Kim discusses an article from the National Association of Woman Business Owners. This article talks about women business owners in the market and how the current economy has affected them and their businesses.
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A recent article by Robert Kiyosaki entitled Preparing for the Worst caught my eye. After all, isn’t this sound financial advice for all of us? That’s why we Fools have things like emergency funds.
The article, however, wasn’t about wills, life insurance, or anything like that (which is what I was expecting based on the title), but rather a list of reasons why Kiyosaki thinks that “The worst is yet to come” in the stock market. Unfortunately, however, Kiyosaki doesn’t tell us how to go about preparing for it.
I’ll have to admit that while some of his reasoning as to why we may have more tough times ahead in the market (and I don’t profess to know one way or the other the way the market’s headed over the short or even intermediate term) seems plausible on the surface, I think he misses the mark in a few places.
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Government’s hand has been a very heavy one in the economy lately. Everything from bailouts of companies like AIG and GM to the Cash for Clunkers program is evidence of this. Maniplating the stock market? I’m not so sure. Manipulating the economy (which has an impact on the stock market)? Absolutely. I wish the manipulation were related only to the stock market and not to the economy as a whole, because I fear that the long-term ramififications of many of the government’s recent actions may place an unnecessary drag on the economy for a long time to come.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
While each of the above entities certainly had a hand in creating the mess, laying this problem solely at the feet of financial istitutions is a bit like blaming McDonald’s and Burger King for America’s growing obesity problem. We gladly borrowed all that money and took out loans for all kinds of stuff despite a lot of good financial advice that’s readily available to us that urged us not to take on too much debt (you know, at places like this Fool.com outfit I keep hearing about) just like we gladly and willingly wolf down Big Macs and Whoppers despite all of the information out there telling us we should be eating broccoli instead.
3. Old frogs don’t hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years — their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
That demographic changes will alter the economic landscape isn’t exactly new, but I’m not so sure that I follow this logic. Yes, baby boomers had good earning power and spent money on lots of ‘stuff’ — but what are earnings? After all, they’re something someone is willing to pay these boomers for their work — and while there are exceptions, each and every one of these boomers was hired, and paid, because his or her employer at least had the perception that the value of the work they were receiving was at least as great or greater than the value of the money they were paying.
If we are to fear the economic impact of retiring baby boomers, I think its the loss of their productivity, not the loss of their consumption, that we should be most concerned about.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it’s my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare…Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
I agree that this is one of the greatest economic challenges that will be faced within the next generation. No matter what one’s individual views are as to how to best handle this impending problem, I believe the decisions we ultimately make here will have a large impact on our economy and financial well-being for a very long time to come. My only fault with Kiyosaki here is that he never gets to the “Preparing” part that was in the article’s title.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire.
I couldn’t disagree with Kiyosaki more. Sure, lots of money flowing into and out of the market can sometimes cause some pretty big short-term changes in overall stock prices. In the long-term, however, I firmly believe that stocks are ultimately valued by the amount of money they return (or are expected to return) to their shareholders. Sure, short-term irrational ‘blips’, some lasting several years, can, do, and will happen — but 401(k) plans are most definately not a Ponzi scheme.
My differences from Kiyosaki aside, I do still like the title of the article. After all, if nothing else, the recent housing and credit crisis, our struggling economy, and the looming pension, Medicare, Social Security, and other obligations faced by private companies and the government alike tell us that we should, indeed, do our best to be financially prepared for tough times — whenever and however they should strike.
As far as what to do to prepare, well, there are some blue tabs at the top of your screen right now that, if you click on them, have a lot of information and ideas as to how to go about doing exactly that.
Regards,
Russell (a.k.a. TMFEldrehad)
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~ Robert Kiyosaki ~
“Is the crisis over?” is a question I am often asked. “Is the economy coming back?”
My reply is, “I don’t think so. I would prepare for the worst.”
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of “green shoots” fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking… and I don’t blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government’s hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, “Sometimes the cure is worse than the disease.” I say the government stimulus cure is killing us frogs.
3. Old frogs don’t hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years — their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it’s my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare…Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they’re concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker’s money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares ¬– and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the “Age War.” The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming…it is upon us now. This is one of many reasons why I remain cautious and say, “The worst is yet to come.”
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It’s a common scenario in the debt-collection world: you find yourself saddled with credit card debts or medical bills you can’t get out from under. When a debt-collection agency comes calling, it will pull out all the scare tactics needed to put you on the defensive – and make you to pay up, no matter what your hardship. The truth, however, is that while bill collectors are full of bluster, they lack real legal muscle.
What does this mean for you? Options. Whether you negotiate for yourself or opt to hire a professional debt negotiator, there are more options than you might think for surviving this experience without sacrificing your financial future. Even if you owe a lot, a creditor will almost always settle for something over nothing when it comes to payment of outstanding debt. So take your time, recognize that you do have some power, and use it wisely.
Negotiating With Collectors
Negotiating your own debt settlement is a viable option for many people. Here are some tips to consider for dealing with creditors.
Prioritize your bills.
No matter what a debt collector insists, that unpaid credit card bill is probably not your No.1 priority this month. Always consider the fundamentals – rent or mortgage, feeding yourself and your kids – before you start handing money over. There’s no point trying to appease one creditor if it means putting yourself in the bad graces of others, or jeopardizing your ability to keep earning more.
Keep records of each interaction.
Note the date and the details of every phone call (and in general, avoid the phone in favor of written communication). Copy and save any letters you receive or send out and, when you’ve come to a payment agreement, be sure to outline it on paper, sign it and save copies, just like a contract or formal agreement. Never send money until you have a written agreement in hand.
Drive a hard bargain.
Estimate how much you can actually afford to pay, and offer less (a relatively common baseline is 25% of your actual debt, though this does vary). Don’t be surprised to get angry or outright rude phone calls and threatening letters. No matter what a debt collector says, keep cool and stay focused on the negotiation. The more in control you appear, the more likely you are to achieve your desired outcome.
Hiring a Debt Negotiator
If confronting your lender isn’t your style, you might want to hire a debt negotiator; just know going in what each side can expect from the partnership.
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What do you do when a family member becomes unemployed? Or suffers an unexpected injury and can’t work or has insufficient insurance to cover mounting medical bills? How do you respond when you learn a loved one can’t pay their bills?
Let’s take a look at a few options you can consider to help your family members in trouble - without hurting yourself financially.
1. Give a cash gift.
If your loved one is having a short-term cash flow problem, you may want to give an outright financial gift. Decide how much you can afford to give, without putting yourself in financial jeopardy, and then either give the maximum amount you can afford all at once (and let your loved one know that’s the case) or perhaps give smaller gifts on a periodic or regular basis until the situation is resolved.
Make sure it’s clearly understood that the money is a gift, not a loan to be repaid, so you don’t create an awkward situation for the gift recipient. If you’re considering giving them a substantial sum of money, you’ll need to keep an eye on the annual gift exclusion set each year by the Internal Revenue Service (IRS).
2. Make a personal loan.
Your family member may approach you and ask for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and have both parties sign it. This helps both parties be clear on the financial arrangement they’re entering into. Some loan details you’ll want to include are:
If you are going to lend more than $10,000 and/or you’re going to charge an interest rate that is substantially different than the going rate for most borrowers, you may want to talk to a tax professional. There can be unique tax implications for low interest loans among family members.
If you’re worried about potentially straining your relationship by having to administer the loan (i.e. collect payments or call when the payment is late), consider using a service, such as Prosper.com or VirginMoney.com. These companies can draw up the contracts and even collect automatic payments from your loved one’s bank account.
3. Co-sign on a bank loan.
Your loved one may be interested in obtaining a loan or line of credit (LOC) to help with short-term financial needs but what if his or her credit requires getting a co-signer? Would you be willing to co-sign on a bank or credit union loan or LOC?
Before simply saying “yes” and essentially lending a family member your good credit, it’s important to realize that there are legal and financial implications to co-signing on a loan. The most critical thing to understand is that you are legally binding yourself to repay the loan if the other borrower fails to do so.
The lender can take legal action against you and require that you pay the full amount, even if you had an agreement between you and your family member that you would not have to make payments. This delinquent loan will also now affect your personal credit. So if your sister/brother/uncle fails to make payments on the loan on time and in full the lender can report the negative account activity to the credit bureaus to file on your credit report which, in turn, can lower your credit score.
Co-signing a loan is serious business. The fact that your family members need a loan co-signer means that the lender considers them too great of a risk for the bank to take alone. If the bank isn’t sure they’ll repay the loan, what guarantees do you have that they will? It may also mean that you could have more difficulty getting a loan for yourself down the road, since you are technically taking on this loan and its payment as well.
Before co-signing for a loan, make sure you:
4. Create a budget and help create a bill-paying system.
Often, people in a financial crisis simply aren’t aware where their money is going. If you have experience using a budget to manage your own money, you may be able to help your family in creating and using a budget as well.
To break the ice you may want to offer to show them your budget and your bill-paying system and explain to them how it helps you make financial decisions. As you work together to help them get a handle on their financial situation, the process will point out places where they can cut back on expenses or try to increase their income to better meet their financial obligations.
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World renowned author and Real Estate investor, Robert Kiyosaki, talks to Joe Aldeguer about his insights and strategies in investing into Real Estate.
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