Crisis Finance

Surviving the Financial Crisis

How to Save A Lot of Money on Groceries

Posted by moneyhank on November 24, 2008

Grocery CouponsHaving to skimp on groceries is one thing that hits people where it hurts.  Food you need to stay alive, whereas if you’re cutting your clothing budget it’s not quite as dramatic.  At least that’s how it is for me: I buy a pair of pants a year, but I go to the grocery store every week.

In this day and age, groceries are getting more expensive.  Though gas prices are fluctuating, the cost of groceries is still going up in relation to people’s incomes.  That’s the bad news.  The good news is this: the grocery store is a scam.  Let me explain, grocery chains are woefully overpriced, just as the cost of eating out is overpriced.  There are bargains to be had at the grocery store if you know where to look.

1. Come to the grocery store with a specific list.  This will help you come within a budget. The grocery list isn’t just to help you remember, but to help you buy things you don’t need.

2. Plan your menus for the week – this means every meal.  Buying a donut here/there doesn’t seem expensive, but it will really add up.  All convenience food is overpriced, remember that.  Prepared snacks, if you must, will save you money.

3.  Buy generic.  There is no overt difference between generic and brand name, nor is their shame.  Especially now – in the past generic goods had the quality of government cheese, but today’s generic goods are just fine. Use your store card, and bargain shopping between store brand savings can save you money as well.

4.  Don’t use coupons.  I say that with a caveat – some coupons are good, so don’t avoid them altogether.  Buy one get one free can be good.  But coupons are often just a way for you to pay less for something that costs too much in the first place.  20 cents off Lunchables is a waste of money.  Actually any price spent on Lunchables is a waste of money.

5.  Don’t bulk shop.  Some may think the opposite is true.  I’ve heard arguments that you should always buy in bulk if there are real savings.  For instance, you might buy six ketchup bottles to save an extraordinary amount on the per-bottle cost.  The problem is: how much ketchup do you use?  You’re going to have ketchup for years, unless you have some way to sell ketchup to your friends and neighbors.  In short, buy what you need.  Now, if it’s something you use a lot of, then go for it, but don’t buy in bulk just for the sake of it.

6.  Check the portions of individual products.  Buying in bulk for an individual can is different than buying crates of food.  Buying one large can of baked beans, say, could save you money on buying smaller cans.  It depends on the brand – and yes sometimes you will have to sacrifice taste for savings.

7.  Never buy frozen dinners, ever.  Frozen vegetables, however, are cheaper than fresh and not all that bad.

8.  Don’t buy soda or candy either.  Nope, I’m not saying this is fun, but if you’ve got a sweet tooth you can make cookies/brownies/what have you from scratch and it will be a lot cheaper.

9. As mentioned, eating out is a scam.  Even McDonald’s.  If not especially McDonald’s.

10.  Leftovers should be a way of life.  But so should small portions that don’t lead to leftovers.  Depends on the meal – but cooking in bulk for the week, if you intend to eat it, can save you money.

Put that all together and it’s possible to save hundreds of dollars on food costs a month.  You can try a place like CoolSavings.com for coupons, but I’m telling you – generic goods in the right portions will save you more money than a coupon of a name-brand product.  Not all the time, but often.

Posted in Budgeting | Tagged: , , | 2 Comments »

Using Credit Cards During the Financial Crisis

Posted by moneyhank on November 21, 2008

Credit card scissorsThe thought about the credit card industry was that it would survive the subprime mortgage collapse.  Keeping aside for the moment that financial institutions have their hands in both the mortgage and credit industry, the thought was that credit card issuers could weather defaults on credit cards. For these reasons:

1.  The foreclosure on a house could amount to $100,000 in lost payments for a lender.  It’s a rare credit cardholder who’s got $100,000 in debt.  For credit card debt, $30,000 is high, but that’s relatively small for a mortgage.

2.  Interest rates are obscene for credit cards, as compared to other types of loans.  The median APR for credit cards is 20%, which is a ridiculous figure for other types of loans.  So credit card companies were once making a killing in interest rates.

The amount of interest on credit cards + the relatively low amount of debt was thought to protect the credit industry.  Only that’s not the case anymore: because the credit card industry did something very stupid – in a long line of stupid things leading up to the financial collapse.  Even after the subprime meltdown of 2007, the credit card industry packaged together credit card debt and sold it off to investors.  This was the same system of packaging bad credit mortgages that led to the mortgage crisis.  Not learning from this mistake, and eager for quick money with no long-term viability, the credit card industry did the same.  And now they’re finding that no one wants these investments with defaults on the rise.

American Express, for one, has lost 61 percent of its value this year due to defaults.  The default rate is on the rise monthly.  There was some thought that due to unemployment and less cash on hand that more people would be using credit.  This was the theory behind people getting flooded with credit card offers.  Credit card companies wanted people to get into debt – and even to default.  A default would lead to an even higher interest rate – as much as 32%.  But with so many people defaulting, interest payments aren’t making up the difference.

What This Means for People with Credit Cards

What this all means is that you are apt to pay more for your credit card now, even if you have a spotless record paying off your credit card.  Most every credit card’s terms and conditions state that the issuer can change the interest rate and fees “at their own discretion.”  Translation: they can do it whenever, for whatever reason.  And because they’re losing money, they’re more likely to do it to your credit card.

Amex, for example, has recently raised fees for cash advances, late payments, and defaults.  You could also see your credit limit suddenly go down – without notification.  This could lead to over-the-limit fees if you’re not careful.  And if your limit went down, it’s quite possible your over-the-limit fee went up as well.

Also, this could also mean that your rewards program could change right out from under you.  The Chase Freedom Card is one such example.  It was one of the more generous rewards cards around: 3% cash back where you shopped most often.  The rewards program has recently been downgraded to a point-per-dollar system, which is on the bare-bones, low-end of rewards programs.

What this all means is that you should check your credit card’s terms and conditions to make sure that they haven’t changed.  If the APR’s gone up, this means using that card less or transferring the card to a card with a long-term low introductory balance transfer rate.  All told, this means that during this crisis, interest rates are going to go up for all types of loans.  Credit cards are kind of the canary in the coalmine showing just how unhealthy things have gotten.

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Loan Modification and the 700 Billion Dollar Bailout

Posted by moneyhank on November 20, 2008

loan-modificationWhere in the hell has loan modification been?  Sorry to express some rage, but if loan modification had been more widely used, or even known about, perhaps the financial crisis wouldn’t have happened, as all those people who eventually foreclosed on their homes would have had an out.  The domino effect of foreclosures might not have affected nearly every wing of the financial industry.

So what is loan modification?  It’s the process of changing the terms on a loan to keep yourself in a home.  Consider as a kind of refinancing plan for people who are dangerously close to foreclosing – and it’s only an option to borrowers who have fallen on hard times.  It’s a form of mortgage negotiation to lower payments and interest.  Imagine if more people had done this years ago: it would have stabilized the economy.  But loan modifications are now being utilized after the fact: the 700 billion dollar bailout provides incentives for loan modification to stem the tide of foreclosure.  It took a collapse for these measures to be instigated.

Loan Modification Guide

Loan Modification is very much like refinancing or negotiating debt.  Here are the steps to take of you do it yourself, rather than work through a loan modification service.

  1. Determine your budget.  In order to have negotiating power, you need to first determine what you can afford.
  2. Take the resulting monthly allowance for your mortgage payments to your lender.
  3. Provide proof of future income.  How are you going to pay the loan off?  Could you potentially see more income in the future?  If you’re facing short-term financial strain, you can apply for a postponement of your mortgage payments.
  4. It’s helpful to get your credit in order.  However, because loan modification usually results after delinquency, this is usually not possible.  The good news is that loan modification can actually improve your credit rating, as opposed to dinging it, as is the case with debt settlement, because you’ve lowered your overall debt burden and will be seen as less of a risk.

Important information: there is a misconception that loan modification is only for people who have already defaulted and are under extreme duress.  In truth, it’s better to go through a loan modification if you anticipate defaulting, as your credit rating won’t yet take a hit.  If you fear being unable to pay your mortgage then you should begin the modification process.

More important information: Avoid loan modification firms that charge fees upfront for negotiating a modification, as this is illegal.  A solid loan modification company will be able to provide a free consultation about your situation.

All in all, loan modification seems too good to be true: it’s basically free money for those who need it most. Given that the government is desperate to keep the economy from tanking any further, incentives for programs like this are growing.  But it would have been nice if the powers that be had some foresight and loan modification was more widely used before we ever reached this point.

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Tips for Getting Out of Extreme Debt

Posted by moneyhank on November 20, 2008

money-handThere’s a lot written about how to get out of debt: transferring balance on a credit card, debt settlement, debt consolidation – by all means, I’m going to write about these things.  But one of the things that’s not mentioned is the issue of liquidating your assets.  Or, to put it more bluntly: selling your stuff.  This is seen as a drastic move and, frankly, fairly depressing, but it does have significant value if you’re serious about getting out of debt in as little time as possible.

Selling Your Car: Getting cash for your car and taking public transportation is a way to make immediate impact on your debt.  If you’re a two-car family, this is more feasible, but this should be thought about by single people as well.  If not selling their car outright, then possibly downgrading it to a less expensive model.

The issue here is one of self-respect, but being deep in debt also leads to self-respect trouble as well.  Think about the possibility of diverting the sale of your car towards your mountain of debt.  Let’s say you’re able to get $7000 for the car.  If you are interested in debt consolidation, this kind of down payment can give you significant leverage when negotiating with your creditors to lower your monthly payments and interest rate on those payments.  Without that down payment, you have less bargaining power.

Selling Your Belongings: I recently sold books and CD’s to the tune of $1000 and that was merely a fraction of the amount of stuff I’d acquired over the years.  Amazon and eBay are still viable ways to move product, even though there’s stiffer competition in the past. Even during an economic downturn, there are always prospective buyers for people who are spending $5.00 at a time.

CD’s are the easiest thing to unload.  Again, these are a prized possession, but given the fact there are ways to “save” a CD (without going into too much detail, or advocating it), there’s no reason to keep around that CD just for sentimental value.  These days you can find most any song online.  Again, I’m not advocating illegal downloading, but if you want to hear it, it’s there.  Used buyers are willing to spend a good amount of money on used CD’s.   And via Amazon, you can make $3.00 a sale, even if you charge a penny for the book.

Liquidating entertainment products is not necessarily a way to pay off huge, insurmountable debt, but it’s definitely something that should be considered and the earnings will mount when combined with other measures.

Moving to a Cheaper Residence: Once again, no one said this would be easy.  And you must factor in the security deposit for one abode before moving into another.  But you could potentially save hundreds of dollars a month – money that can be put towards more-aggressive debt repayment.

As for other assets, don’t sell anything that has deep personal value until it is absolutely necessary.  When in doubt, downgrade.  Sell your prized guitar, but don’t stop playing guitar completely: buy a cheaper knock-off.  The idea is to not alter your entire quality of life entirely, just to make it less expensive.  People are much more willing to take the above actions if they’re replacing it with something cheaper, rather than getting rid of it entirely.

More daily budgeting tips to come.

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Investing During the Financial Crisis

Posted by moneyhank on November 6, 2008

jobless One of the things that said most often about investment during troubling economic times is that investors need to take things slowly.  This is easier said than done, as a growing number of investors have taken a major hit even with investments that were once considered low-risk and conservative.  But the answer to making back those losses is not to make any rash moves with high risk investments.  You’re just as likely to take a deeper hit.

So the name of the game right now is to take it slowly and not to panic.  You can rest assured knowing that the economy is more than likely going to head in the opposite direction.  I’m not going to say anything as hackneyed as, “These things are cyclical.”  But there’s no reason to think that the financial crisis is going to last at full capacity for the next ten years.  Yes, things are dire, but things will improve.

What this means is that you can wait for certain investments to grow again.  Even though you may be looking to make significant gains in the short term, to offset recent losses, your real aim should be long term – three years or more.  This should give current investments enough time to rebound.  It also gives you time to diversify and possibly invest in certain stocks that have hit a low but will head in the opposite direction.  There are as many opportunities as pitfalls right now, so long as you can be patient and wait for those stocks to turn around, as well as the economy on the whole.

Your investment strategy should not change dramatically: diversify and don’t make rash choices if a stock takes a fall.  In this climate, that is more inevitable and it doesn’t mean it won’t rebound.

Investing During a Depression

It’s too soon to call this a depression, but that almost doesn’t matter.  Just the idea that it could be a depression, or even a recession, is enough to send the economy tanking further.  It’s like a self-fulfilling prophecy.  Some knowledge can be gained by looking at how investing functioned during the Great Depression.  In the 30’s, some stocks still remained strong, such as electronics stocks.  Radio was the wave of the future and those stocks still had viability.

This should tell you that even now there is a good potential for investment.  Tech stocks are normally the most volatile, but they’re also the future of investing.  The same goes for green technology: something talked about by tree huggers not so long ago but now is mainstream.  There is going to be a high demand in recent years.  Of course, a green start-up can be a high-risk venture – especially if the company is not diversified into other industries – but there is a huge upside as well.  Again, this boils down to patience.  Because people are tightening their belts, no new green company (a green green company, as it were) will be making enormous profits short-term.  But as a long-term strategy, green investments are a positive opportunity, similar to radio in the 30’s.

Stayed tuned for more investment advice in future posts, including Forex investing, Alpha mutual funds, the Alternative Investment Market, and other strategies.

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Hello Shocked and Awed!

Posted by moneyhank on November 5, 2008

Hello all.  I’m a writer with many years of experience writing about personal finance for a cadre of finance blogs and websites.  I have even more years logged as a person struggling to make and keep money.  I want to help people deal with the current financial mess, as well as vent some of my angst about the same.  Enjoy.

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