Gather Little by Little

Here are some articles that I enjoyed this week. I hope you enjoy them as well.

I wrote about the Christian’s approach to the black market. Several readers weighed in with some really good thoughts.

Mrs. Micah celebrated a birthday – I think she might be younger than you think.

Mighty Bargain Hunter wrote about stockpiling food . . . are things really that bad?

If you are a first time home buyer who is considering purchasing a house, you need to read this post at Green Panda Treehouse. Home ownership can be a great thing, but make sure you know what you are doing.

There is a guest post up at Bible Money Matters that you need to read if you want a real challenge on how you view money. Outstanding.

Have a great weekend! Remember: Do not just spend money, spend time with family. - Article by Stew

Photo by adam*b

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How to be debt free is a question I get asked often via email.  The process of getting of out debt is easy…but actually doing it is hard.  See, getting into debt is easy.  It only takes a few minutes to make a $5,000 purchase on a credit card.  Paying it back though can take years.

In debt and want to get out?  Here’s how:

1. Commit yourself to paying off your debt.  Make it the most important thing in your financial journey.  Swear that until you pay off your debt, you won’t buy anything you don’t need.
2. Recognize that you are the reason you’re in debt.  Find the closest mirror, look yourself in the eye and say “You are the reason I’m in debt.  Your bad habits of the past have gotten me where I am today.  I can’t change the past, but I can change the future.”  Don’t look back, don’t kick yourself, what’s done is done.  Just recognize you were the problem, but now you’re going to be the solution.  We all make mistakes, just don’t make the same one’s twice.
3. Stop going into debt. It does absolutely no good to start the process of getting out of debt if you continue to go into debt.  If you don’t have the self discipline to stop it, than cut up and throw away your credit cards.  Don’t feel bad about this, I didn’t have the self discipline either, so I cut up my cards.  I haven’t used a credit card for more than 2 years.  I don’t miss them one bit.
4. Control your money. Start living on a budget.  Cap and control your spending, and put all available money towards paying your debt.  This may involve stopping your saving, stopping your 401k contribution for a while, skipping vacations, no longer eating out, etc, etc.  Do whatever it takes to put as much money as you can towards paying off your debt.
5. Start a debt snowball. The most powerful technique for paying off debt is a debt snowball.  A debt snowball places all of your debt in order, and helps you attack one debt at a time.  It then takes the payment from that debt and adds it to the minimum payment on the next debt and so on down the line.

That’s it.  The process is very simple, but it won’t be easy.  Getting out of debt will take time, mostly likely a few years or even longer.  It will be tough to live on a small budget, it will be tough not to buy things.  Unexpected things will come up, and detour your progress.  These are all normal.  But don’t give up, stay committed, stay focused and you will one day be out of debt.

I am now debt free, expect for the house.  2 years ago I never thought I would be.  I had more than $60,000 in debt between credit cards, car loans, and RV loan, and home equity loan.  I sold stuff, did everything I could to increase my income, and cut corners like crazy.  It was hard, but now that I am here, it worth it.  Just the stress of the debt being gone is worth it.  Well what are you waiting for???  Go get out of debt!

author: Larry

Photo by: tfkrawksmysocks

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Then Jesus said to them, “Give to Caesar what is Caesar’s and to God what is God’s.” And they were amazed at him. Mark 12:17

I would like to start a discussion. I honestly do not know exactly where I stand when it comes to some of the ethical questions surrounding government controlled economies, confiscatory tax rates, the black market and necessity. Our American economy has traditionally been laisezz-faire. It called for very little government control. Our tax rates have been low relative to the rest of the world and most goods and services can be obtained at a reasonable price.

As we look around the world, we readily see that our economy is out of the ordinary. Most of the world, with few exceptions, has adopted the command economy model where government controls the means of production to varying degrees. Some economies are considered light socialism like the U.K. and most of western Europe, other economies are tightly controlled by the government to the point that they are considered communist – North Korea, Cuba, etc.  Over the past 50 years, the US economy is trending toward more and more government control. From the Federal Reserve Act in 1917 to price controls in the 1970’s to bank bailouts and national health care in the 2000’s, we are on a steady march toward a communal economy.

When government clamps down on profits, either through price controls, high taxes or single payer type systems, goods and services become scarce or so poorly made so as to be worthless. When the necessities of life cannot be provided through legal means, a black market economy inevitably springs up. I am not interested in debating the politics of all of this. Regardless of your political leanings, it is a fact that as government control increases, so does the operation of the black market.

If you are a Christian, to what extent do you or will you participate in the underground economy? Let me give a few scenarios in order to get things started:

Price controls have emptied the shelves of your local grocery store. The store can no longer afford to bring the products to the consumer at the rates set by government. You plant a huge garden in your backyard and begin to sell vegetables to your neighbors. Will you pay taxes on this money? What if in order to sell vegetables, the government forces you to obtain a license that eats into your profits?

If your child needs an operation and he is on a government waiting list. You hear of a physician who is willing to do the operation “off the books” for cash. Can a Christian participate in an underground health care economy?

You need gasoline for your vehicle. You cannot afford the gasoline from the state-sanctioned provider, but you know that your neighbor gets fuel “tax free” from a farmer who has his own tank and is allowed to purchase gasoline wholesale as long as it is used for crop production.

You start a home daycare that is not licensed by the state because you cannot afford the license, the reqired upgrades to your home and the accompanying taxes. Nonetheless, you care for your friend’s children in exchange for cash under the table every day.

You need to send a package to a relative in another state. There is only the government run package service and you know that in order for your package to be delivered, you must bribe the worker who processes your order.

Do you report every bit of income and pay taxes on it?

The government requires everyone to use the pharmaceuticals provided by the state-run healthcare, however the drugs are in scarce supply, furthermore, you read about a drug that might be much better for your situation. You find out that some people are smuggling that particular drug from Canada and you can get some medicine for a small, under the table fee.

I cannot answer every one of these questions/scenarios completely. God makes it clear that Christians are to submit ourselves to government, but does that include when the life or well-being of a child or loved one is at stake? I would like to hear from you because in order to set my ethics in these matters, I need to hear as many perspectives as possible. And if you do not share my view that we are headed for a culture where the black market is a big part of our lives, that’s fine – I would still like to hear your perspective on how a Christian should deal with the issue of the underground economy. - Article by Stew

Photo by Rhett Maxwell

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On September, 15^th 2008, the financial world almost collapsed upon one of the biggest failures in Wall Street history: The bankruptcy of Lehman Brothers. Upon this major news, the stocks markets started one of the most important and surely the fastest drop of its long history. A year later, nothing much has been done about banking laws and protecting consumers from the rise of another economic bubble. While the US government hasn’t shown us what they have learned much so far (the debate was rapidly redirected towards the healthcare system), it doesn’t mean you can’t apply a few lessons from the Lehman Brothers’ failure to your own personal finances!

Lehman Brothers’ lessons on managing credit

#1 Do not leverage when you can’t afford it

I am actually a big fan of leveraging. It has been proven many times over that making money with other people’s money (in a respectful and legal way) is the fastest method to increase your net worth. When you think about it, just about everybody leverages: you leverage when you buy a house (mortgage) and you leverage on the fact that you will get a pay check in 2 weeks or at the end of the  month when you lease/buy a car or financially engage in any other type of contract. However, while leverage may be useful, borrowing more than you can pay back is very dangerous. Lehman Brothers’ definitely used leverage beyond its financial capacity and paid the highest price; bankruptcy. This is why you should not use leverage at large… and if you leverage, make sure you know what you are doing.

#2 Do not depend on others to pay your debts

Another important fact that pushed Lehman over the cliff was the loss of confidence by most investors. Once the rumors started, several investors took all their investments out creating a humongous gap between Lehman Brothers’ financial obligations (i.e. debts) and their assets (i.e. investments). If you count on the money someone owes you or on the promise to of a pay check to settle your debts, you may be late or face the sad truth of not receiving the money at all and not being able to pay your debts. Make sure to borrow only as much as you can afford to pay back!

Lehman Brothers’ lesson on managing your investments

#1 Do not invest in something you don’t understand

This piece of wisdom actually comes from Warren Buffett himself. He never invested money in credit default swaps or other derivative investment products he didn’t understand. Wall Street came up with these highly complex investment products that no one (not even the manufacturers) were able to understand. They were selling something with a good expected rate of return without even reading an investment guide. So when you are looking at your stock portfolio, maybe you should consider simple investment products without being fooled by unreal yield promises. I can never say it enough: There is no free lunch in finance!

#2 When you start losing money, do not swing for a homerun to get your money back

The panic had reached a summit on Wall Street upon the big announcement and many traders tried “get their money back” by taking on more risk. They pretty much looked like gamblers in a Casino at 2AM: they keep betting their wild card in the hope of finding the Ace at the last minute. Result: they lost even more money. If you have investments, you will see devaluation from time to time. It is normal to see your stock portfolio drop once in a while. But chances are you won’t recover from your losses through riskier trades. By keeping your original investment strategy, you should get your money back at some point. Time is your best ally!

Lehman Brothers’ lesson for personal finance in general:

#1Wishful thinking doesn’t work

Traders at Lehman Brothers’ knew it was only a matter of time before they would see their exotic investment products blow up in their faces. They were holding a time bomb in their hands and were simply wishing:

“The markets will go back up and it will all settle down”.

“We just have to hold out for a few more weeks and we will be all right”.

Unfortunately, wishful thinking doesn’t work in finance. This is a personal growth concept; not an asset building strategy. If you are spending more than you are earning, you can’t keep doing it by thinking “I’ll be fine, I’ll find more money before it’s required”. The truth is that if you don’t have a plan to get out of debt, you probably won’t!

In the end, I guess that Lehman Brothers’ and the other big guns from Wall Street always thought they were untouchable. The fact they were holding billions in their hands created a false bubble of protection. They even pushed their arrogance to think the US Government would save all of them as a bankruptcy would not be a viable option for Wall Street. So here’s the last lesson and THE most important one to learn from the Lehman Brothers’ failure:

Never assume.

Author: Mike.

Image source: Christopher S. Penn.

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Last week, Mike wrote about some ways to use a day-to-day credit card. Most Gather Little by Little readers might have been a little surprised by the topic and the point of view because glblguy has always been completely averse to credit cards – and for good reason.

While I share all of glbl’s reservations about using plastic, we find it almost impossible to avoid “swiping” for at least some of our purchases. It is true that we had to learn our lesson the hard way. Credit cards allowed Mrs. Stew and I to spend far more than we could afford in our early years of marriage and we are still suffering some of the effects today. There was also a time period where we did not use our credit cards at all. Shortly after that, we had almost three dozen active cards between us . . . but that’s a story for another day.

We now use only one credit card and only for specific purchases. It is a rewards card, in fact, the rewards are so good that the company has since stopped issuing this particular card, even though they honor our original agreement. We typically earn $300 to $400 in cash back per year and for the last three years, we have done a good job of controlling our spending so that our credit card has worked for us and not against us. FYI, due to where we live in relation to the rest of our family, we are considering a switch to a airline credit card in order to earn free flights.

We do not use credit cards for the following:

We learned early on that it was a bad idea to use our credit card for groceries – especially me. There is just something about a grocery store that convinces a person to spend more than necessary. I mean, who cannot use more food? The combination of stomach pressure and credit card enabling caused us to get into trouble. When we started using a credit card again, we made the decision that groceries were a “cash only” purchase.

Clothes, again, credit cards can be better salespeople than the actual salespeople. And store brand credit cards can be the worst because they always have such great deals for people who use the credit card backed by that company. Clothes are off-limits.

We do use our credit card for the following:

Gasoline is a necessity that there is no getting around and it so happens that our particular card offers the highest rewards for gasoline purchases. I do not believe that using cash would reduce our monthly fuel bill at all.

My job requires me to have a moblie phone and my wife also has her own phone. We do not have a household landline. Our wireless bill every month is charged to our credit card. This bill earns rewards and saves me from having to schedule another bill on time.

This last category might sound like a potential pitfall: we use our card when we go out to eat. There is great temptation to spend more than we can afford when using a card in this scenario. There is also greater pressure to go out to eat more often because of the card’s enabling. However, so far, it has not been a problem. My wife works a great deal and I like to give her at least one meal “off” a week. There are times when I give her a break by cooking a meal at home myself, but it turns out that there are only so many times that a family will endure scrambled eggs and Mrs. Stew can never find the cooking utensils after I use them.

There are other things that we put on the card, but most of these are incidental, though planned purchases, such as doctor visits, contacts/eyeglasses and airplane flights. I keep a sharp eye on our credit card purchases and there has never been a month where we did not pay off our balance in full. That said, I respect who do not use credit at all and encourage most people to avoid plastic as much as possible. - Article by Stew

Photo by Brave New Films

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