Friday, August 31, 2012

Week Eleven - Finances


Put a small cup or can next to the place where you undress, everyday. When you empty your pockets/purse. Place all of your loose change in that can; never take any of the coins out of the can.

At the end of the month, convert the coins into bills. Place these bills in an envelope for an emergency fund.

Blog Post:

Money, it makes the world go around. But what is it?

Federal Reserve Notes (FRN), Euros, blocks of salt, beads, shells, donkeys, and many other things have been used for money. But what is it?

If I have a chicken and you have a pair of shoes, and you want my chicken, and I want your shoes. We have a trade. Are chickens and shoes money?

What happens if I don't want your shoes you made? How will you get food for your family if all you have is shoes?

With money, of course!

But what is money?

OK. I will quit playing games.

Money is a recognized medium of exchange.

Your boss gives you Federal Reserve Notes for your work. You give me FRNs for my chicken. I give those same Federal Reserve Notes for a pressure cooker/canner at the discount store, and ex cetera.

So what does this matter to you?

Because during a disaster there is the possibility that the money that we have used all of our lives will be useless. Yep, I said it.

The money in your pocket, savings account, retirement fund, credit cards, and all of the other stashes of cash you own could be worthless. This includes the silver and gold that others advise you to buy.

OK, I am going to stop for now. But before I come back, I want you to read Commanding Heights: German Hyperinflation 1923 on PBS.

OK, remember opinions. Yeah, opinions that everybody has on what to do with your money. In finance, opinions are followed by this warning

"Past Performance Does Not Guarantee Future Success"

What follows are my opinions. If you follow them, we may both die poor and destitute.

First, stock enough food for you and your family to eat during the longest emergency you have planned for.

Second, have an emergency fund. Yes; before getting out of debt, investing, and all the other financial stuff; put aside some of your money for emergencies.

Some people suggest having two to six months of funds to cover your families basic needs. Basic needs such as mortgage/rent payments, insurance, and fuel for heating and getting to work. Not eating out, parties, and other nonsense.

For some families that will be a lot of money. If you can't afford this, save your change. Use this change as your emergency fund. No matter how well-off you are or how poor you are, you need to have money for emergencies.

Next, live below your means. If you make $25,000 a year, live like you make $20,000. If you make $50,000, live like you make $35,000. If you make $100,000 a year, live like you make $50,000. You get the point.

Next, you need to invest for the future, and the way to do that is to invest in your company's 401K plan. Make sure you check the fees each of the funds charge. Some 401K plans have options that will cost you money, watch your fees. These fees take money that you have earned from you.

As you invest in your company's 401K plan , you than need to make sure you are diversified. Diversification is having investments in different "classes" of investments. These classes are stocks, bonds, cash, real estate, and many others I don't know about.

To diversify, some people will tell you, if you are between 25 and 50 years old, to have 70% in stocks and 30% in bonds. The 70% in stocks is split between 50% in US companies and 20% in foreign companies. The 30% in bonds is split between short and long-term bonds.

Even if your company allows you to invest in their stock, don't. Remember ENRON.

If your company doesn't have a 401K plan, put your investments in a Roth IRA. As with the 401k, make sure you are diversified.

All of the above is conventional wisdom, but what about someone preparing for an emergency, specifically a financial emergency.

I suggest the following preparations.

One. Have enough food on hand, in the house, to feed you, your family, and some friends for at least a year. If not more.

Two. Have an emergency fund of cash on-hand in the house. Not in the bank, under the mattress, just like the Depression.

Three. Have a few silver and gold coins on-hand. Yes, take physical possession of this gold and silver. Just in case we have hyperinflation like Zimbabwe.

Fourth. Get out of Debt and stay out of Debt. Yes, this includes your home.

Fifth. Invest in yourself and your spouse. Learn a trade, grow some of your own food, start your own company (even part-time), read and learn new skills

That's it for today, so I will ...

See you, Monday


Wikipedia - Money

Commanding Heights: German Hyperinflation 1923 on PBS

Calculating Mutual Fund Fees and Expenses

Beginners' Guide to Asset Allocation, Diversification, and Rebalancing

FINRA - Smart Investing

FINRA - Investor Information-Smart 401(K) Investing

Wikipedia - ENRON Scandal

Roth IRA-Overview

Motley Fool

Understanding and Controlling Your Finances

Wikipedia - Great Depression

Wikipedia - Hyperinflation - Silver Coin Melt Values

Backwoods Home Magazine - Get Out of Debt and Stay Out of Debt

Motley Fool - 60 Second Guide to Getting Out of Debt