Personal Finance Blog by Debit versus Credit

What Everyone Who Has US Dollars Needs to Know About China

November 19, 2008 | Filed in: Economy | No comment

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Today we’ll be featuring a guest post from Simit Patel, a contributing analyst at InformedTrades.com

As the recent economic turbulence has shown us, we live in a global economy. And thus, if you want to astutely manage your finances, you need to know about how global factors can affect your wealth.

And if you hold US dollars, there’s one factor that you should be particularly wary of: China.

The US government is currently running record levels of debt, and with government spending continuing to rise given the bailouts, entitlements, and foreign policies that have been promised, the debt will likely rise — especially when we remember that the tax base is diminishing due to rising unemployment. And right now, one of the biggest lenders to the United States is China. To put it in consumer terms, China is like the bank that gave the US a credit card to finance its expenditures.

Of course, how much longer China, as well as other buyers of US Treasury bonds, continue to buy US debt is increasingly becoming an issue — particularly as the global economy is contracting, thus making lenders more wary of lending. Accordingly, China and the rest of the world may not be buying US debt — just at the time when the US government is looking to increase its expenditures.

So the question: is the US on the verge of maxing out its credit card?

Well, one way the US government can attract more lenders is to raise its interest rates. Currently rates are moving in the opposite direction; the Federal Reserve, the organization that establishes the monetary policy of the US dollar, is moving interest rates to near zero in an attempt to encourage borrowing and spending as a means of stimulating the economy. However, if the US has trouble securing more debt, it may need to raise rates — i.e. the amount it is willing to pay for the privilege of borrowing — to attract the debt. This does, however, introduce greater problems down the road, as it will increase the overall debt burden on the
US government and its taxpayers.

Alternatively, if the US government is not able to secure more debt — if, to put it in consumer terms, it’s credit card is maxed out — it will need to print more money to pay off its debts. This will result in currency devaluation. Personally, this is the scenario I am more concerned about.

If more money is printed and the currency is devalued — meaning it will cost more to buy the same goods and services — how can you protect yourself? Well, just as we now need to monitor the global economy for signs of problems, we can look to the global economy for solutions as well. Foreign currencies and precious metals — particularly gold and silver — have historically served as ways to protect against currency devaluation. For individuals looking to preserve and grow their wealth, diversifying globally may be a path worth embarking upon.

Simit Patel is a currency trader and contributing analyst at InformedTrades.com, a site that offers free courses on trading the world’s financial markets.

Tags: Debt, Economy, Globalization, Guest Post, wealth

An Easy Way To Save Money: Plan.

October 21, 2008 | Filed in: Frugality | 3 comments

Today we’ll be featuring a guest post from Michael Caldwell at UseTheDollar.com, a finance blog for college students.

Stores Expect to Sell you more than you came for

The majority of my unplanned spending is composed of impulse buying of items in stores. Your lack of planning and Store’s tricky methods cause you to spend way more than you need to be.

Though many people, notably women, go shopping just for the rush; I rarely step foot in a store without some sort of mission. “I want this book” or “I want this new sweater” — So I go looking for that item. Barnes and Nobles is counting on me to see other things and walk out with them as well as my book though. Stores spend money to fool you.

A large amount of employees’ time, marketing expenses, and floor space is spent to build displays of items they’d like you to bring home. Here are some steps you can take to keep yourself from spending more than necessary at the store.

1. Always take a list.

Whether you are shopping for Christmas, for clothes, or just going to the grocery store; do not go without a list of what you need to buy. And do NOT deviate from the plan. Stick to your list and there’s no way for you to buy on impulse.

2. Take Cash

Another great control on your spending is to only bring cash. By deciding how much you’ll spend (using your list and prices) before you leave, you can take an envelope of cash in that amount. This way, you won’t charge or spend any more than you have planned.

Impulse buying adds up fast. Bringing cash is a surefire way to not go overboard.

3. Clip Coupons

The Sunday paper, cliche as it may be, will cost between $2 and $3 each week. It can contain anywhere from $150 to $300 worth of coupons. Granted, you won’t use all of them, but if you can find even $3 worth of savings then you’ve made it worth having bought that paper. Hey, maybe you’ll even read a little and educate yourself some.

Looking for another way to save more and build wealth? Check out my post on boosting your active and passive income.

4. Don’t fall for store trickery

How often do you see a mannequin with only a shirt on? Stores understand that psychologically, if you see a shirt that you want to buy that is on display with a nice pair of pants, you’re likely to buy the pants as well! Don’t fall for their trickery. Buy what you went in for and nothing else.

5. Put on the blinders

I used to work in Retail and whenever I would work the cash register (actually, we called it the Box Office at the Disney Store) I would be required to ask each customer if they would like to add one of our counter items to their purchase. These ranged from $1-$5, and it amazed me how many people actually fell for this. They never needed that stupid cup or poorly made stuffed animal, but hey: it was cheap, convenient, and they might even hurt my feelings if they didn’t buy it; so they did. Put on your blinders at the register. You’ve nearly completed your mission — don’t succumb to the corporate mischief now.

By following these tips I think you’ll be very surprised just how much you manage to save. An amazing amount of your money goes towards items you never planned or needed to buy — if you can eliminate impulse spending, you’ll be able to build some serious wealth.

You may also be interested in checking out these easy money saving tips for students.

About The Author

Michael Caldwell is a lifelong entrepreneur who has become active in the Financial world. He is the Co-Founder of UseTheDollar.com, and provides valuable, insightful posts, videos, and explanations to help students better understand the financial world.

Tags: Frugality, Guest Post, Money Saving Tips

Retirement Planning: What You Can Do To Retire In Good Financial Shape

October 17, 2008 | Filed in: Personal Finance | 1 comment

Today I’m featuring a guest post about retirement planning.  Stay tuned next week for some great updates including a new Friday Book Club and the continuation of my Investing for Beginners series.

Where do you want to be when you retire? Will you be on an island in the Bahamas? Working in a different field? Or simply enjoying your spouse? Ninety-five percent of Americans have fears about retirement and 42% feel they will run out of money entirely, according to a 2005 study by NAVA. Just as you wouldn’t go on vacation without an itinerary or a budget, you shouldn’t run toward your retirement blind. With the right plan, retirement planning can be a breeze.

When you’re first getting started, you’ll want to envision how you want your retirement to be. While you’ll be saving money on gas and eating on-the-run, remember that there will be additional expenses — notably healthcare — as you age. Check with the Social Security Administration to find out what your benefits will be. Go over your employer’s retirement and 401k plan. After realistic considerations, you may want to consult a retirement planning calculator.

Some feel most comfortable using retirement planning software. Forbes Magazine recommends Quicken Retirement Planner ($59), Morningstar ($125) and ESPlanner Plus ($199). This option allows you the time and a no-pressure approach to examining your options independently. If you like having things explained in person, you can ask your banker, life insurance agent, investment broker, accountant or attorney for advice. To avoid the hassle, retirement planning services are another avenue, although most places charge around $200 per consultation.

Don’t rely on social security! Social security only provides for approximately one-third of the average American’s retirement plan. Instead, focus on your 401k as the bulk of your retirement savings and invest as much as possible. Consider annuities as a great supplemental retirement plan. Remember, tax-efficient options are increasingly crucial in saving up that nest egg.

Contribute the maximum on your 401k! Putnam Funds did a study in 2005 that found if you earned $40,000 in 1990 saving 2% of your salary, you’d have $40,000 by 2005. However, if had you saved 6% of your salary, your return would have tripled!

Beware of inflation! Ronald Reagan once warned, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” Many people forget to factor inflation into their retirement planning. Consider that a $60,000/year lifestyle will cost you $80,635 in ten years and double that in thirty years! Your investment returns should be high enough to cover this pitfall. Most pensions and social security account for inflation and adjust accordingly; however, if you plan to dip into savings accounts or investments, your money will decrease in value over time.

While it may seem overwhelming at first, all the tools are available to make your retirement planning less tedious. Whether it’s a retirement planning service and personal consultant or retirement planning software, you’ll find answers. You can leave the investments up to a trustee who will take the guesswork out or you may choose to take a more active role in your investments. Your best bet is to start now and make a variety of investments to ensure your golden years are truly the best.

Tags: Guest Post, Retirement Planning

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