar as well.  I’d really like to hear what you like about it and even what you don’t like about it.  This is the first time I’ve ever done this and I probably still have a lot to learn!  So hit me with your best shot!

Finally I want to present to all of you a present from me, to you. I’m going to be sponsoring the first contest ever to be hosted at Debit versus Credit. There will be three prizes (these may be subject to change - a grand prize, first prize and a second prize. For the grand prize I’ll be sending you $25 and a pre-release version of a book called Scratch Beginnings, which is written by Adam Shepard. The first prize will also receive a pre-release copy of Scratch Beginnings as well as $10 and the second prize will receive a copy of Scratch Beginnings. The contest will be running for about four weeks, starting today (Oct 6) and running through midnight on the 31st of October.

There are several ways to get an “entry” into this contest.  Please note that in order to make it easier for me to track you’ll need to leave a comment in this post letting me know once you’ve fulfilled any (or all) of the entry requirements.  Let me go ahead and list the entries for you now…

• 1 Entry    - Subscribe to my feed via e-mail
• 1 Entry    - Follow me on Twitter
• 2 Entries - Write a short blog post about Debit versus Credit and why you think your readers and friends ought to check it out.
• 1 Entry    - Link to Debit versus Credit

That gives you a chance to get five entries into this contest, which will bring you this much closer to receiving an interesting finance-related book and a gas card to boot!  As I mentioned earlier don’t forget to comment on this post once you’ve done any (or all) of the required entries so that way I can keep track of who entered and how many entries they have.  Good luck!

Tags: contests, Debit versus Credit Birthday

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