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

Achieving Wealth and Prosperity

November 14, 2008 | Filed in: Personal Finance | 3 comments

As a personal finance blogger I find it interesting to read other personal finance blogs not only to learn from these individuals but also to see how they perceive money and the world around them. You can always find links to some of my favorite finance blogs in my blogroll, but today I want to talk a little bit about a fantastic personal finance blog that has been around for a while now: MoneyNing.

I bring up MoneyNing for two reasons. The first reason is that David knows his stuff and he is committed to sharing with his readers what he’s learned from his own financial life. The second reason is that I’m actually being featured on his blog today with a guest post that I wrote about my journey to prosperity.

A Journey To Prosperity

For today’s post I’d like to expound a little bit more on the goals that I’ve set for myself on my journey to prosperity. Before you continue reading here you definitely ought to check out Debit and Credits Plan to Prosperity over at MoneyNing (clicking the link will open in a new window) and then come on back for some further clarification.

Ok. Did you read it? What did you think? Please if you have any comments related specifically to that article leave them over at MoneyNing. Otherwise let me help you understand a little bit more about my financial goals.

Being Rich Requires Thinking Rich

Like I mentioned over at MoneyNing I think that being prosperous is so much more than just being lucky. It requires hard work and dedication to achieve wealth. As an example let’s take a look at the worlds richest man, Warren Buffett. This is a man who has worked hard and smart every single day of his life. His wealth didn’t come easy to him, but because he was willing to learn and willing to work hard he’s been able to achieve extraordinary things. Being extraordinary doesn’t just come from hard work though, it requires some level of goal setting and follow-through. Think of it this way: If you want to be rich then you need to learn how to be rich.

I’ve set several goals for myself. Let me share them with you now, along with how I plan to achieve them:

• Be in a position to retire by the age of 55

I will contribute as much as possible to my 401k retirement plan. Currently this number is 10% of my income.
I will make smart financial decisions such as only buying a house that I can easily afford.

• Build my personal net worth to $1 million plus dollars

I will keep my liabilities (debt) to a minimum by buying only what I can afford.
I will make smart investment decisions to grow my net worth at a minimum of 10% a year.
I will continue to save money out of my paychecks beyond what I’m saving for retirement.

• Avoid debt as much as possible

I will not use my credit cards for everyday purchases unless I have the cash set aside to pay them off immediately.
I will not make foolish decisions and purchase things that I can’t afford with cash and that I don’t really need.
When I make large purchases (such as a house or car) I will compare my options and borrow as little as possible.

Those are the goals that I’ve set for myself; my roadmap to prosperity, if you will. Do you have a plan to achieve prosperity? I want you all to sit down and think about what you really want out of life and how you can achieve it. It might require some cutting back at first but in the long-run you’ll thank me, but more importantly you’ll thank yourself.

Tags: 401(k), 401k plan, achieving, Debt, prosperity, retirement, saving, wealth

Time To Re-Evaluate The Budget

July 1, 2008 | Filed in: Personal Finance | No comment

($10,112.01)

That’s a large number.  A much larger number than I thought it would be.  That number right there is how much we have paid on our primary Visa credit card this year.  I should explain something.  We don’t carry credit card balances on a month to month basis.  When I get a credit card bill I do everything I can to pay it off.  So far I have been successful.  Right now my success is just about to run out of steam.  In order to pay off this card we have to use a sizable chunk of our “short-term” savings.  Granted the bill this time around is not so bad.  Only about $1,700 dollars.  It’s all basically my Mexico trip right there.  Studying abroad does not come cheaply and it especially does not come free.  It was all worth it though.

The point to this whole post is that the wife and I are worried about draining our savings account.  We are hoping to buy a house in about a year and that savings account is going to be our down payment.  Naturally we’d like to keep a sizeable chunk of money in there due to this being the case.  With that being said we have decided to put ourselves on a strict no-spend diet.  In order to keep ourselves sane this will not apply to the small amount of mad money we get on a monthly basis, but other than that cash we will not be spending any money on any unnecessary items.

Enter the Wealth Tracking Tools

I’d like to make sure that I’m actually building wealth over time.  As I already mentioned we’re looking to purchase a home in about a year and we’d like to be prepared for such.  With that being said I’ve decided that after months of procrastination it’s about time that I start using some tools to track our progress (or lack thereof) with our financial goals.  Starting later this week I’ll be posting on a regular (monthly) basis updates to our net worth and other relevant financial tracking numbers.  Of course I’ll be using Excel to create these spreadsheet tools.  Hopefully with our increased vigilance of following our budget we will be able to accelerate the wealth building process.  One can only hope.

Tags: Budgeting, Debt, Personal Finance, wealth

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