Importance of Saving Money

Saving Money: Review Expenses First

Ever wonder why your savings target cannot be met every month? I know you are trying hard but maybe you aren't aware of your spending leaks.

You have to record down your expenses conscientiously for a few months, even if it is just a few pennies.

I found out that I have been buying snacks, magazines, newspapers, iced coffee and mineral water at convenience stores and petrol kiosks which amounted to about $200 in my first month of tracking expenses.

Add to that about $200 a month on clothes, $300 on fuel expenses, and then hundreds of dollars on food, electronic gadgets, digital downloads, as well as other miscellaneous items, you can see that my income is spent mindlessly and I don't have much left to pay my bills, not to mention saving money.

You don't feel the pinch until you actually record the expenses down and review it with an objective mind. It was a horrible feeling and I wanted to change my frivolous lifestyle.

Take Action

Once I set my mind on changing, I found that a lot of expenses can be whittled out and channeled into my savings account.

First, I try not to shop online frequently which reduce my spending by about 40-50%. Online shopping and a credit card is a potent combination because everything is so convenient. When you see attractive gadgets, it is difficult to resist impulse buying. Before you know it, you have checked out the products with a few clicks of the mouse.

I also decided to avoid buying unnecessary stuff whenever I stepped into stores. If I do shop, I have a list of what I need and the amounts which I am willing to spend.

There are times when I exceed this self-imposed budget but it is just to give myself or my family occasional treats which brings me to the next point.

Reward Yourself Occasionally

Every household which practices budgeting must allow themselves some incentives to go the distance. You pick up some desirable but unnecessary items like Starbucks coffee, chocolate, toys or a new outfit.

The main thing is to reward your efforts for sticking to the budget every month. Such rewards keep us motivated and happy, so be sure to include them in your budget.

If you want to be serious about saving money, get started on tracking your expenses. It may sound like hard work but the payoff will come in the long run.

A Tale Of Two Cows In Different Corporations

DEMOCRAT

You have two cows.
Your neighbor has none.
You feel guilty for being successful.
Barbara Streisand sings for you.

REPUBLICAN

You have two cows.
Your neighbor has none.
So?

SOCIALIST

You have two cows.
The government takes one and gives it to your neighbor.
You form a cooperative to tell him how to manage his cow.

COMMUNIST

You have two cows.
The government seizes both and provides you with milk.
You wait in line for hours to get it.
It is expensive and sour.

CAPITALISM, AMERICAN STYLE

You have two cows.
You sell one, buy a bull, and build a herd of cows.

BUREAUCRACY, AMERICAN STYLE

You have two cows.
Under the new farm program the government pays you to shoot one, milk the other, and then pours the milk down the drain.

AMERICAN CORPORATION

You have two cows.
You sell one, lease it back to yourself and do an IPO on the 2nd one.
You force the two cows to produce the milk of four cows. You are surprised when one cow drops dead. You spin an announcement to the analysts stating you have downsized and are reducing expenses.
Your stock goes up.

FRENCH CORPORATION

You have two cows.
You go on strike because you want three cows.
You go to lunch and drink wine.
Life is good.

JAPANESE CORPORATION

You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
They learn to travel on unbelievably crowded trains.
Most are at the top of their class at cow school.

GERMAN CORPORATION

You have two cows.
You engineer them so they are all blond, drink lots of beer, give excellent quality milk, and run a hundred miles an hour.
Unfortunately they also demand 13 weeks of vacation per year.

ITALIAN CORPORATION

You have two cows but you don't know where they are.
While ambling around, you see a beautiful woman.
You break for lunch.
Life is good.

RUSSIAN CORPORATION

You have two cows.
You have some vodka.
You count them and learn you have five cows.
You have some more vodka.
You count them again and learn you have 42 cows.
The Mafia shows up and takes over however many cows you really have.

TALIBAN CORPORATION

You have all the cows in Afghanistan, which are two.
You don't milk them because you cannot touch any creature's private parts.
You get a $40 million grant from the US government to find alternatives to milk production but use the money to buy weapons.

IRAQI CORPORATION

You have two cows.
They go into hiding.
They send radio tapes of their mooing.

POLISH CORPORATION

You have two bulls.
Employees are regularly maimed and killed attempting to milk them.

BELGIAN CORPORATION

You have one cow.
The cow is schizophrenic.
Sometimes the cow thinks he's French, other times he's Flemish.
The Flemish cow won't share with the French cow.
The French cow wants control of the Flemish cow's milk.
The cow asks permission to be cut in half.
The cow dies happy.

FLORIDA CORPORATION

You have a black cow and a brown cow.
Everyone votes for the best looking one.
Some of the people who actually like the brown one best accidentally vote for the black one.
Some people vote for both.
Some people vote for neither.
Some people can't figure out how to vote at all.
Finally, a bunch of guys from out-of-state tell you which one you think is the best-looking cow.

CALIFORNIA CORPORATION

You have millions of cows.
They make real California cheese.
Only five speak English.
Most are undocumented.
Arnold likes the ones with the big udders.

Hat tip: James

Retirement Planning: Can You Make Do With Less?

Since the 80's, we have benefited from strong GDP growth, low inflation, lower taxes, and bull markets in both equities and bonds. It was easy to build up our wealth but gone are those days.

For the last year or so, a lot of people suffered immense losses in the financial crisis. Even if the worst of the recession is behind us, we have to prepare for a different economy.


Due to tighter regulations and lesser debt-fueled consumer spending, forecasts for economic growth and investment returns are expected to be lower. For a lot of baby boomers who are likely to retire in the next decade, that is bad news.

Yet, financial planners still impress upon us the need for an 80% replacement rate of pre-retirement income to enjoy a reasonable standard of living after retirement. This is a lofty target and if your wealth has been decimated in the financial crisis, achieving the goal looks even more distant.

For most of us, circumstances will ensure that we make do with less or continue working past retirement age. According to the Federal Reserve’s 2007 Survey of Consumer Finances, the median income for households headed by retirees is just $25,000 a year.

That is about half of the median income for all families, which is $47,000. Clearly, a lot of retirees are doing well on a modest 50% of pre-retirement income.

I do not like to set any benchmark to measure our retirement success but I won't say that the 80% target specified by financial planners is entirely unrealistic. It is true that the future contains many challenges which require that we save as much in our retirement fund as possible. And don't mention early retirement to me.

For a start, runaway inflation, or stagflation, thanks to the relentless money printing by the Federal Reserve to back-stop losses in the financial system and stimulate the economy, will whittle our purchasing power considerably.

Next up is Social Security which has been billed as one giant Ponzi scheme. As it is, the problems with funding Social Security are serious. Given the trillions of dollars in debt racked up by the U.S. government, from its years of practicing a reckless policy of "deficits don't matter," it has finally reached a stage where higher tax rates are inevitable.

And then there’s the problem of soaring healthcare costs. The Employee Benefit Research Institute reveals that a typical 65-year-old male retiree may need about $173,000 to cover health insurance premiums and out-of-pocket expenses in order to have a 50-50.

Of course, the longer you live, the more money you need to set aside. President Obama is advocating healthcare reforms to bring it in line with the core rate of inflation, but I am not sure how effective that policy will be.

In the end, 50% or 80% of pre-retirement income targets depend on individuals. To ensure self-sufficiency, we should get serious about a retirement plan as soon as possible and not wait till 5-6 years before retirement.

In a globalized economy where jobs are outsourced, manufacturing plants relocated and our skills rendered redundant quickly, we have to prepare for long periods of job losses, thus, our retirement goals should also be realistic.

I also prefer to pay off mortgage loans before retirement. This will greatly improve our cash flow and let us sleep better at night, knowing that whatever happens, we have a roof over our heads.

If possible, we should accumulate 1-2 years of cash to prepare for emergencies. This will prevent us from making panic decisions on our other investments.

There is no harm in saving too much money but if we retire with little assets and are debt-ridden, then it could be disastrous. I doubt the government will be able to look after our retirement needs.

Looking at California's budget crisis which is always a good reflection of America's state of affairs, who knows if the federal government will declare bankruptcy in a decade's time, when the dollar loses its reserve currency status and the world has had enough of US debts.

Hence, we should really set our savings target as high as possible and to get started saving money today.

5 Easy Ways to Save Money in a Recession

Here is some good advice from Shelley Roche for people looking to save money in a recession.

1. Bartering.
2. Growing your own food.
3. Bakery outlet stores.
4. Cable TV savings.
5. Cowpooler savings.

Is Cash For Clunkers Worth The Trouble?

Cash for Clunkers program got off to a bang last week but interest has cooled off considerably, according to Edmunds.com, a car-shopping website.

In case you are unaware of the Cash for Clunkers program, here is a quick summary. The clunker rules state that if you trade a vehicle with a fuel economy of 18 mpg or less for a vehicle which is at least 4 mpg higher, you’ll get a government rebate to use toward the purchase.

More specifically, if the new car gets at least 10 mpg more than your old one, the rebate is $4,500. If it is between 4-10mpg, you qualify only for $3500.

You can check your clunker's mpg at the official Cash for Clunkers Web site which will link you to the Fueleconomy.gov site.

Before we explore the inadequacies of Cash for Clunkers, some credit must be given to the Obama administration for boosting the sluggish automotive industry. After all, two major scalps (General Motors and Chrylser) have already been claimed in this recession.

Notwithstanding the much-touted green shoots, the automotive industry continues to suffer from excess inventory due to overproduction and lacklustre demand.

Speaking of demand, I doubt it is not going to recover soon when consumers are still caught in the triple whammy of job insecurity, stagnant wages and restrictive bank credit. The specter of high fuel costs has also deterred most people from upgrading their vehicles.

External stimulus like Cash for Clunkers will entice people to buy cars by trading in their old, fuel inefficient clunkers. That will also free up inventories and spur production again.

To be sure, a new car is more comfortable and creates less emissions and maintenance problems than an old one. It is also much safer with advanced lifesaving electronic stability control and side-curtain airbags.

However, Uncle Sam’s rebate program is crafted in such a manner that not all clunker owners qualify or find the terms attractive enough to trade in. Older cars that are not worth much and get poor gas mileage stand to benefit most from the government rebates.

Here are more catches in the Cash for Clunkers program:

1. Your clunker must be less than 25 years old.
2. The vehicle must be be road-ready with at least 1 year insurance history in your name.
3. You must buy a new car, not used.
4. The manufacturer’s suggested retail price (MSRP) of the vehicle you buy can’t exceed $45,000.
5. If you want to lease instead of buying a new car, the contract must be at least five years.

Frankly speaking, I prefer taking cash to getting rebates. However, Uncle Sam does not want to mail us the cheque. Instead, when you trade in your clunker, the car dealer will just apply the credit toward your purchase price, send your clunker to the scrap yard, and get reimbursed by the government.

If we aren’t careful, at least part of the rebate could be lost during the negotiations for the new vehicle. A sleek salesman is likely to jack up his price or forgo the in-house discounts when they realize that you are trading in your clunker.

There is also a good chance you can extract a better deal by selling your clunker in the open market. Many old cars have higher trade-in values than the $4,500 or $3,500 rebates. You lose out when you don't comparison shop around for the best market prices.

With the atuomotive industry in doldrums, it’s a buyer’s market out there. Customers command a lot of leverage in the auto showroom, even without the government rebates. Since we call the shots, do not rush to trade in the vintage clunkers without doing some research.

Twisted Irony of Bailouts

Isn't this sentence interesting? From each according to his ability to each according to his lack thereof.

Frugal and responsible Americans save religiously and could end up $80,000 poorer if all schemes to rescue the financial system are implemented.

Recently, the inspector general for the $700 billion TARP scheme concluded that “the US government’s maximum exposure to financial institutions since 2007 could total nearly $24 trillion, or about $80,000 for every American.”

Tsk, tsk, how many $80,000 are we able to save in a lifetime? And yet, in one fell stroke to save greedy Wall Street who took home fat bonuses in a five year housing orgy, our money is gone.

Does It Make Sense To Use Home Equity To Invest?

As a measure of how Main Street is reacting to the stock market rally, we just need to check out some of the popular forums. I recently saw in a forum that discussions about withdrawing home equity for investments is becoming a hot topic again.

I can understand the speculative fervor, after all the stock market is going gang-busters (the rally started in March and shows no sign of dying down after 16 weeks ). At this moment, money seems to be growing on trees, just plonk your money into equities and it is hard not to make money.

Clearly, investors will seek all kinds of leverage to maximise their profits during this "window" of opportunity where fundamentals don't matter. But have we already forgotten the misery from the financial crisis when some of us flirted with financial ruin while those who are more prudent also saw their hard-earned wealth decimated?

More specifically, is it wise to use a home equity loan to speculate or invest in securities? First let's understand the types of home equity loans available.

Types of Home Equity Loans

There are two types of home equity loans: term loans and lines of credit. The former is a one-time lump sum paid off over a predetermined time period, at a predetermined rate of interest.

A home equity line of credit (HELOC) sets a maximum amount for the line and lets the borrower withdraw money up to that point. The interest rate on a HELOC is usually variable and there are minimum requirements (in terms of time and amount) for paying back the principal.

Home Equity Loan Is A Gamble

As far as I am concerned, taking out home equity is a gamble, even if you sugar-coat it as a form of investment. There are risks associated with any investment, nobody can guarantee you make money or preserve your principal. And the basic rule is the higher the returns, then the risker the investment.

If your investment goes sour and you lose a substantial portion of the home equity loan, the collateral supporting the loan (house) is also compromised. That is a terrible fate if you have spent your adult lifetime amassing the equity in your house. In the worst case scenario, you could end up on the streets when you cannot make good on the loan payments as they fall due.

Before you undertake any investments, first evaluate the interest rate on your home equity loan. For example, if your rate is at 5%, then your investment must yield more than 5% or they are not worth the trouble.

One of the advantage being bandied out is that the interest you pay on your home equity loan is tax deductible, thus giving you a "theoretically" higher rate. But you have to remember that the home equity loan must be used for home improvements in order to qualify for the IRS home mortgage interest tax deduction. Using it for other purposes and then claiming that interest may get you penalized.

The next consideration is that payment for the home equity loan is most likely to be monthly. Hence, if your investments do not payout monthly, you will have to fork out home equity loan payment from somewhere else like your savings or the lump sum.

You should also make sure interest on your home equity loan is not a variable amount; if it is, you will need to watch it so that it doesn't go up high enough to wipe out your profits. With the possibility of the Federal Reserve raising the rates once the economy is on a firmer footing, this would be a concern of mine.

There are other options available if you need money to invest in stocks, and they don’t involve the risk of losing your home. However, if you are knowledgable and financially stable (able to cover your mortgage payments from salary rather than investments), the home-equity gamble might be a way to secure low-interest money to use to invest in securities.

Beat The Heat And Save Money

Texas is blazing hot and with low rainfall, the state is suffering its worst drought in 50 years.

If you are struggling in the heat and turning your aircon full blast, there could be a whopping utility bills at the end of the month.

Here is a cool video by Umbra Fisk who advises how to beat the heat while being kind to your wallet and the planet. She also weighs in on the fan vs. aircon dilemma.

Check it out.