Here goes nothin’
I’m not going to lie; I’m no expert on money in the traditional sense. The one economics class I took in high school put me into dream land every day, and the economic crisis kind of makes my me want to hide under a rock. But I am one really good with one thing: managing my own money.
I’ve been lucky when it comes to personal finance because I learned it at a very young age. For literally as long as I can remember, I worked to earn money. When I was a kid, I did chores around the house to earn an allowance of $2 each week. That $2 was my money for anything other than the necessities. When I asked for my mom or dad to buy me a toy the response always was, “You have your own money.” So I learned to save (one year of saving really paid off when I bought this).
I share this story because while money may be very complex, it breaks down to simply earning it, spending it on what’s important and saving it. Yes, when I was five years old having a Barbie Dream House was the most important thing, but college is different and our priorities are becoming that much more important.
In this blog, I hope not only to provide tools for how to save money, but to break down a bit of this complicated world of personal finance so it’s just a bit easier to understand for all of us. I still have a ways to go when it comes to money and I’ll chronicle my ventures so we can all learn from my mistakes and success.
The man, the legend, the interview: Warren Buffett
Magically, a transcription of a PBS Nightly Business Report interview with Warren Buffett ended up in my inbox and I thought it would be a great place to pull a catchy quote for a Money Talks post (which is basically my cop out when I have nothing else to write about). But halfway through the interview I realized it was way to good to pick and choose. Buffett - CEO of Berkshire Hathaway, worth about $60 billion (pre-economic collapse), and widely considered to be one of the smartest investors in the world - is truly an amazing guy.
For someone who’s life you would think revolves largely around money, he is, afterall, an investor by title, he seems so unphased by the economic climate right now.
A PBS reporter interviewed Buffett as a part of the Nightly Business Report’s 30-year anniversary special about his talks with President Obama, his optimism for the economy in the long run, and how he hasn’t altered his investing strategies since 1949, or maybe ‘50 (no, he will NOT give you investing recommendations, even if the reporter begs, which she does)
Here’s a quote to satisfy those of you who don’t like to read, the majority of the interview after the jump for those of you in the middle, and for anyone who wants the whole beast - post a comment and I’ll e-mail you the full interview.
Well the most important thing to fix right now is the economy. We have a business slowdown particularly after October 1st it was sort of on a glide path downward up til roughly October 1st and then it went into a real nosedive. In fact in September I said we were in an economic Pearl Harbor and I’ve never used that phrase before.
- Warren Buffett,
CEO, Berkshire Hathaway,
inventing new phrases.
Defeated.
The only thing worse than a New Year’s Eve party that ended with shattered glass and a hole in my parent’s wall was having my Mint.com account laugh in my face come 2009 - sure, I spent the latter part of 2008 cautiously watching every penny that left my wallet, but then came Christmakkah. All of the painful sacrifices I made, including pledging to go a year without buying clothes (which is still going well, by the way) were worthless because I drained my bank account on presents. I don’t mean to sound selfish, I enjoy buying gifts for family and friends, but there are ways to survive the holidays without depleting your savings - I just broke every rule.
So I, like the economy, am starting out the year in a downturn. But I’m getting a head start for next year and I suggest you do the same. It turns out, Christmas Club Savings Account, offered at many local banks or credit unions, are sort of nonsensical because they make almost no interest. But the general idea is easy to replicate, just find yourself a high-interest CD (easier said than done these days, but don’t forget about Bankrate.com) that allows free transactions throughout the maturation period. The only stipulation on you is to actually transfer a part of your paycheck to the CD - the one benefit of the traditional Christmas accounts is that it’s out of your control.
So in light of all this I have a two-part New Year’s resolution: 1) Be able to save money THROUGH the holidays next year, and 2) use that money to pay my parents back for the damage done to their home.
Finally, something you can’t blame on our generation
It’s not exactly news that the economy is a little sub par right now or how it’s affecting consumers (that’s the name the financially stable policy makers use for the lowly public) - but The New York Times published an article on Saturday about debtors that are even deeper in debt during this recession than previous recessions … there are a whole lot more of them. The downturn economy is affecting people even harder this time around than usual - maybe because it’s hitting on all fronts (housing prices are down, incomes are down, jobs are down, lending is almost nonexistent) but I think it’s also because people in 2008 just live differently than people did during some of the last deep recessions (like in the early 1980s when Congress reacted to failing banks by deregulating them and loosening lending restrictions … good idea, guys).
I know, I know, I’ve said this a million times but people just don’t save as much anymore - even the idea of saving has transformed into the idea of investing. I’m not saying I know much about the stock market yet, I don’t have any investments, but I do know that the people who have made out best coming out of the financial crisis are people who have CASH. According to Bankrate.com, in 1985 Americans saved 11.1% of their income, in 2005 that rate slipped to -.5%, the first time since the Great Depression that it dropped below zero, and it’s pretty much stayed down there ever since.
The 1-day challenge
Does anyone else see something a little ironic about the concept of a one-day challenge? Maybe that it’s only one-day long? I mean, there’s probably little that you couldn’t survive for just one day, even people diagnosed with the black plague were given a few days to go.
Well The Simple Dollar suggested a new way to save money - don’t spend anything for one day. Now if that sounds completely outrageous to you, I think you’ve got some serious financial woes ahead of you. If you’re saying, one day? I can do that easy - then I think you should do it for a week.
It’s all about budgeting - think about what it would really take to spend $0 one week, fill up your gas tank on Sunday, buy groceries that last (eggs, rice, frozen meats, pasta, coffee - yes, that’s a food group), maybe some alcohol to get through the weekend and what else do you really need?
It may seem like you wouldn’t really be saving any money because you’re just spending it all on Sunday instead of throughout the week - but what the challenge does is make you think about what you need and what you don’t need, how much you really spend on things, and how you can reduce that. If you did this once a month, I think the savings would be significant because eventually, your whole outlook on spending, saving and consuming would change.
Ramit picked up this story on I Will Teach You To Be Rich and featured a reader who took the challenge and saved between $50 and $200!
We do a week with NO spending. We fill the car with gas and hit the grocery store on Sunday. Starting Monday, we cannot spend a CENT. Sort of a fun little challenge. And it is only for a week. So, if I see something I need or want, I can get it next week. No cheating. AMAZING results. The first time I did it, I was flabbergasted to have the same $20 bill in my wallet. I got very used to it and so it is a nice little “shot in the arm” technique. Kind of like a fast to begin a diet regime.
Take a shot at it, if you can’t make it for a week, try a day. Let me know how it goes for you.
Relief for the Mom & Pops
… and so do I. But specifically, small business. Think about it - how much nicer would the world be if there was a Mom & Pop’s convenience store around every corner instead of a 7-11, at least the coffee would probably be better.
It’s easy to assume small biz are the are the ones getting hurt the most by the economy since 1) consumer spending is down 2) they can’t get the capital they need to survive and 3) life’s hard.
BUT (of course there’s a but), while established business may be having a hard time, it’s not necessarily a bad time to start a new one, seriously. Companies like McDonald’s, Johnson & Johnson and even Microsoft were all started during a recession. There are a number of reasons: customer loyalty is obsolete (so you’re more likely to attract customers/clients), competitors are weakened (leaving the door wide open for you) and capital (like land and labor, not so much the money, you need to actually have that yourself) are more readily available - and for less.
Local banks survive the storm
It seems local banks are holding their own during the (crazy, out of this world, worse than anything we’ve ever seen, economic mess that’s slowly trickling down to every other aspect of our lives of a) financial crisis.
In last week’s Ithaca Business Journal, Laurie Linn did a Q&A with Greg Hartz, president of the Tompkins Trust Company, and Steve Romaine, president of Tompkins Financial Corporation. She asked Romaine if there was a difference between big banks and community banks in the economic crisis and he basically said that local banks are fairing much better because they have a connection to the community and would never get caught up in something so greedy and evil risky as subprime lending.
Tristram Coffin, CEO of Alternatives Federal Credit Union, posted a letter to members on the union’s Web site that basically said they’re the good guys. The money you give them stays local so you know it’s not being sold off in securities - they take pride in the fact that they have relationships with the people they deal with.
You know what, I believe the boys. Back in August when I was just-moved-back-to-school broke, I saw the beauty of the trustworthy local bank. I have an HSBC checking account, I’ve had one for four years now and have never overdrawn it - expect once - back in August. So I overdraw like, $2. And when I realize I did, I go directly to the bank with $2,000 check to deposit (basically all the money I planned to spend for the school year - I move it from my savings to my checking so I’m limited to that amount throughout the year). So far, so good. But, I needed to take back $50 (when I say need I mean my gas tank was on empty, my car was parked at an expired meter and i had no cash whatsoever). They couldn’t let me do it since I had an outstanding overdraft fee! So I had to walk a couple blocks away to Tompkins Trust Company where they cashed my check and then I had to walk back through town with $2,000 cash to deposit $1,950 of it into my HSBC account. Insanity. But thanks Tompkins Trust Company.
There have got to be some other perks out there. Readers, are there any? (perks I mean, not readers. I know you’re there …. somwhere …. silent.)
See an excerpt from the Business Journal article and the Alternatives Web site after the jump.
Relapse.
There were a number of factors that took place this summer that put me in the saving-money mindset: I had just blown multiple thousands of dollars in Spain during the spring semester, I was spending close to $400 a month commuting into the city for my internship and that internship happened to be at a personal finance magazine - so I spent most of my day reading about consumer tips and billionaires.
It was about the same time I read this post from my genious money crush, Ramit. He suggested not buying clothes for ONE YEAR. It was a little crazy, but I thought it might just be the kind of lifestyle change I was ready for. I had worked ever since I was 14 years old, and all I really had to show for it was a 1995 Ford Escort station wagon and way too many $12 shirts from Kohls.
Okay so long story short, I took it for a trial run. I made it the whole summer without buying any clothes, even most of the fall. I was well on my way to committing to the full year - and then I joined Mint.com around the same time I decided I “deserved” to let myself buy a few things (a dangerous mindset of overconsumers).
Then, Mint.com so nicely threw this in my face:
The facebook of finance
I’m as much a victim to an Internet addiction as the next person - I fought the Facebook news feed, but now find myself checking in every day, just to quench my boredom. I visit all the sites on my blogroll more than once a day, just to see if they’ve posted something new.
The New York Times has even fed my obsession with tracking things by setting up Times People - which lets you follow story recommendations from readers you know.
Those things are all great. But I’ve hit the motherload. Mint.com, an online money management system. I’ve heard about Mint.com before but was always a little worried about giving out literally all of my banking information. Mint.com now owns my life. But I’m okay with that because it’s fantastic.
Basically, the site links with your bank accounts, savings, investments, loan companies - anything at all you’re associated with that has to do with your money - and puts it all together in a convenient sort of news feed of your finances. AND THEN after you obsessively categorize all your purchases, the site gives you a color-coded pie chart of your spending trends AND ideas on how you can save based on your personal trends. PLUS it compares your spending habits to the national or local average!
So far I see only one drawback, I’ve had an urge to spend money all day just so I can track it.
Feed for Two Cents