Exjackly

When I started writing this blog, I had every intention of writing about my current financial situation and how I was bettering it.  I still get to write some of those posts, but not as many as I would if I was laser focused on just my own financial well-being.

Instead, I have seen this take a wider view and, dare I say it, even some political overtones.  While it has not been intentional, it is a logical progression.  There has always been an interest in economics and how wider forces can impact me.  So I started looking at those forces in an effort to find ways to suggest to you, my readers, ways to take advantage.

In my efforts to make sense of these larger forces, there has been a need to explain the lessons learned about them.  This has resulted in some more interesting posts like: How To Live on Minimum Wage, Wal-Mart is Bad for US(A), and Leasing a New Car Makes No Sense.  Others have proven to be less popular, but helped me understand more: What is Financial Independence?, The Scale of the Federal Deficit, and How to Snowball Debt.

The surprise has been that by looking into some larger scale items like the national debt and Social Security, my interest in politics has grown.  It certainly is not because of politicians or their attempts to protect us from us.  It is because of how tightly integrated politics is to economics which strongly influences what happens to me and you as individuals.

It should not have been such a surprise.  Politics is about deciding what needs to be done as a country.  Getting things done is about using resources (money).  Those resources have to come from somewhere.  That somewhere is the economy.

I guess it was because in my mind the economy was like a wild elephant and the government a ranger.  The government could poke and prod the economy and tell it where to go, but you never knew if the economy would cooperate or if it would try to trample the ranger.

The more I learn, the more the analogy changes.  It still seems like the economy is a elephant, but is a trained one.  The government has carrots and treats and a small slender prod to get it to do tricks.  Usually, it behaves well.  Rarely it gets upset or sulky and bad things can happen until the circus gets shut down.

It seems to be a valid analogy.  The bigger government is, the more the economy is like a performing elephant.  The smaller government is, the more of a wild elephant.  Despite the apparent dangers, the more I learn, the more I think we ought to be looking for a wild, untamed economy.

Give me your thoughts - pro and con.  I'll start you off with just a few of the multitude of items that can be expanded on:

Pro

• A smaller government means it needs less money out of my pocket to operate
• A wilder economy means that only the best companies will be able to survive the harsher cycles

Con

• A larger government is better able to address the thousands of dangers that face us from carcinogens to global warming and recessions
• A tame economy means fewer layoffs and more stable employment

Agree?  Disagree?  Want to add to the list? Add your comments.

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Please bear with me on this post. I know it is a long one. I thought about splitting it apart, but it makes a lot more sense to me as a whole, since partial implementation of these ideas are much less effective than all of them. Have ideas to add or want to discuss (even flame) mine? Add a comment.

Social Security Problems

Social Security and Medicare are two of the looming issues that will dominate and determine the economic future of our country. As they exist right now, they are welfare programs that will suck up more and more of this country's economic output every year until they are curbed or our country goes bankrupt. The most difficult part is that there are industrial (pharmaceutical) and demographic (AARP) forces that are going to push for them to be expanded and not moderated.

Since those groups are both well organized and well funded, a political solution that is good for the long term health of the economy is going to be difficult, happen slowly and not be sufficient unless there is a crisis which forces expedient change. There are only two alternatives: a) find a multi-billionaire who believes in the cause and/or b) start spreading the word about responsible changes and see if there is enough support for a grassroots campaign.

Anybody who looks into the budget and projections for Social Security will agree it needs to be massively overhauled. This huge program gives to every retiree - whether they need it or not. As the retirees grow - in numbers and percentage of the population - the impact of this program is going to grow significantly.

The problem is that this generosity has to come from somewhere. In this case, it is from the paychecks of millions of Americans. With so many of other people's wallets to draw from, politicians have had no problem making promises of future benefits. To meet those promises, more and more money is going to need to be borrowed and taxed from generations down the line.

This is going to bankrupt individuals if taxes are raised to meet the promises. It is going to bankrupt the government if they are not. This means the system as it exists today is severely broken and needs to be fixed.

While the system is severely broken right now, it is not the concept that is flawed, but rather the implementation. Here are some suggestions for how to go about fixing it.

• Do Not Change Benefits for Current Retirees
  
• Include Social Security in the Federal Budget
• Tax ALL Earned Income Equally For Social Security
  
• Not Everybody Should Be Eligible
• Provide Equal Benefits For All
• Really Balance the Federal Budget Every Year
  

Do Not Change Benefits For Current Retirees

It is critical that the changes to be made to Social Security do not impact current retirees. It would be unfair and disastrous to weaken or remove a major portion of somebody's income for retirement. It would be especially cruel for the government to renege on that promise at a point when many people would find it difficult or impossible to replace that lost income.

Included in this are those who are very close to retirement too. At least the 55+ year olds who would hve very little time to make changes to their financial plans for retirement if changes to Social Security are enacted swiftly.

For those of us who are further out from retirement, the amount of change that is reasonable will grow the more time we each have to deal with the issue. A phased approach is appropriate where the full changes should impact those who are currently in the 40-45 year old range. 20 years is a good amount of time for individuals to adapt to the new program.

Include Social Security in the Federal Budget

The accounting trickery that is used to keep Social Security and Medicare 'off the books' of the annual budget needs to stop. Social Security is not independent. The program will not be shut down just because the 'Trust Fund' becomes empty. Plus, the collected funds are 'borrowed' for use in the current budget anyways.

It is time to stop pretending. Include it. Incorporate the Social Security tax into the income tax. Do the same with the Medicare tax. By consolidating, it becomes clearer how everything is really being paid for and how much we, as a nation, are overspending.

Only then, when the budget and projections are accurate will we really see how bad the issues are. Only then, will we be able to make the hard decisions for sustainability. Only then will meaningful changes be possible.

Tax ALL Earned Income Equally For Social Security

As it is currently implemented, the Social Security tax is among the most regressive taxes in this country? It gets paid on an individual's first earned dollars, but not on their last. The poor pay a higher percentage of their total compensation to Social Security than do anybody else.

The quickest and easiest way to restore some of the equality to this tax would be make it apply equally to all earned income. This would generate additional income to meet the Social Security obligations without increasing the burden on those least able to afford it.

Not Everybody Should Be Eligible

The final step in 'fixing' Social Security is to limit who can collect. This ties in with allowing people to opt out of the retirement portion, but it also covers limiting benefits for people who otherwise would seek them.

Rather than handing it out to everybody who has paid in, benefits should go to those who are not able to provide for themselves. Those who lack assets and who are not earning a living income otherwise. Individuals like Warren Buffet and Bill Gates and Steve Jobs should not receive Social Security. My suggestion? Pick a point that is at 125% to 150% of the poverty level. Set Social Security at that level and phase out benefits at a 1/3 or 1/4 rate (Receive $3 or $4 in income, Social Security drops by $1. ). That way we have defined the minimum somebody will receive.

The actual amount of benefits can be adjusted based on the number of years in the workforce and the age benefits are first taken at, just like now.

If the desire is to limit the beneficiaries even more, there is another step that could be taken. Allow individuals to voluntarily remove themselves from Social Security. Let them have a reduction is Social Security taxes in exchange for not being eligible for retirement benefits. Thus, if I claim exemption for one year, I pay less taxes, but for Social Security calculations, it is just like I was unemployed for the entire year.

Now, before you say it - yes, some people would be in trouble from that. They would claim exemption, not save the money, and be destitute at retirement. This is America however, and along with the Freedom that we enjoy comes the responsibility to accept the consequences of our own actions. If I am able bodied, choose to opt out of Social Security, and don't save - why should I be rewarded?

Provide Equal Benefits For All

For everybody who qualifies for Social Security, the benefits should be the same. Not based on how much has been paid into the system. The changes to the system that I am proposing is to turn it into a safety net and nothing more than a safety net. As such, the idea is to ensure that anybody receiving benefits is able to live at a certain level of lifestyle. That level is consistent, no matter who you are.

If we accept that somebody who has been a contributing member of society for 45 years deserves not to fall between the cracks, does it really matter what they did or how much they made? Does a former janitor deserve less of a safety net than a former stock broker? If they did not save or could not save, should one receive more benefits than the other? If so, which one and why?

Lives well lived are equal in my book. Lets reward them the same.

Really Balance The Federal Budget

Yes, this ties in to Social Security - especially if it is incorporated into the budget like it should be. This ties in because Social Security expenditures are driven higher and higher because of inflation. Inflation is tied in to the federal debt and deficit numbers. Thus, if we balance the budget, Social Security will grow at a slower rate as inflation will also be held down.

Think of it this way: The economy has a certain amount of goods and services for sale. All of these are for sale regardless of how many or how few dollars there are out there. If there are a lot of dollars, people will be willing to pay more for those goods and services. They are willing to pay less if there are fewer dollars out there.

Every time the government spends a dollar it does not have, it creates a dollar. The mechanism of creation can vary, but in effect the federal deficit is a measure of extra dollars created from nothing to buy goods and services.

If the budget is balanced, even if the debt stays the same, we will have a positive effect. The economy will keep growing with more goods and services available. More goods and services, against the same amount of 'extra' dollars means each dollar is worth more.

Now, the federal government is not the only place that can 'create' dollars. Consumer borrowing plays a large role too. The federal government is the largest single entity and has enough power that its debt does influence the inflation rate.

Conclusion

Social Security needs to be modified for long term sustainability. However, the system should not be scrapped in its entirety. With a significant overhaul, it can become a positive program that does what it should and not more. With those changes, it will no longer threaten to damage or destroy our economy or personal lives.

Lets make difficult choices, but with an eye to our long term future. Do not pander to organized political interests. Instead, lets do what is best for ourselves and our country in the long run. Lets reduce the cost of Social Security and make it a safety net instead of a benefit for all. Lets give back our futures to each other and not to a Nanny Nation who knows how to plan for our retirement better than we can do on our own.

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Being financially independent is just a dream for many people, yet it does not need to be. Need proof? Look at the several examples of janitors and other low-wage earners managing to save up enough to give away seven-figure (yes $1,000,000+) gifts or leave similar sized estates. If they can manage the job, so can the rest of us.

What they did that was different is that they recognized the keys for financial independence.

1. Avoid debt.

Debt is the greatest oppressor out there. Specifically, we are talking about what is usually called 'Consumer Debt'. Lines of Credit, credit cards, payday loans, and car loans are all examples. The money borrowed is spent on depreciating assets that get used up - often faster than the loan can be paid off. You cannot buy your way to wealth, and consumer debt is all about buying.

I will put a caveat in here however. Debt incurred to make money is a different story. Real estate investment loans and small business loans are examples of ways you can borrow money to create personal wealth. The difference is what the money is spent on and how you expect to pay it back. Good debt is seldom paid back out of a payroll check.  Instead, it is paid back and more by what the money was spent on int he first place.

Mortgages and margin loans fall into the grey area between good and bad. Both can be used to buy appreciating assets. Used properly, they help savvy buyers increase their returns substantially. Unfortunately, there is no guarantee with either and used improperly you can lose a lot more than you originally borrowed. Many sub-prime borrowers and banks are finding that out now in a lesson that should not be soon forgotten.

2. Save early and often.

The magic of compound interest can be our friend. Every dollar that is saved today is more valuable than a dollar saved tomorrow or next week. The longer the time period that to work with, the more valuable today's dollar will be. It is the savings we make today that can way outperform any savings we make in 5, 10, 15 years or more.  Early savers do not have to save as much as late savers do in order to reach the same goals.

3. The little bits count.

Each dollar here and each dollar there really seems like nothing at all. But it all adds up.  Each dollar makes a difference. The best analogy I can come up with is that your wealth is like a wall. As you work on building it each day, the difference of a single brick or two is hardly noticeable. Yet over a lifetime the difference can be huge.

The worst part for most people is that this rule holds true for spending money too.  A little bit and a little bit there is how most people build up  large consumer debt balances.

4. Give it time.

Time is you ally when you are saving money and it is your enemy when you owe money.  The longer a time period that a debt or investment has to grow, the size it can reach will grow exponentially.  When you are saving money, the first $100,000 or first $1,000,000 will take the longest.  The second will be much faster, and the third faster still.  That is the power of compounding.

Credit works the same way.  The larger your debt balances are, the quicker they are going to grow.  That is why paying just a little bit extra on your debts helps to pay them off at an accelerated rate.  By reducing the size of the debt slightly faster, the rate of growth from interest is also slowed down.  Thus a double savings that when applied to a long term debt results in a significant reduction in how long it takes to pay it off.

5. Live modestly.

This has everything to do with living what is important.  A 5000 square foot home will not change who we are or what is important to us.  If a 1500 square foot home is all we need, lets live in a 1500 square foot home.  Likewise, working from home and seldom driving anywhere else lets us be satisfied with a 5 year old sedan in the garage rather than a brand new mega-SUV.  Anybody who hauls a lot of stuff around everyday (I'm thinking of a building contractor as an example) is going to be better able to justify getting a new or almost new heavy duty pickup.

It is all about matching your purchases with what is important to you.  It is especially about those major purchases like the house and car which influence the cost of our lives day in and day out.  When they match to what we need and not exceed those needs, then it makes our goals of financial independence easier and quicker to reach.

6. Avoid addictions.

Anything addicting - even if the medical profession does not classify it as such - is going to harm our lives.  Smoking, drinking, gambling and shopping are among a long list of actions that have the potential for harm.  Does it mean never do any of these?  Not necessarily.  An infrequent drink or a planned shopping treat is unlikely to have long term repercussions.

It is when they become frequent, excessive and take away from the important parts of life that they become a problem.  However, the person who never drinks, smokes or gambles is certainly going to have an easier time meeting their financial goals than somebody who moderately partakes.

7. Give back.

This is the entry about not being a Scrooge.  Life is too short, friends and family too precious to become a parsimonious hoarder.  There is too much injustice and indifference in the world not to share with those less fortunate.  Make giving a part of your life, and do not limit it to dropping a check in the mail to a worthy charity.  Actually making giving a regular part of your life.

Helping others out in meaningful ways provides as much for the giver as it does to the recipient.  Personally, I recommend Big Brothers/Big Sisters, Boy Scouts and Girl Scouts, Boys and Girls Clubs, and your church home.  These are only a small beginning of the list of worthy institutions to help with your time and money.

8. Don't be owned by possessions.

It would be a lot of fun to have an original Shelby sitting in the garage or to have a good size boat down at the marina.  I personally would enjoy having a small plane in a hanger at the local airfield.  Yet doing so would put me in thrall to my possessions.  Living at the edge of my means would make it so that I am working just to keep what I already have.  My current possessions would own me and not the other way around.

The closer to that edge that a person is, the less freedom they have.  There is an easy way to tell how close you are to that edge too.  The less comfortable you are in taking time off for a vacation or to consider a career or job change because of worries about keeping your possessions the more you are owned by those possessions.

Make financial success easier by staying away from that edge.  Work to live instead of having to live to work.

9. Don't tell.

As you progress toward your financial goals, life will get easier and easier.  You will be tempted to share just how well you are doing with friends and family.  It is only natural because we like other people to know and admire how good and successful we are.  I strongly suggest not telling anybody else.

If friends and family know that you are a multi-millionaire - even though you still drive an old car and live in a modest home - they will regularly come to you asking to borrow money or for you to invest in something they are a part of.  It is difficult to say no.  Yet most people do not realize that that kind of money happens because it was carefully saved away and built over time and not because it was given away to get rich quick schemes or gambled on unlikely returns.

Some people will be emotionally hurt that they were turned down and it can damage otherwise good friendships.  Not sharing information on finances makes it easier to say 'I cannot' when asked and decreases the likelihood of being asked in the first place.

Sharing knowledge is another story entirely.  Helping people learn and apply basic skills is something that you should not be shy about sharing.  This is a natural outgrowth of success.  Wanting others to succeed too and sharing the enjoyment.  That can and should be passed on.

10. Say No.

As indicated in the previous point, it will happen.  A family member will have financial problems.  A friend will want help with starting a business.  Worthwhile charities and scammers will ask for contributions.  If the reason was not chosen, planned for, and budgeted to give that money away - and none of these choices are likely to return any money ever - then just say "NO."

Nobody has the resources to solve every problem and throwing money at most is not the answer anyways.  Making choices about what to support during the planning and budgeting process is vital.  Sticking with those choices is an important part of reaching any goal, not just financial ones.  If something comes along that is deemed more important than what was originally chosen, the planning process can be revisited and what should be done then.

Conclusion

In the end, reaching financial independence is all about planning for the future, being careful with money and debt, saving and investing regularly, and giving it time to grow.  With care and effort it is possible for each of us to reach some level of financial independence.

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There comes a time for all of us that we have to admit that we do not know everything, and that other people have answers that we do not have. I think that time came for me about the time I was born. However, it has not stopped me.

I have spent time learning - some voluntarily, other not - about a wide variety of things. Computers, survival, volunteering, giving, even some personal finance and economics. A lot of the information has been gathered one tidbit at a time from a lot of different sources. My parents, my pastors, my siblings, friends, educators, off the internet and from books.

The ones that are the easiest to pass on to others are the books. What I would like to do here is to build up a list of people's favorite personal finance related books. Feel free to comment and tell me what book and why.

I will return to this article to update it with my personal favorites as I pull them off my bookshelf.  I'll also make a consolidated list of your favorites for easy reference.

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I was Stumbling today and came across an interesting post on Millionaire Money Habits. It is the post titled 'The Money Spectrum'. This article and its accompanying graphic are useful as they are. However, I think it may be even more useful if it is brought over to a more personal level.

Working from the bottom up, we can look at the mindset of somebody at the various Stages of Wealth and see how things change as somebody amasses wealth. You will notice that there are no dollar amounts associated with the graphic. That is because - with the exception of the highest levels of wealth - anybody at any income level can be at any level. It is possible to make a 7 figure income each year and still be out of control. Likewise, it is difficult but not impossible to make $10,000 or so a year and still have your money working for you.

Admittedly, the more you make from any source, the easier it is to get higher on the scale.

Ignorance/Out of Control

A person at this stage probably has a negative net worth. Any money that comes in goes right out. If they are asked how much wealth they have they cannot answer because they do not know. They probably sense that it is not good, but there is not enough concern to find out. If they have credit, this person will generally be using most or all of it.

In the worst case, everything is so far out of control that they know things are bad. Notices from creditors and landlords get trashed or left unopened. The door and phone will not be answered in a last ditch effort to avoid the problem. The financial situation simply exceeds this person's ability to deal with it. Even if they get out of this situation with help, it is very likely that they will return to this state.

To move to the next state, ignorance needs to be removed, the problem identified, and the financial bleeding stopped.

Treading Water

Somebody in this state is still in debt, likely with a negative net worth. However, this person knows where they are financially. Being in debt, there is still a fight against the tide of economic forces. However, this person is no longer drowning. They have found a way to stay in place. Things are not getting worse, but they are not getting any better.

This individual is living paycheck to paycheck. As soon as money comes in, it is spent in some combination of needs and debt service. It is likely that some weeks progress is made and in other weeks gains are given up.

Climbing Out

This is the first of the truly positive wealth stages. Not only is the person not getting further into debt, they are actually decreasing their debt load. It is even possible that during this process a positive net worth is attained. Life is not easy, but there is some breathing room. The primary financial goal is to reduce debt.

Credit card debt, car loans, and home equity loans are still a part of the life during this stage of wealth. Using a debt snowball or other process, these debts are being eliminated over time. Depending how deep the hole was to begin with, this process can take a few months to a few years. When the short term, high interest debt has been eliminated it is on to the next Stage of Wealth.

Building The Foundation

This is the place to take a deep breath and celebrate. Somebody that has reached this point is ahead of a large portion of the population. With no short term debt there is a lot more flexibility with income and cash flow. Most people here have a positive net worth. In here the thought processes however will begin to differ.

Some individuals will continue with the debt snowball and work on long term debt like low interest student loans and home loans. Others will want to prioritize retirement saving. Still others will begin saving large emergency funds (6-12 months or more) or begin planning for large scale life changes.

The key point of this stage is that it is a transitional stage. The actions taken here are done to setup what is going to happen next. Usually, the actions involve continuing to pay down debt to some extent and increasing savings and investment rates. Once the foundation is complete, we move on.

Working For Yourself

This is where somebody is personally debt free. It does not always mean that there is no debt. Instead, any debt that is held on to is associated with an asset that generates the cash necessary to pay for that debt. For example, a rental property may have been financed, but the annual rents cover the mortgage and maintenance on it. There are other possibilities that work the same way (business loans, etc.).

What differentiates this stage is that while you still have to work, it is just to meet the daily, ongoing needs. Any money that is earned is yours. All income beyond the necessities can be spent as desired. Epicureans can spend it on food. Extreme savers can continue hoarding. Hobbyists can save up and add tools and other items to their collections.

By this stage, most people are continuing to save and invest with their sights on the next stage.

Money Working For You

This is where everybody wants to be. Between all of the assets that have been accumulated, there is enough free cash flow to live off of. Yes -full retirement is now possible. This is the level that most of us strive for because it is when we are truly free to do what we want. The only work that is needed is just to ensure that savings, investments, and other assets are maintained to keep the income for life going.

For anybody that wants to continue beyond this stage, their focus is going to be on continuing to grow their assets.

Money Working For The Future

Here, is is no longer about the here and now. All of the needs for a lifetime have been addressed and there is more money available beyond that. The concern at this stage is about leaving a legacy of some sort. It may be for the next generation - or several. It may be for a charity or a new foundation with specific goals. Whatever the desire is (and the range is infinite) it is beyond the individual.

Some people amass so much wealth and continue to be focused on more wealth acquisition that they fall into the last category:

Its Not Money...

Bill Gates. Warren Buffett. Steve Jobs. Larry Ellison. Among others. These individuals worked to build fortunes that far exceeded anything they could spend. All of them are continuing to work and build their wealth. It is a part of who they are. They are driven to succeed and control. They have visions and ideas about how the world should work. They are putting their efforts towards making those visions reality.

These individuals are very competitive. We hear about it too - one person gets a 200 foot yacht, the next gets a 250 foot one. A $20 million dollar house becomes a $30 million home. And it continues upwards. All of this is because of a never-ending drive to be the best and to be recognized as being the best.

The money eventually just becomes a way to keep score. There is not always a way to directly compare one person's achievements against another person's. So wealth and income become a proxy for measuring how people stack up.

Those are the stages of wealth. How far do you want to go? What are your goals? Where are you at now?

My desired destination is at the 'Money Working For the Future'. Currently, I am in the 'Climbing Out' stage but am shooting to be into the 'Building the Foundation' stage by the end of this year.

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The sub-prime meltdown has led to a lot of financial problems.  These cover the gamut from individuals, investors, financial institutions, builders, contractors, even governments.  The expected fix has been proposed - that of letting the government bail people out who have gotten into trouble.

This gives me serious heartburn.  I am among a significant - probably majority - of the country who believes that people should pay a price for their mistakes.  Why should people who were irresponsible - and I include lenders and other guilty parties as well as the borrowers - essentially get rewarded for bad behavior?

At the same time, with no intervention, there is going to be a lot of pain to be shared around.  And it will not be felt only by the irresponsible.  Those of us who find ourselves needing to sell our homes in the next couple of years are going to take a hit.  Depending on what bail-out programs are put into place the pain may be felt for five to ten years.

So what kind of compromise is available?  What mitigates the problems while still demanding sacrifice on the part of those responsible?  What can be done that will leave enough of sting to teach a lesson while not having serious repercussions that have worse unintended consequences?

A Hard Lesson

I think what needs to be done here is to teach a hard lesson to as many parties involved as possible.  This means that it will have to be a multi-pronged approach.  One part will have to penalize irresponsible lenders.  Another will have to soften the blow to the borrowers, without eliminating it.  The final part will be to penalize the supporting cast of players who made it all possible.

This is my proposal:

Congress shall create a limited life federally chartered corporation who will purchase troubled loans from financial institutions - the Federal Housing Preservation Corporation (FHPC).  These loans will be purchased at the face NPV (net present value).  The institutions selling the loans will in turn offer financing at 0% interest for 80% of the NPV to FHPC.

FHPC will modify the terms of the loans it purchases to limit the annual increases in mortgage payments to the 3-5% range to help borrowers stay in their homes.  All profit from this arrangement will return to the federal government to be used for reduction of the National Debt.

FHPC will have a set lifetime of 30 years, can acquire new assets for only the first 5 years of its life, and will sell off any remaining assets at public auction at the end of its federally mandated lifetime.

The third prong of the approach is to ask that Congress create another limited time organization to investigate the brokers, lenders, appraisers, and real estate professionals who contributed to the creation of this mess.  This commission will have the power to subpeona people and documents and to refer cases to federal or state jurisdictions as appropriate for any criminal activities discovered.  To limit the power of this commission, it should only be empowered to investigate residential real-estate transactions for the past 5 years.

The Results

This should have the desired results.   Financial institutions in trouble because of the number of bad loans have a way out that will give them cash to meet immediate obligations.  They may even lose less money than expected from the bad loans.  However, they will not be able to make any additional profit off loans that are 'saved'.  They stay solvent but make less profit than expected when they created the risky loans.

Borrowers will have an easier time staying in their homes, although the worst cases will still be brought into foreclosure.  At the same time, they will still face increasing payments and potentially higher overall outlays than if they had bought what they could afford.

The government, though involved with setting up a bailout program and putting money up front, has the possibility to break even or even profit from having to become involved.  With any proceeds aimed at debt reduction and limited life for the corporation managing this program, this is everything that can be done to minimize the impact (in terms of taxes or increases in national debt) on the rest of us.

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We hear about the federal debt and deficit on a regular basis. Yet, what do those Billions and Trillions of dollars mean to us? What can we do about it? What does it do to us? Does it really matter?

I am here to tell you that it does matter. Those dollars have a big impact on us in many different ways.  In their own way, they are a invisible force pushing the economy in directions it would not ordinarily go.  This is largely for two reasons: the government is huge and its driving force is not economic or material efficiency.

For starters, the US government is so large, that our annual taxes are not enough to pay for it all.  This leads to continual borrowing.  The borrowing increases the future budgets because of the increased amount of interest the government has to pay.  This is bad because not only does it lead to larger budgets for the future, but it gives our government less flexibility to respond to a true disaster.

Additionally, the government borrowing makes it more expensive for us to borrow money.  This is because there are a huge number of individuals, companies, and countries that are willing to loan our government money because they know they will get paid back.  Every dollar the US government borrows is a dollar that is no longer available for us to leverage towards buying a home, building a business, or develop something new.

Government spending also leads to decreased economic growth and employment.  This ties back to the efficiency goal mentioned earlier.  Since the government is not motivated by profit (aka efficiency) it is free to spend money in wasteful ways that do not contribute to the economic engine which drives this country and the world.  While this is not a problem when the money is being spent on basic services that the government should be providing, it is a big problem when the spending is being spent on activities and services the private sector can meet better.

This last item is the one that you and I probably notice the most however.  The more money the US government spends, the more US dollars there are out in the world.  The more dollars there are however does not translate into more goods and services to be bought with those dollars.  So, more money chasing after the same goods and services.  What does that do?  It causes inflation.  So, due to increased government spending, you and I are finding that we need more and more money each year just to stay in place.

My conclusion?  We need to do our best to convince out representation in Washington, DC that we would rather have money not spent than to see it wasted by the government.  Even if that waste is pork barrel spending in our districts.  That is a negative sum game.  Everybody wins if there is no pork barrel spending as opposed to just a few hand-picked winners from Congress.  Even on necessary spending, anything we can do encourage Washington to keep it down or find ways to eliminate spending is effort well spent.

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I apologize for it being so long since I posted.

One big change has been the start of my new job.  The other is that I am writing from a new computer - as the 2 computers I had at home both decided to up and die on me of hardware failures.

Now that the new computer is in place and I am settling in to my job, expect some new posts soon.

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eBay is one of the best tools around for de-cluttering your life and padding your bank account.  All you need to be successful using it are things to sell.

Look around your home.  You can probably see a dozen things right now that you no longer (never did) need, but somebody else will pay money to get.  That is all you need to get started. Later, after you have sold a few things and are familiar with the site and the selling process, you can start buying things specifically to resell through eBay.

Here is a quick guide to getting started, some links to other resources to help, and a list of suggestions to help you get the most for your efforts.

First Steps

1. Buy Something.  This is important.  Not only does it let you get to experience how eBay works, but it also starts you towards getting some feedback.  Don't forget to follow through promptly and leave feedback for the seller.
2. Build Positive Feedback.  So much of the eBay experience is built on trust - and is measured by your feedback rating. Since many sellers do not want to do business with people who have zero feedback, how many buyers do you expect to get if you have zero feedback too?  Build up your feedback, and you will become trusted, more buyers will bid on your auctions, and you will make more money.
3. Learn the written and unwritten rules.  Like any community, eBay has a number of unwritten rules. Most are common sense, some become clear later.  For example, the buyer is expected to leave their feedback first, then the seller is an unwritten rule.  Important written rules include what you are (and more important are not) allowed to list for sale.

Sell Something

Once you have bought some items, earned positive feedback (it is 100% positive, right?) and gotten comfortable with how to use the site, now is the time to look into selling your first item.  Here are some tips to help.

1. Choose the right category.  Listing your item for sale under the right category is critical, since people will not bid if they do not find your item.  Putting it under the right category will make it as easy as possible for people to find your item.
2. Write a Descriptive Title.  Use the full available title length to describe your item.  Yes, it will be better detailed in the description, but you have to get people to click into your auction for them to see the description.  The title is the best way to do that.  The more information in the title, the better people can tell if it interests them.
3. Include a picture.  Yes, adding a 'Gallery' photo costs an extra 35 cents.  Listing with photos get more traffic and bids.  Depending on what you are selling, having a gallery photo can increase your sales price significantly, and in some cases be the difference between a sale and no sale.
4. Be Honest.  eBay buyers are not adverse to asking for a refund or adjustment after the sale if what they got does not exactly match the description. Worst case - especially when starting out - is they can be unhappy enough to leave you negative feedback.  If an item is used - even once - do not describe the item as new. Multiple photos can help here, especially if there is noticeable wear or damage on what you are selling.  At the same time, do not skimp on the good points of the item - you are selling it after all.  Just don't hide the negatives.
5. Answer Questions.  Keep an eye out for questions from buyers and answer them promptly.  Usually, people will not bid until their question is answered, and due to how the auction format works, you want people bidding as early as possible so the price can be driven up.  On a side note, do not be alarmed if you get few or no bids until the last day or last hours of an auction.  Sniping (last second bids) is a tradition on eBay and few people put in their high bid early.
6. Accept Paypal.  It is important to accept Paypal payments (I think all new sellers must now agree to do so when signing up).  Many buyers will not even bid on an auction that will not accept Paypal.  This limits your pool of buyers.  Feel free to accept checks and money orders too, but be careful of scams.  Checks and money orders can be forged or bounced easily.  My suggestion though, is to accept them, but be up front that items paid for via check and money order will wait until they have cleared at the bank.
7. After the sale, be prompt and thorough.  When you have your payment, ship the item, packaged well.  Send it out promptly too and let the buyer know when it has shipped (include the tracking number if there is one).  When they leave you positive feedback, be prompt about leaving it for them too.

Successfully selling your first few items is this simple.  If you choose to expand and run an eBay business - even part time - you will quickly find that manually listing your items each time is a slow, laborious process that does not scale well.  Do not fear, there are tricks of the trade to help out.

Turn eBay into a Business

There are tens of thousands of people who make a good income off of eBay.  Few are getting rich off it, but many are doing it full time and doing well.  Many others are happy augmenting their day jobs.  It depends on what items they can get to resell, what quantities, and how organized they are.  You can do it too, but you have to be organized about it.  Here are some suggestions that I have seen to be useful.

1. Get organized.  This one is critical.  If you are doing an eBay business, you are generally dealing in quantity and not high prices.  Even if you are only selling 10 items a day, with delays in payments and buyer questions you could have as many as 100 different sold items at once in various stages from sold, paid, shipped, delivered, feedback received and feedback left.  This does not count any auctions you have that are still open and not sold.  Organization is critical.
2. Get Turbolister.  Turbolister is an eBay tool that you can download off their site to help you create and manage your auctions.  It allows you to duplicate auctions, copy and edit them, change the format, relist auctions, and more. It is one of the more useful tools available, and it is free.
3. Expand.  To earn a few dollars, it is simply enough to list items when you can get them and process the sales regularly.  To turn it into a business, it is important to ensure that there are always plenty of items available to meet the income needs of the business.  At this point, volume is the key.  The best way to achieve volume is to have a variety of related items available.  If you are a crafter, this is not difficult as the variety of items you can make with a single set of craft skills is pretty large.  If you are a reseller, it means that you need to focus on a range of items that are available to you at a cost with sufficient margin for profits.

Good luck with eBay, whether it is for fun and a little bit of cash or if it is for a living and your regular income.

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These are not resolutions for the new year, or even grand plans for my entire life.  Instead, this is simply a public statement of what my current financial goals are for the short term (calendar year 2008).  This is an effort by my to do several things.

First, a goal is not a goal unless it is shared and preferably written down.  The process of writing down and sharing a goal forces it be a concrete idea, fully thought out.  Sharing it with others, provides a level of accountability higher than keeping it to myself.

Second, documenting it this way allows me to come back later and measure how difficult these goals were and how close to achieving them I got.

Finally, it is a way for me to share with you, my readers, a little bit of what is going on in my life so that hopefully you can get a little bit better understanding of me and how I think.

Goals

1. Build up a $1000 emergency fund.  Being unemployed for the last six months of 2007, my emergency savings were wiped out.
2. Pay off my $12,000 in existing credit card debt.  After going through my emergency fund, I fell back to credit during my job search.  Once I have a basic emergency fund, it will be time to pay my credit cards off.
3. Pay off my wife's car loan.  This is one place we did not follow the experts advice.  We took out a $25,000 loan to buy a brand new car.  I was comfortable with it, since we will pay it off faster than required and since the car will be driven for at least 10 years before we sell it.  The rate was a good one, but due to other upcoming plans, it is time to free up the cash flow.
4. Build our new home.  The layout and room sizes for our custom home are finalized.  Once I get some more work done on the specifications, it will be time to get bids and choose a builder.  We want to be in the new house before Christmas 2008.  The brings up the final goal:
5. Sell our current house before moving into the new house.  While we could make dual mortgage payments, with the size of the anticipated mortgage on the new home, that would put a definite crimp in the cash flow.  Even if we have to get into a month-to-month apartment lease during construction, it will be worth it.  Fortunately, the housing market here is still healthy, even if less robust than a couple of years ago.

Total, it means that for 2008, it will be the addition of around $50,000 to our net worth excluding retirement accounts.  Contributions of around $20,000 or more to those will get us that much closer to the end of our 'working years' and give us a healthy savings rate.

There will be a significant bump in our mortgage debt, but it will be matched by a similar jump in home equity and home value.  Plus, we may even save some money with the change by going Energy Star (or better) in the home construction.  Proper home design, better building practices, extra insulation, and good choices for appliances could more than offset the larger home size and result in lower utility bills year in and year out.  The decrease in maintenance will also be appreciated.

Overall, if we can hit these financial goals for the year, it will be a great year for us.  The goals are SMART and match up with my values and life goals.  I'm looking forward to working to achieve them.

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