Wisdom of Rich Dad

- Sandra Simmons

Does the current economic crisis have you worried? Are you wondering how achieve financial freedom so you can protect yourself and your family from the coming financial crash? Here is what you need to know.

The first thing you need to understand is what the word economics means in terms of thinking about your family, and how you can use what it means to your financial advantage.

Forget what the media says about economics when they talk about the roller coaster ride of the stock market, supply and demand, inflation, banking industry mortgage defaults and the unemployment rate. Those are ‘economic characteristics’ that measure an area much larger than you can control.

What you can control is your own household economics. The definition of economics I am using is the original one; meaning “the art or science of managing a household or business.” And that is something that you, as an individual, can control.

There is an art to managing a household. It takes having certain skills and abilities, like organizing things so they run smoothly. There is a science of managing a household, especially in the area involving money. Here is what you can do to make sure that the economics of your household are strong and stable, even though the economy of the country may be on the slippery slide to financial disaster.

1 – Spend Less Than You Make

Take a lesson from your parents or grandparents who made very little, but lived very well. Keep expenses down to a level below what you bring home in your paycheck after taxes. The fastest road to financial disaster is spending more than you make. It’s possible to maintain your quality of life while cutting optional spending. This can be done by doing something as simple as renting a movie and making popcorn at home instead of going to the theatre, to buying a new used car instead of a brand new car.

2 – Pay CASH

Every time you purchase something using credit cards that you cannot pay off as soon as the statement arrives, you are committing your future earnings to the credit company. Those future earnings will be needed to pay your regular household expenses, so you end up in economic slavery known as the credit trap. The exception is purchasing property that increases in value, such as buying a home or investing in a commercial building that puts more income in your pocket.

Tip: When paying with cash; negotiate a cash discount. When the economy is sliding down and credit is harder to get, the guy with the cash is king. In addition, find out how to buy wholesale instead of retail to further lower your cost.

3 – Make the Money BEFORE Spending It

If there is some large purchase you need to make or want to make in the future, start putting small amounts in a savings account towards that purchase and keep that up until you have the cash to pay for it. If you have 10 years before your child enters college, then find out what the tuition will be and figure out how much you have to put away every week to have the cash the year they graduate from high school. Plus apply for every student scholarship, grant or financial aid package you can locate.

4 – Stash Some Cash for Emergencies and Living Expenses

Nothing will make you sleep better at night than financial freedom of having some cash tucked away for emergencies like having to get the car repaired, needing some unexpected dental work or losing a job. When you have a cash cushion you can get your hands on immediately, then magically, you stop worrying about money, your attention goes back on living life and enjoying it, and making money suddenly gets easier.

The only thing you have to fear in an economic crisis is not having some cash reserves in a savings plan you can immediately get your hands on. Did you know that more millionaires were made during the Great Depression in the United States than during any other era in our history? How did that happen? In that time, the economy crashed, the stock market crashed, inflation took prices of everything through the roof, the unemployment rate went sky high as businesses closed, and people who lost their jobs also lost their homes.

The people who had cash stashed away were able to buy houses, property and whole companies for pennies on the dollar. They ended up being millionaires because they had enough cash to weather the storm called the Depression.

Out of every bit of income that comes in the door, immediately carve off 10% and put it in a savings account that you have designated for your cash cushion. Even if you have to work an extra job and cut expenses on top of that, JUST DO IT! As the weeks roll by you’ll find you sleep better at night and walk through life with a lot more confidence knowing you have achieved financial freedom and protected yourself from the economic crisis looming on the horizon.

Sandra Simmons, President of Money Management Solutions has years of experience helping business owners and individuals manage their money to reach their financial goals.

 - By Roosevelt Cooper -

As we enter the 2nd year of the US Financial Economic Crisis that started in August of 2007 with the sub-prime lending meltdown, the impact on the economy and the average American has been devastating. Economy.com is predicting that by the end of 2008 over 2.8 million US households will either be in foreclosure, be forced to give their house over to their lender and move out or sell their home for an amount lower than their actual mortgage balance.

And Federal Reserve Chairman Ben Bernanke said that mortgage defaults wouldn’t harm the US economy!

So far besides foreclosures being at an all time high, we’ve had the collapse of practically every sub-prime lender out there including New Century Financial, which was the largest subprime leanding company in the United States. Even regular lenders like American Home Mortgage and Countrywide Financial Corporation were effected. AHM filed bankruptcy and CFC narrowly avoided it with a last minute loan.

If you brought a home in the last year or so, take a look at your property value. There’s a good chance it is lower than what your mortgage balance is. And to think all of the financial experts bashed Robert Kiyosaki ten years ago when he said your personal residence was a liability not an asset back in 1997 in his best selling book Rich Dad Poor Dad

We also saw the collapse of many of the largest companies in the world in the financial sector. In March of 2008, Bear Sterns, one of the largest investment banks in the world was forced to sell itself to JP Morgan and Chase for a fraction of what it traded for prior to its collapse. The source? Investing in a wide variety of high risk investments, many of which was tied to the sub prime lending crisis.

In September of 2008, the Federal Housing Finance Agency announced that it was taking over Fannie May and Freddie Mac. This was done because there were huge concerns that due to the two companies’ exposure to the mortgage market, increasing loan defaults could result in the companies failing to meet its obligations and commitments. Merrill Lynch was forced to sell to Bank of America due to its massive losses from the subprime lending market. Lehman Brothers was forced to file bankruptcy due to is losses from the mortgage crisis.

Then it was announced in the same month that AIG – American International Group, which was the 18th largest company in the world was at serious risk of going out of business as well. Despite the fact that most of the companies’ business units were healthy, one business unit that invested in debt security derivatives gone bad due to the subprime meltdown threatened to bankrupt the entire company. The company was saved by an emergency federal loan bailout in exchange for a huge stake in the company to the US government.

So what lessons can we as average investors can learn from this crisis? Here are 5 lessons for you.

1. Only buy a house you can afford. Robert Kiyosaki is right. A house is not an asset unless it is making you money. If you are not collecting more rent than you are paying in mortgage, (chances are in your personal residence you aren’t collecting any rent at all), your house is a liability. There is no guarantee a house will always appreciate in value, as we have all learned the hard way from this crisis.

2. There is no such thing as a guaranteed retirement. If your company files for bankruptcy you can kiss your pension goodbye. Think it can’t happen to you? Do a search for an article written in Time Magazine called The Great Retirement Ripoff What would you do if your pension check bounced? Are you prepared to have to go back to work in your 60’s, 70’s, or even 80’s?

3. Be wary of 401K plans. 6 months ago AIG traded for $43 a share. Today it trades for $2 a share. Your 401K plan mutual funds are investing in companies like AIG. If a market correction occurs, you can see your portfolio take a nosedive. In addition, although many companies offer to match your investment in a 401K plan up to a certain amount, their “match” is in the form of company stock. Imagine how all the poor souls at AIG whose 401K plans are loaded with $2 a share company stock are feeling right now.

4. There’s no such thing as a “safe secure job.” Many of the largest companies in the world are laying off people by the thousands. At my 2nd to last job literally a few months after I left, my entire business unit was laid off. At my last job again a few months after I left, my entire business unit was once again laid off.

5. You MUST have a Plan B. If you get laid off tomorrow and it takes 6 months to a year to find a job paying what you make right now, how long can you make it before you are out on the street? If your 401K takes a huge dip right before you are expected to retire, what are you going to do? If your pension gets wiped out how are you going to survive?

Hopefully you have learned these lessons and are doing something about them. Otherwise as the saying goes…”those who fail to learn the lessons from history are due to repeat them.”

If you lost your job, your 401K plan crashed or your pension check disappeared do you currently have the financial wherewithal to survive? If not, you need a Plan B. You need a business that can produce for you up front immediate income, leveraged income that is based on the efforts of others, not yourself and residual income that continues to come in based on work done years ago. To learn more about such a business visit http://www.createthelifestyle.info today and get started on your Plan B!

BOSTON (MarketWatch) — Virginia S. lives in the Toledo, Ohio area and is nearing retirement as teacher at a religious school.

These days, she is having trouble with her faith.

That’s not a comment about her religion, but rather about maintaining her confidence in the stock market and economy, and hanging on to her belief that years of planning on a modest salary will pay off.
    
 ”I keep hearing experts say that consumer confidence is important, but I don’t see anything that could make me confident,” Virginia said via email. “I have time and I wouldn’t mind working longer, but I’m not sure I see it all paying off any more. Why, exactly, would anyone expect someone like me to be confident? What reason do I have to be confident?”

Virginia is far from alone in her flagging sense of trust in the market.  On Tuesday, Investor’s Business Daily released its August figures for the IBD/TIPP Economic Optimism Index — an indicator that typically does a good job of foreshadowing what to expect from more renowned consumer confidence benchmarks released later in the month — and it showed a nice pop in good feelings. That said, the 14.4% pick-up in August left the IBD index at 42.8, which is still deep in pessimistic territory.

Looking ahead

Between the housing bubble, credit crisis, inflation worries, concerns over the weak dollar, the potential for the economy to drop into a recession, a stock market that seems more anxious in falling than rebounding, and more, it’s hard to believe an investor could have any faith and confidence left.

Those flames of despair are fanned in chat rooms and message boards by market timers, who suggest that the best way to go is to be out of the market, or following some specialized system, the kind of thing an average investor like Virginia is not likely to do.

In times like these, it might seem as implausible as the existence of Santa Claus, but yes, Virginia, there are reasons to be confident.

Without sounding like a Pollyanna, here are six of them.

1. Market cycles have not been suspended.

While investors have internalized the idea that stocks return 10% annually, that’s an average figure, and no one should believe the stock market is a guaranteed payout machine.
But down cycles have invariably led to up cycles. While many market observers suggest that people should expect the market to deliver an average of 7.5%-8% on average for the next 25 years, it still won’t be a straight-line result.

“If the time you are buying into that average annual return is negative or zero or two, you can expect that somewhere during your investment life there will be a catch-up period,” says Kathy Kristof, author of “Investing 101.”

It would be great if you could avoid the pain and simply invest during the hotter catch-up time, but most people don’t have that kind of vision or timing.

2. The one place your dollar is going further, these days, is the stock market.

Americans are known for being great consumers and lousy savers, but they stink at buying stocks when they go on sale. The same people who would rush out to the mall the next time they hear about a sale on shoes would run away from high-quality companies that are likely to pay for their shoes five or 10 years down the road.

Great companies will survive bad markets; they won’t always be cheap.

Read the rest of this entry »

~ By Anne Kates Smith
~ Kiplinger’s Personal Finance

What are we supposed to make of this whiplash market? I’m certain that the only sane way to play the crazy ups and downs is to hold fast to the investing tenets we at Kiplinger have preached for years (that’s why they’re tenets).

Among them:

?  Most investors are lousy market-timers. So don’t attempt it, period. Take a look at a couple of the worst months for mutual fund net redemptions on record: In October 1987, investors withdrew 3.6 percent of stock-fund assets, and in July 2002, the net outflow was 2.05 percent, according to the Leuthold Group, a research firm in Minneapolis. A year after investors bailed, the Standard & Poor’s 500-stock index was up 10.8 and 8.6 percent, respectively. The two-year gains were 35 and 21 percent, respectively.

?  Calling market bottoms is a futile exercise. The stock market typically bottoms just past the midpoint of an economic downturn. One year past the trough, the average gain — dating back to 1892 — is nearly 44 percent, says Leuthold.

?  It’s all about buying low and selling high. No need to fixate on market legends such as Joe Kennedy or Warren E. Buffett. Regular folk can ensure they are buying low and selling high by dollar-cost averaging and rebalancing their portfolios.

By Definition, dollar-cost averaging (investing the same dollar amount in the market at regular intervals) gets you more shares when prices are low and fewer when prices are high. Just as important, and maybe more so, averaging forces you to keep putting money into stocks (or stock funds) when you might otherwise not do so — that is, when share prices are falling. If you are contributing to a 401(k) or other similar plan, you are dollar-cost averaging.

?  No market is a monolith, so you have to diversify. The stock market’s dismal performance this year has challenged the conventional wisdom about the desirability of diversification. Just about every sector and every foreign stock market has sunk. Most segments of the bond market have lost money, too, although it has been possible to eke out a positive return by investing in Treasury bonds.

My guess is that this year will turn out to be an anomaly. So I stand by the tried-and-true formula of maintaining a diverse portfolio, which you can achieve by investing in a mutual fund that is pegged to a broad index, or by holding a mix of funds, including those that focus on small-company stocks, large-company stocks, stocks of fast-growing companies, bargain-priced shares, international stocks and so on.

For a graphic illustration of how important diversification is, visit http://www.callan.com/research/institute/periodic, which has a color-coded periodic table of investments. You’ll see, for instance, how dangerous it would have been to load up on small-cap stocks in 2007, even though they beat blue chips in seven of the previous eight years.

It’s probably not — I repeat, not — different this time. Just as I question the way people rationalize prices that reflect a bubble at the top of a market, I’m suspicious of claims that this bear market is “different.” It might be worse, but it’s not the first deflated bubble, or the first downturn exacerbated by leverage and derivative securities, or the first time the government has come to the rescue.

South Asian Journalists Association (SAJA) presents a talk radio show on 24 Sep, discussing the various aspects of the turmoil in the current U.S. economy.

Speakers includes:

• Vikas Bajaj, business reporter, The New York Times;
• Anirvan Banerji, co-director of research at the Economic Cycle Research Institute;
• John Laxmi, co-founder of a New York-based private equity firm with $4 billion under management (and SAJA treasurer);
• Sudeep Reddy, economics reporter and “Real Time Economics” blogger, The Wall Street Journal.

- Wall Street Journal | Oct 6, 2008  -
- Posted by Heidi N. Moore  -

A Goldman Sachs Group alumnus in charge of the nation’s economic rescue? How unusual.

Except, of course, it isn’t. As The Wall Street Journal’s Deborah Solomon reported today, Treasury Secretary Hank Paulson is promoting Neel Kashkari, the Treasury’s assistant secretary for international affairs, to be the point man overseeing the $700 billion financial bailout as the interim head of Paulson’s Office of Financial Stability. The full appointment would need Senate confirmation, which is unlikely to come given the short remaining tenure in this Administration.

The move essentially puts a new title on what Kashkari he has been doing since he joined Treasury in 2006–examining the consequences of an economic housing fallout. Kashkari was one of three Treasury staffers–including general counsel Robert Hoyt and head of legislative affairs Kevin Fromer–who stayed up until 4 a.m. last Sunday putting together the $700 billion bailout bill that was shot down by House Republicans the next day.

Kashkari is an Indian-American who has a few things in common with Paulson . Both are former Goldman Sachs bankers, though Kashkari, at 35 years old, is much younger and was just a vice president-level banker in Goldman’s San Francisco technology banking effort when Paulson tapped him to join Treasury. Both also are Midwesterners. Kashkari grew up in Stow, Ohio, and earned a bachelor’s and master’s degree in engineering from the University of Illinois at Urbana-Champaign. Paulson was raised in Barrington Hills, Ill. And both sport similar hairstyles– or lack thereof.

Kashkari didn’t take a conventional route into banking. He started out as an aerospace engineer at TRW, developing technology for NASA projects like the James Webb Space Telescope, the replacement to Hubble, which is scheduled to launch in 2013.

He earned an M.B.A. at the University of Pennsylvania’s Wharton School of Business. While there, one of his professors was Michael Useem, who liked to put students through grueling, Outward Bound-type strengths of endurance and strategy. Kashkari participated in one Army simulation in 2002 at Fort Dix, where he was quoted in this 2002 Philadelphia Inquirer article in a comment just as applicable to today’s financial crisis as the project he was working on: “We were all taught to play nice,” Kashkari said. “So who’s going to fight in the sandbox?”

After Wharton, Kashkari joined Goldman and worked in San Francisco, where he advised companies that create computer security programs like antivirus software. He and his wife, Minal, still keep a house in California.

Paulson likes to surround himself with people he’s comfortable with: people, mostly, from Goldman Sachs. Paulson’s inner circle already includes former Goldmanites Dan Jester, a financial institutions banker, and retired banker Steve Shafran, who focused on corporate restructuring at Goldman. It also included Robert Steel, who has since left Treasury to become CEO of Wachovia.

Kashkari’s appointment is another example of how deep those Goldman Sachs ties go. In fact, Paulson himself was recruited by a former Goldman Sachs banker: former White House Chief of Staff Josh Bolten. Bolten overcame Paulson’s reluctance to persuade him to take the job as Treasury Secretary at a time when Paulson was so wary of the job that he declined to meet with President Bush because he knew he couldn’t say no to the President himself. According to an article in The International Economy by Fred Barnes in 2006, Paulson also believed that the Bush administration would not be able to accomplish many financial changes in 2007 and 2008. Kashkari’s new job show just how wrong Paulson was back then.