Business advice

Changing the next generation’s personal finance habits
December 25, 2008, 1:21 am
Filed under: businness advice | Tags: , ,

America’s personal finance habits need an overhaul. This is not new to anyone who has seen a news headline during the past year. We, America as a whole, are in a financial mess. We haven’t a clue as to how to use logic when it comes to money.

Suze Orman, Oprah’s financial guru, has risen to superstar status because this has been in the headlines non-stop. Let’s see if we can apply some logical similar to her offerings.

This country needs help in earthquake strength. We are in the midst of a whirlpool of financial debt resulting many times from poor judgment. There is no way to change everything within the next generation. The only way to tackle such a mess is one step at a time. Martin Luther King, Jr., started with one article, one demonstration and then another.

So we can start with involving all family members in budgeting for grocery shopping. You are saying, what? I don’t have time for that. Make time. No one will ever make wise financial decisions if they don’t know how to budget.

Everyone wants to eat on a regular basis. Call a family meeting and explain it is now going to be a family project to make sure you keep within a certain spending limit. Go into the reality of how the family is going to have to be careful with spending and here is the place to start. Giving an entire dismal picture about the family budget is too much to burden children with.

Explain coupons, sale days and lists. Assign tasks to everyone to get ready for shopping day. There will be no more quick trips to the store. Explain how much is allotted for the food budget. If they help find a way to get in under that amount, there will be a reward.

Start a policy of keeping daily spending dairies. No one can save money if they don’t know where money is going. You can create a chart, get it blown up and put it on a bulletin board or the kitchen refrigerator. Receipts can be kept for daily entries

You are changing your family’s way they view money. Once children start these habits, this behavior will become ingrained. It will change the way they think out their buying decisions as they grow older and plan during their adult lives.

Decide on how much cash you are willing to hand out every week. Once that’s gone, the children are responsible for finding other ways to earn more. Collecting cans in the neighborhood takes work, but can be done by children at a fairly young age. They will have to organize it and let you know when it is time to go to the recycling center.

Parents complain these days they feel like an ATM machine when it comes to their kids. Things can’t get better, unless parents change the patterns they have ingrained in themselves. Before cutting the kids off, explain the options. If they don’t like the idea of cans, especially for younger children, put up a rooster of chores they can do if they want extra tacked on to their allowance.

The next time one of the children, or even your spouse, talks about wanting a fairly expensive object, sit down and have a detailed discussion. Can you afford it? Do you need it? Most of the time, the money will not be readily available. So, there will have to be a savings plan. You can establish your own family lay-away plan.

Search for financial reading the children can grasp. Get them involved, no matter how hard it may be at first. The following link contains several helpful books on Amazon:

The path you are starting on will not only help your family, but hopefully spread to the next generation. Pre-teens and teens, for the most part, have been spoiled these days. They fail to comprehend ‘no’ when it comes to asking parents for money. Unless this trend is squashed, they will carry on the same way with their children. This all leads to the overspending that triggered this financial crisis to begin with. Let’s puts some common sense back in how we use the cents we earn.

Once children start watching what they do with their money, they will have some left over. Make sure they don’t spend even that foolishly. Sit down and suggest savings plans. There are still Christmas club accounts. There are regular savings passbooks that don’t require a specific opening balance. They may even get enough together to put into an account that earns interest. Put a new spin on money. Never stop hitting on the theme that money is not just for what it can do for us today, but what will it earn for us tomorrow.



Will there be any new startups?
December 24, 2008, 2:23 pm
Filed under: Uncategorized

With all the fuss about the economy being unstable will anyone else have the courage to start their own business?

It’s easy to see why folks would think twice about such a venture. However, without a doubt, there will be a multitude of start-ups in the next couple of years.

People that have been high up in the corporate world have contacts that will make the transition easier when running their own business. Down-sized execs aren’t going to sit idly on the side and collect unemployment. They may even team up with those who had been sitting in nearby cubicles.

However, there are certain industries that are shrinking so bad that even a cut-rate pricing system might not be enough to bring in customers. Whether or not start-ups will have a shot in the next few years will depend on several factors.

Here are the top items to keep in mind before moving ahead:

* Are you trying to move into a market where the niche has been shrinking? If so, do you have a customer list from your previous experience in the market? Do you have a verifiable method of getting the same product or service to them at a much lower price? If not, then you better re-think this idea.

*Do not get caught up in the hype of some company trying to convince you to become one of their sales reps. Sales reps in this type of economy, unless they have been at it for years, have little chance of bringing in anything but a smattering of a cash flow. Veteran reps have a clientele list whose members are in the habit of buying the product. Getting folks to start from fresh is a hard job even in the best of times.

*If you have been working on a business launch, should you hold back or go forward? If you can answer the following questions with yes, then plan to move forward. Do you have enough financing lined up to keep your doors open according to your business plan for the first 12 months at least? Are you using connections to move your product or service that are familiar? Do not depend on any advertising campaign in this time to bring in every customer. Are you marketing a product or service that is not a luxury good? Consumers will find a way to do without extras (luxury goods) as best they can.

Let’s hope that these hard times have not killed the entrepreneurial spirit. New businesses create jobs. At the very least, they offer opportunities for those who might otherwise be sitting on the sidelines collecting unemployment.

Financing is going to be even more critical than usual. Venture capitalists are holding back and no one knows when banks are going to open their doors for this type of financing again. If you are in a position to use your own credit lines and have friends with funds willing to help, go for it. However, do not do anything that will put your personal credit or family in danger. Opening a business is always chancy, ever more so now. But, without new business, the economy is going to keep on a downward spiral until people start taking chances again. Think of a new start-up as your contribution to bringing the economy out of its slump. It needs all the contributions it can get.


Everyone wants answers to the crisis
December 20, 2008, 7:45 pm
Filed under: Blogroll, Business Advice

Not a day goes by that there isn’t another headline about what’s happening with the credit crunch and the world’s financial crisis. Lately, it has been the Fed lowering the interest rate that’s a record-breaking low. Credit card companies are getting hit with new rules and we still don’t know what’s going to happen with the auto industry.

There are dire predictions that things are going to get worse next year and who knows where we are heading. There doesn’t seem to be a sector of the economy that’s safe. If you have something to lose: job, card, lines of credit, you could be vulnerable. Don’t leave out those of us who are renters. We could be caught by the short hairs if our owners aren’t keeping up with their mortgages.

So, now that we have heard all the bad, what do we expect? Do the forecasters know what they are talking about? Is it as really as bad as it sounds?

You need to do a reality check when it comes to the forecasters. No one has a sure answer to anything, no matter how many credentials they have after their name. For one thing this situation is very different than what turned into the depression. Those folks didn’t have bucketfuls of debt. So they didn’t fall down as far as we are capable of. There is a great big difference between having a zero balance in your account than having a minus $200k. Unfortunately, we have a lot of people currently in that category and more. We have dug bigger holes.

So here it is: crystal ball gazers are guessing. And as admitted by them, things are different than in the 1930s. Actually, ‘things’ are different than they have ever been before. So far the regulators and the Feds are doing all they can based on their present knowledge/economic model. What they are doing should do the trick eventually. Whether or not any other crisis will come along to slow down recovery isn’t known. Keep in mind, also, that these decisions, putting cash into the banking system, i.e. don’t change things right away.

However, the announcement regarding the bailouts throw out a positive message to all those lending money, small business owners that are trying to figure out whether or not to expand and those in the stock market. The overall result is more stocks being sold, businesses expanding and consumer retail sales slowly moving up. These effects are referred to as ‘increased confidence in the economy.’

However, the overall effect of more cash in circulation may not trickle down to the rest of us for a few years. I had one professor who explained it this way.

All of the above is describing the current problem regarding the scarcity of cash and credit lines. He told the class to picture a big balloon that covers the entire country. (He was only talking about America’s economy.) When someone spends or gets credit on one side of the country, it has a rippling effect on the credit market. Where that rippling effect goes is anyone’s guess.

So, what can you do in the interim? Try not to listen too hard to all the dire predictions to what’s going to happen next. Don’t plop a large chunk of cash into: durable goods, new investments, etc. If things start getting worse, you will need all the available cash you can get your hands on. In times of stress, one needs to have a higher liquidity preference, keeping more cash available.

For investors that are wondering if there is any money ever to be made again in the market and are going nuts chewing on your nails, try a mutual fund that deals in low risk investments. Don’t hand over your portfolio to anyone without doing your own due diligence. You will have to keep a keen watch.

The biggest caution is don’t make long term decisions you might regret in two months. We have no idea as to what exactly is going to happen. Do not be influenced by the commentators that claim all of this is because the system doesn’t work. The system works. We just had some crazy guys in charge of the money that got caught up in a cycle of greed and we weren’t doing a good job of watching them.

Hopefully, we now know better.


Cheap isn’t always cheap
December 16, 2008, 7:56 am
Filed under: Business Advice

This axiom is coming up relating to HR issues about a decade after corporate America decided to push employees to produce what it used to take at least two employees to accomplish.

Not grasping the fact that short term decisions can have unpleasant long-term consequences, corporate America is now dealing with a high percentage of a decline in employee morale. This equates to more sick days, slower turner around in assignments, an increase in workplace injures and a higher rate of employee turnover. All of these cost more than keeping extra employees in the first place.

Employers thought they were handling their funding crunch with a practical idea. Employees desperate to keep their jobs hang on for awhile. Eventually, they leave if they are assigned a work load so large they can never get a good grip on it.

So corporate America, yet again failed to do anything but look at their needs for the short run. That’s ok if they aren’t planning on staying in business more than a couple of years.

There are examples of this short-sighted thinking in many areas of our life. When people are shopping for homes, they sometimes succumb to buying property because it is the only one in their price range. Or, additionally, sometimes ‘flippers’ buy something in a lower class neighborhood with the idea of doing the ‘fixing’. The problem with today’s market is that you can get into a lower-price deal and find that after a short time period there is no way out.

More and more lower class neighborhoods have multiple foreclosures. Buildings are standing empty, which all adds to the dilemma of having a piece of property that now is either worth less because property value went down, or the cost of fixing it up can’t be covered because the market has slowed.

Everyone, during this financial crisis, is trying to cut corners. Here are a few tips for those in the corporate world. Instead of letting employees go, give them an option of a) cutting down their hours and/or b) working from home. When faced with a choice of unemployment or a salary cut, I’m pretty sure they will stick around.

Throw out a challenge to employees about the need to stretch your dollar. Make it a contest so they feel inspired. You can also add ideas for increasing revenue: sales and a new marketing niche, etc.

Employees during hard times need to feel a part of the team. This will relieve the feeling of hopelessness while everyone is sitting around to see who goes in the next round of cuts.

The bottom line to all of this is that something is cheap if it means you are getting more for your dollar now and later down the line. If this wouldn’t be true next year at the same time, then you need to re-evaluate your priorities. The same goes for personal buying decisions. Learning to think about the long-term will always make your dollar go further.


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Let’s get real about the bailouts
December 1, 2008, 12:15 am
Filed under: Business Advice | Tags: , ,

We need to change our way of thinking for the bailouts to work.

Folks are hoping they will find a way to get a personal bailout. Don’t hold your breath. The only way you have a shot at that happening is reinvent how you and your family deals with finances.

There is not going to be a quick fix for anyone that includes the Average Joe on Main Street. You need to let that sink in. It took us quite awhile to mess this up. The stock market may get happier for awhile because of the new President, but that isn’t going to affect your pocketbook unless you are an investor.

What you are going to have to do is look at your financial health or the lack there of in a totally new light. It is not going to be easy.

Today there was an article about trying to get the credit card companies to offer credit that’s palatable to customers so buying will go up again. Buying again is a great goal, but pushing the use of credit isn’t.

Headlines have shown that Federal agencies are worried about what the banks and investment companies are going to do with the money they were given. If they do business the same old way, then it was all for naught.

This is said realizing that a good portion of American consumers have hit bottom. They were keeping themselves afloat with credit cards and lines of credit. Bankruptcy might be the only answer. Credit is not being shoveled out as it was once. If you are used to paying a certain interest rate, it could change any time.

We are on a sinking boat that was patched with cardboard. You can no longer buy things thinking you will pay for them down the road. You have to start shopping based on what’s in the checking account today. Down the road, you may have no job and your credit cards may be gone completely. This is a complete reversal of our previous shopping habits.

Let’s get started. If you are facing horrific credit card debt, find a debt consolidating service in your area and get to it immediately. Tear up your credit cards. If you were using the cards to get you to the next paycheck, you need to look at alternatives. Have your spouse, if available, become the neighborhood Avon rep (just an example). This allows you to decrease the amount that your employer withholds. Being an independent contractor, no matter how part time, opens up the doors to tax deductions you didn’t have previously. If you get a big tax refund at year’s end, consult a tax person and find out what you can safely do re changing your withholding. There is no reason to give the government an interest-free loan. I do realize that it is unlawful to not allow for enough deductions. But if you get counsel, that wouldn’t be a problem.

Do you have teenagers that are at you constantly for money? Cut the strings and put the want ads under their nose. There are still part time jobs available for teenagers. Let them know that what they earn will be for their needs. If they don’t go to work, they are going to be limited to a minute amount of bucks from you.

If you have a mortgage that is doing you in, no matter how much you love your home, you need to find a way to get out from under. Either apply to get your loan modified, ask your lender to help with a short sale, or lease it to someone until you can get a decent offer. I know it’s painful. But it is not as painful as facing foreclosure and being afraid to wake up every morning.

Keep a diary of your weekly spending. It is the only way to see where your money is going. Until you see that, there is no chance of getting your spending under control.

As hard as times are, don’t keep them from your children. Younger ones, of course, can’t deal with such issues. Pre-teens and older need to be informed what’s happening. You need to also tell them about your change in spending habits. You need to get every one on board if there is a chance for you to get your life back in financial order. In this particular instance this horror is no respecter of incomes. I read just the other day that Susan Lucci, queen of daytime soap opera for more than 30 years, is receiving a big cut in pay. While this might seem ho hum to the rest of us, stars in her category usually spend most, if not all, of their income.

It’s going to be awhile before things calm down. For those who may be thinking this too shall pass and the world will go back the way it was, it’s not happening. We will be living in a slower economy. We may even see credit card companies merge and fold. If they are slicing customers off their books, closing doors can’t be far behind.

Educate yourself and your family and make a plan. It’s the only way to stay sane during troubling times.

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