The Envelope System of Budgeting

Often, when you cash a check through a bank, your money is given to you in a cash envelope. People used to spend the money in this envelope wisely, knowing that there was no more money until the next payday. They physically could look and see how much they had left everytime they shopped or thought about shopping.

So rarely do we sit and look at our checking register before we whip out a plastic card or a pen. The envelope system of budgeting works for many people. It uses the tried and true method of physically seeing your dollars to determine your spending.

First, you sit down and budget out your spending. You can use one of two methods:

In method one, you label an envelope for each expense. Be sure to break down your yearly bills, such as property taxes or insurance premiums, into monthly allotments. Each envelope will have an amount on it that you will place in it each month. You can substitute envelopes for several coupon organizers. Designate one for bills, one for debts and one for monthly spending. This method works well for those with few bills.

Method two takes into account that many payments come directly from your checking. On paper, you will account for each bill that you pay during the month. This is your bill paying guideline. Simply keep a notebook with a page for each month with each bill listed. Mark them off as you pay them. You can total each month’s bills in advance to help determine how much you have to go in the envelopes.

It is often wise to go ahead and have your savings automatically deducted from your account each month. Never seeing the money in an envelope reduces the desire to pinch some of it.

Take the left over money each month and allot it to the envelopes for your monthly spending. The envelope categories may include groceries, clothing, eating out, gasoline, car maintenance and so on.

If you allot $100 a month to clothing, put $100 in cash in the clothing envelope. You can only spend what is in your envelope for clothing on clothing. If you don’t spend anything on clothing one month, then you will have $200 in the envelope the next month. Once you’ve spent all of the money in the envelope, you are done with that category for the month.

The cash you have is all you can spend. Don’t write a check, don’t use a debit card and never use your credit card to buy extras.

It could take a few weeks to get the process down, but stick with it. You will get the hang of it. Most people find that the envelope method allows them the spending freedom they desire from a budget. They know how much they can go spend, without worrying about what has already been spent for the month.

If you are paid bi-weekly, simply adjust the method to work around your pay periods.

I like to treat myself for sticking with the method by taking all of the cash out of the grocery, eating out and entertainment envelopes and putting it in a special savings envelope before refilling it each month. This is my blow money. I use it to save for things I see that I want. This envelope has no rules or restrictions, but can be used for anything. I’ve found that over time, it is easier to save for large items — I don’t just blow it on a bunch of little things.

Tags: Allotments, Budget, Budgeting, Car Maintenance, Cash Envelope, Coupon Organizers, Debts, Desire, Envelope System, Envelopes, Gasoline Car, Groceries, Insurance, Insurance Premiums, Many People, Money, Notebook, Property Taxes, Shopping, True Method

Your Retirement Hopes: Filled With Holes?

If you’re like many Americans, you may expect to enjoy a comfortable retirement, but you probably haven’t taken the actions needed to turn those hopes into reality.

The latest survey showed many Americans’ retirement expectations are like a piece of Swiss cheese-full of holes. For example, many have accumulated only modest retirement savings, underestimating the share of their preretirement income they are likely to need in retirement, and have made no estimate of how much they will need to live comfortably once they retire.

The Retirement Confidence Survey (RCS), begun in 1991, is the country’s most established and comprehensive study of the attitudes and behavior of American workers and retirees toward all aspects of saving, retirement planning and long-term financial security. The survey is sponsored by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

Here are some of the survey results:

• Saving: More than two-thirds (68 percent) of current workers say they and their spouses have accumulated less than $50,000 in retirement savings.

• Health care costs: Nearly six in 10 (58 percent) of current workers say they and their spouses do not expect to receive any health insurance from their employers when they retire. Recent EBRI research showed that individuals age 55 who live to age 90 would need to have accumulated $210,000 (by age 65) to pay for insurance to supplement Medicare and out-of-pocket medical expenses in retirement-far more than all but 10 percent of workers currently have saved for all retirement expenses.

• Longevity: Two-thirds (66 percent) of current workers think they have some chance that they will live until age 90-or spend 25 years in retirement, assuming they retire at age 65. These findings suggest many workers may not be planning and saving enough to finance the full amount of time they expect to spend in retirement, thereby increasing the odds that they will outlive their retirement savings.

• Income replacement: Fourteen percent of current workers said they thought they would need less then 50 percent of their preretirement income to live comfortably in retirement. Another 36 percent expected to need 50 to 70 percent. However, 62 percent of current retirees say their income is 70 percent or more of their preretirement income.

• Planning: Nearly six in 10 current workers (59 percent) said they hope to have a retirement standard of living equal to or higher than their working years. But when current workers were asked if they or their spouse have calculated how much money they will need to retire comfortably, nearly six in 10 (58 percent) said no.

“Recent research has found that when a ‘traditional’ pension is frozen, many workers in the pension are unlikely to get an equal benefit value contributed to their 401(k) plan,” said Jack VanDerhei, a Temple University professor, EBRI fellow, and co-author of the Retirement Confidence Survey. “Each case is different, but it’s clear that people currently working should factor into their retirement planning the long-term trend away from ‘traditional’ defined benefit pensions and toward 401(k)-type plans.”

He added: “We find there are a lot of people who need to be saving more than they are, if they hope to be able to afford a comfortable retirement.”

“Working ‘in retirement’ may be one partial solution,” said Michael Falcon, chief operating officer of the Retirement Group at Merrill Lynch-a sponsor of the EBRI study, as well as its own New Retirement Survey. “Seventy-seven percent of our respondents say that ideally, they would work either full-time, part-time, or cycle back and forth between work and leisure before they quit work completely,” Falcon said. “Working beyond normal retirement can obviously help financially, but Americans also say they are interested in working to stay socially and physically active.”

Tags: Amount Of Time, Benefit Research Institute, Ebri Research, Employee Benefit Research, Employee Benefit Research Institute, Financial Security, Health Care, Health Insurance, Individuals Age, Longevity, Matthew Greenwald, Medical Expenses, Medicare, Retirement Confidence Survey, Retirement Expenses, Retirement Planning, Retirement Savings, Survey Results, Swiss Cheese, Two Thirds

The Cutbacks in How to Save Money

Cut back on groceries and gas expense to save money

Groceries:

If our body did not require food, we would have more money. However, our body needs nutrition so we must learn how to save money. Groceries are very expensive these days and prices are going up every day. All these high-rising expenses are because of changes in our economy.

We can save money by making changes in how we buy and eat. It takes a few changes but we can learn how to save money by changing our grocery spending habits and taste buds.

You can save coupons to save money, check out the Internet to find free coupons. The coupons that come in newspapers and magazines are free so take advantage to save money. It only takes minutes to cut or print them.

You will find there are many coupons that offer you various saving options. Watch for different ways; some will offer you money back on certain products. These are called rebate coupons. You will find some coupons that say buy one get one free. When you buy, one you will be saving the full price on the next item.

Buy ahead when you use coupons and watch for sales. Save money by using your coupons and buying items in cases rather than one item at a time. Buying a case on sale can save you a bundle of money.

Change brand names to save. Most items you buy in a can are all made by the same company only have different labels. Watch for savings by reading labels and prices to save you in the future. Maybe one-week buy a case of something and the next week buy a case of something else that is on sale.

You will be saving money by using coupons and buying cases of items when on sale. Stocking up can also be good if you can’t get to the store every time you need something. This will save money on car expense by buying ahead when on sale.

Car Expense:

Save gas money, wear, and tear on your vehicle at the same time by buying groceries ahead. With the way gasoline is today, we all need to save on gas expense.

Don’t make a trip to town everyday to buy something you need for supper. When you buy groceries ahead, you will have extra items such as spaghetti sauce, mushrooms and extra vegetables for a side dish.

Save car expense by buying groceries ahead when they are on sale to save gasoline, tires, and food. Start learning how to save money today by buying sale items ahead.

Tags: Brand Names, Car Expense, Different Ways, Free Coupons, Gas Expense, Gas Money, Gasoline, Groceries, How To Save Money, Internet Coupons, Money Change, Money Check, Newspapers And Magazines, Reading Labels, Rebate Coupons, Saving Money, Spending Habits, Stocking, Taste Buds, Wear And Tear

You’re Being Forced To Make Higher Payments

Consumers already burdened by higher energy costs are being saddled with another drain on their finances : higher minimum credit card payments.

The higher minimum credit card payments are the result of January 2003 guidelines issued by the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The Office of the Comptroller of the Currency, or OCC, regulates national banks and is concerned that many cardholders have credit card debts that will take decades to pay back. To prevent this problem, these regulatory agencies proposed that, by the end of 2005, credit card issuers establish reasonable periods for paying back balances, such as a seven- to ten-year payback or amortization period

Card issuers were supposed to adopt the raised minimum payments by the end of 2003. The federal regulatory agencies acted after years of seeing credit card issuers lower minimum payments because of “competitive pressures and a desire to preserve outstanding balances.” Credit card lending consistently yields greater profits for large bank issuers than other services, Federal Reserve data show. But these profits could decrease if consumers pay off debt faster or default on payments, leading to debt write-offs.

The agencies expressed alarm that some banks were setting minimum credit card payments at levels that did not even cover interest. These were seen as predatory lending practices targeting low-income and financially naive consumers. The result was predictable: consumer debt load surged. Consumers were being encouraged to accumulate debts they could not service, resulting in high levels of default and bankruptcy.

Before the new government guidelines were issued, many banks required only 2% of outstanding balance to be paid off each month. For example, take the case of a credit card with $10,000 of debt and an 18% interest rate. Almost 58 years would pass before this debt was completely paid off, assuming the cardholder stuck to the minimum payment each month, according to Bankrate.com’s credit card calculator. Total interest paid during that time would be almost three times the original debt, or $28,931. Now, the same cardholder paying 4% of outstanding balance each month would pay back the debt in a more reasonable 15 years and would pay only $5,916 in interest.

In recent years, banks have also raised the charges for cash advances, late payments or spending over the credit limit, helping push more consumers further into debt. These latest changes target credit card holders who don’t pay their bills in full at the end of each month. A 2005 survey by the American Bankers Association (ABA) showed that 43% of consumers carry a balance on their cards.

Nearly three years after regulators said minimum monthly payments should let cardholders pay off debt in a “reasonable period of time,” most banks finally acted. The majority of the top 10 credit card issuers raised their minimum payments in 2005, in most cases, during the last quarter.

Regulators encouraged banks to adjust their minimum payments by the end of 2005. The banks’ delayed response to the January 2003 guidelines caused consumers to be hit with higher credit card bills during the 2005 Christmas season. The increase was combined with a new bankruptcy law which has made it more difficult to erase debt with a Chapter 7 bankruptcy. More consumers are now allowed to declare only Chapter 13, which forces them to repay their debts on a fixed schedule.

Banks say the delay was caused by the time it took to update systems in accordance with the regulators’ instructions. “These are not simple changes,” stated Alan Elias, a spokesman for Washington Mutual. Still, most banks were in compliance at the end of 2005.

Contrary to some rumors, regulators did not require minimum payments to be raised by a fixed amount. However, they said payments should cover fees and finance charges, plus 1% of principal. Some card holders are seeing their minimum payment double, to 4% of the balance from 2%. On a $10,000 balance, payment could rise from $200 to $400.

In the long run, the change is healthy for consumers, since it forces them to pay off credit cards more quickly. Until now, some of the banks charged minimums which did not even cover the interest owed, so debt would just keep growing, resulting in more indebtedness by consumers. But initially, consumers not prepared for the higher payments can experience financial hardship, especially those with lower incomes.

Tags: Amortization Period, Cardholders, Comptroller Of The Currency, Consumer Debt, Credit Card Debts, Credit Card Issuers, Credit Card Payments, Debt Load, Federal Deposit Insurance, Federal Deposit Insurance Corp, Federal Regulatory Agencies, Government Guidelines, Higher Energy, Minimum Credit Card Payments, Minimum Payments, National Banks, Office Of The Comptroller, Office Of The Comptroller Of The Currency, Office Of Thrift Supervision, Predatory Lending Practices

Utilizing Your Financial Safety Net

Where do you keep your money that you set aside for annual or semi-annual payments or for emergencies where you need extra cash quickly? You dont want to draw funds from any of your savings or investment accounts there may be a penalty for early withdrawal or it might be financially disadvantageous at that time.
Most people just keep what they have in their checking accounts where it earns nothing or next to nothing. Some dont keep funds for emergencies and just hope for the best or depend on luck.

Luck always seems to be against the man who depends on it.

-Unknown

Heres another question. Do you set anything aside in case you need to pay the deductible on an insurance claim?

A good place to put funds for infrequent payments or for possible emergencies is in a money market account where interest rates are most often higher than savings accounts and are more accessible. Some banks offer even higher rates on Internet money market accounts. You really need to check your banks rates on various types of accounts to see which would be best. Its good to compare banks. There can be a big difference. Money market accounts require a higher balance, but the amount you will need to keep in it will more than meet that.

The good thing about money market accounts is that even though there is a limited number of checks you can write on it in a given time period, it is usually more than enough for most people.

When you plan your budget, you will need to make payments to this account until the balance is sufficient to cover your home and auto annual or bi-annual payments and cover all your deductibles for your home, auto, medical and dental policies. Once this account is fully funded, the interest earned will be able to reduce your monthly budget payments that go to replace that which was used for insurance payments or for emergencies.

With this account in place, you will be able to take the highest deductible allowed thereby reducing your monthly insurance payment. If you pay your auto insurance quarterly or twice a year, you now will be able to make an annual payment, saving on the service charges.

Money market accounts may not earn the kind of return as a mutual fund or other types of investments but it is definitely better than most savings and checking account interest rates. Money market accounts have the advantage of easy access for your infrequent financial needs.

With a little self-discipline, you can give yourself some efficient financial security by enabling your money to work for you in several ways.

Tags: Budget Payments, Checking Accounts, Deductibles, Dental Policies, Emergencies, Extra Cash, Financial Safety, Home Auto, Insurance Claim, Insurance Payment, Insurance Payments, Internet Money, Investment Accounts, Money Market Account, Money Market Accounts, Monthly Budget, Safety Net, Savings Accounts, Thing About Money, Time Period

Why Not Earn Money From Your Talents Mom?

I come across talented Moms all the time. Moms who sew baby slings, nursing clothing, cloth diapers…. Moms who make their own herbal skin care, healing balms, and the like. (Im pretty envious of women who are crafty like this!)

Or maybe they are really good at designing their home school curriculum or writing interesting lesson plans. I know Moms with large families of grown children who could make a million bucks if they wrote a book with their parenting success secrets!

Sometimes I will ask these women if theyve ever thought about taking their interest or hobby to the Internet to earn some income with it. I usually get responses like: I dont know the first thing about how to build a website. or I wouldnt have any idea how to market my business online.

Yet, you may have a ton of knowledge in your head that could make you money on the world wide web. Or maybe you have a creative skill like sewing. Even if you dont have a physical product to sell, you can still make money online marketing other people’s products, either through Direct Sales, Affiliate Marketing or Drop Shipping.

Why not get the knowledge out of your head and into a business that could earn you some cash!

Building a business on the Internet isn’t difficult like many Moms assume. If you don’t know how to build a website, you can use a “What you see is what you get” html editor. HTML is the coding language of web designers. But you don’t have to learn it in order to build a site. WYSIWYG html editors are as easy to use as word processing software. If you can write a fancy email or draft a nice letter, you can build a website.

Some website hosts even include professional looking website templates and beautiful stock photos, so you don’t even have to hire a web designer to get a great looking site online anymore.

What is more, there are resources online that can teach you what you need to know in order to get traffic to your site and market yourself. Why not ask around at a work at home Moms message board and see what other Moms in business recommend for learning these techniques?

Don’t let a small budget deter you from starting a website. For less than $25, you can buy a domain name and website hosting for one year. As you start to earn income, you can reinvest in other tools and learning that will help you grow your profits.

Building a business on the Internet has never been easier. Don’t let fear or a lack of technical know-how stop you from meeting your income goals. Reach out and ask for help and you’ll soon be up and running.

Tags: Affiliate Marketing, Baby Slings, Balms, Cloth Diapers, Creative Skill, Drop Shipping, Editor Html, Herbal Skin Care, Home School Curriculum, How To Build A Website, Html Editors, Large Families, Lesson Plans, Million Bucks, Stock Photos, Success Secrets, Web Designers, Website Hosts, Website Templates, Word Processing Software

The best savings account

The best savings account

Savings accounts are the best idea for putting away a set amount of money each week or month depending on your circumstances. You would be surprised at how quickly this money can add up if you are contributing a set amount from your paycheck every payday.
When shopping around for the best savings account, find one that pays a good interest rate and has a minimal amount for opening the account. A lot of banks only require a dollar to open an account while others may want you to deposit anywhere from 5 dollars to 50.

The convenience of having money automatically withdrawn from your paycheck and placed in your savings account is great for some. However others may not put a set amount in each payday and may want to choose how much they deposit into their savings account.

The best type of savings account will pay a comparable interest rate, be easily accessible to your home or work, will not charge a fee for withdrawals from your account, has on-line availability, and does not require a large deposit to open. If you have a bank account and access it online you should be able to transfer money to and from your savings account. You should try not to transfer from it unless it is an emergency because this defeats the purpose of having the savings account in the first place.

Some types of savings accounts are geared towards the holiday season. This allows you to save money for Christmas. If you start it early enough in the year by the time Christmas rolls around you can have a nice amount for your holiday shopping.

Another type of savings account featured by some banks link your debit card with your savings account. Every time you make a purchase using your debit card the amount is rounded up to the next dollar and the extra is deposited into your savings account. Some of these banks will even match the amount deposited by a certain percentage.

Savings accounts are great ways to start your children out learning how to be responsible when it comes to money. Open a savings account and let them deposit birthday money or Christmas money for themselves. All the change that gets thrown in a jar every day can become a savings account deposit for them. They will love to go to the bank and deposit their own money and in the process you are teaching them the importance of saving.

Another advantage to a savings account is establishing credit. If you borrow money from your bank using the money in your savings to secure the loan, when you pay the loan back you will have established credit with your bank. This can make it easier to get an unsecured loan should you need it.

It is important to have a savings account and add to it regularly. For that unexpected expense that crops up, having the money to cover without having to borrow the money is great. With everything today being based on credit-worthiness, establishing a good relationship with your bank or credit union can make a big difference when it comes to buying a home or a car.

For more info visit
{open an online saving account}

Tags: Amount Of Money, Banks, Christmas, Circumstances, Comparable Interest, Convenience, Debit Card, Dollar, Extra, Holiday Season, Interest Rate, Line Availability, Lot, Match, Paycheck, Savings Account, Savings Accounts, Shopping, Time Christmas, Withdrawals

Who Else Wants Access To Real Private Banking Solutions?

As a middle aged, middle class, married, business owner, father of 3 (one in college.argh) freedom seeker, I have sought for many years to establish the knowledge, the relationships, and the resources needed to make a lifestyle of financial privacy and freedom available to me and my family. One of the most frustrating and problematic areas to resolve successfully has been that of how to establish a private banking relationship, for someone of moderate means, in todays world of intrusive financial surveillance. Many have found that without doing something shady or under the table or downright illegal, and having to constantly be looking over your shoulder to see who is looking, having a workable private banking solution is, in real life, unattainable.

But I have found something that simply works…

If the above statement does not suitably impress you, perhaps you are not fully aware of what it takes to accomplish this in this day and time. Just because I said it is simple, do not underestimate the value of this gem. If you think its easy to find something that actually works…you have not tried…end of story. The Continental Trust and Credit Union has been the long sought answer to the banking relationships I required.

But before I give you a brief review of its qualities and benefits, let me stress that I am not talking about just going out and opening an offshore bank account. In my opinion, this is not a valid and workable relationship. First, unless you intend on having assets of less than $10,000 USD (I am talking about US citizens here) you are required to report this account; and secondly, anything with your name attached to it in the banking system is discoverable. Just having an account in a supposedly sovereign jurisdiction that will keep your information private is not good enough in todays financial landscape. Suffice it to look at the large number of high rollers who tried to hide a good portion of their assets this way and got in a good deal of trouble. This is not the way to do it; its not what I want, and I will presume its not what you want. Hiding things and privacy are very different arrangements, and you want to be involved in the latter.legitimate, legal, secure, workable financial privacy!

With that being saidlets take a look at this treasure I have found

The Continental Trust And Credit Union is a private savings and loan association domiciled in Stockholm, Sweden and registered in accordance with the Economic Associations Act (1987:667). The activities are regulated by the Swedish Banking Act (2004:297). As a legally designated ‘Ekonomik Foerening’ (EF) it is essentially a Savings and Loan association. Under the law that regulates Continental Trust, provided that it does not solicit to the public and keeps its membership ’small’ by legal definition, an EF is exempt from the standard banking regulatory regime and the only reporting required is an annual tax return filed on net profits.

What this means is that this type of an organization is basically not required to report anything regarding its membership or financial transactions…ever! This is as good as it gets! Now this does not mean you can get away with criminal activity, because if you give governments or courts a legitimate reason to come after you, they can eventually get just about any information they want…but as far as financial privacy, this is off the grid. This is a legitimate type of organization classified by the World Bank as a Non-Bank Financial Institution and recognized as having an important role in a balanced and diversified financial sector. In other words, its not some shady deal that you have to worry about being under the table. All of its officers have had background checks, the books are audited annually by a major, well recognized auditing firm.

Thats the legal stuff…now as far as its usability and benefits…here are the major points:

Full internet access to accounts and built in secure message system
Internet security system twice as good as most major banks (Regarding security; Account data is held not only in secure and stable Linux servers with all the appropriate firewalls, but is then maintained on powerfully encrypted hard drives which are not on the same server as the web page but are instead, held and maintained very privately and secure half a world away. The domicile, banking, secure servers, web servers and administration are all conducted and compartmentalized from different parts of the world making Continental Trust one of the most secure operations of its kind in existence today.)
So designed that even if the webserver were hacked, no information could be accessed
Transfer accts. for general in/out activity by wire transfer or by transfer to linked private International Secured Mastercard Program (no spending limits except for the balance stored)
Credit card, not debit card; much more useful in situations such as car rental etc. Funds accessed by:
merchant purchases
ATM withdrawals
Wire transfer
Bankers draft
Savings Accounts with 9% yearly earnings
CDs yielding from 1%-2.5% monthly (thats rightmonthly; excellent passive investment)
Minimum initial deposit is 2500 euro.
Loans against capital or real estate

My experiences with CTCU have been excellent. The communications with the staff have been prompt and professional. The treatment I receive is as a person, not a number. The one small problem I once experienced was when opening a trading acct. The trading institution would not initially accept the wire transfer because it was sent from another institution than what was named on the account. This is actually how this kind of organization works, its clearing of funds is through a separate bank. The problem was easily resolved by the staff sending the proper documentation showing that the CTCU account was in fact the initiator of the wire transfer. Problem solved!

The other thing you need to know is that access to the Credit Union is by private membership only…you must be a member of the private business group Venture Resources Group. There are other benefits as well to becoming part of Venture Resources Group as they are experienced professionals in the international arena, but I will not go into that here.

The last thing I will point out, is that CTCU is still fairly young and its deposits and ability to do other things in the financial world is comparatively smallbut growing.

So there you have it as best as I can put it. More detailed information is available from the Venture Resources Group and guest login codes to access all the information on the Continental Trust And Credit Union website are available upon request.

I sincerely hope that this article and the information it contains are of great benefit to you and can give you a sense of financial confidence that here, finally, is a solution to what you may have been looking for… as it did for me.

Important Note: A pre-requisite to having this kind of financial privacy is to establish working relationships with properly formed and maintained international entities. For the purposes of this article, I have assumed that you understand this, and have access to this kind of knowledge and relations. If you do not, then allow me to refer you to Venture Resources Group where I know you can get reliable and reasonably priced access to them.

Tags: Assets, Banking Solution, Banking Solutions, Banking System, Business Owner, Citizens, Financial Landscape, Financial Privacy, Freedom Seeker, High Rollers, Knowledge, Lifestyle, Offshore Bank Account, Private Banking, Problematic Areas, Relationship, Relationships, Sovereign Jurisdiction, Surveillance

US Banks Are In Trouble! Don’t let their mistakes

US Banks Are In Trouble! Don’t let their mistakes affect your financial situation!

Banks serve a tremendous purpose in this world.

They take in individuals deposits and pool them together to lend them to businesses or individuals who need the capital for a business opportunity they have. This business opportunity could be a company that wants to expand or an individual who wants to buy a home.

The more that people save, the more money that is in the banking system and this increased money leads to more loans and more economic growth. This growth is natural and healthy because people’s savings represent capital they could use in the future for more purchases. Thus, when a business borrows more money and invests that capital to be able to manufacture more goods it is a smart decision because people already have more money saved to spend on these goods.

This becomes a healthy circular formula that is summarized as such: “higher savings” leads to “more loans to businesses” which leads to “more business investment” which leads to “great consumer choices” and of course more jobs are created along the way which further fuels the economy forward.

Well, most of us are aware that the rate of US savings was actually negative last year, meaning we spent more than we made. This is down from saving 7.5% of our salaries only 30 years ago. So we see that this current economic boom has not been built upon by people’s savings.

On the other hand, economies also grow when interest rates are set artificially low as they were set in the US. These low rates spurred the real estate bubble to new, incredible prices never before seen in the US and the world. And the amazing thing is that there is no economic justification for these high home prices outside of the herd mentality thinking that prices will keep going up.

Well, we have passed that point and are now seeing decreasing prices and increasing inventories of homes available for sale.

The problem with banks is that they get caught up in the herd mentality as well, increasing the amount of money they lend for people to buy homes. And not only that, they are doing so in a riskier and riskier fashion using adjustable rate mortgages.

Currently, US commercial banks face incredible risks because over 60% of their total earning assets are mortgage-related!!! Let me repeat that, over 60% of US commercial bank’s assets are mortgage related – a postwar record high.

As a result of the above risks faced by banks any problems happening in the real estate market would have strong negative ramifications for the US banking system. As an example, the Japanese banking system was crippled after the boom of the 1980’s when they concentrated much of their capital in real estate. Japan spent the following 14 years in an economic doldrum and is now just beginning to see the light of day.

Now that interest rates are going up, and will continue going up, people who used adjustable mortgages are feeling the pinch of increasing monthly mortgage payments. As a result, foreclosure rates are up 38% over last year and bank’s bottom lines are feeling this pinch.

Billionaire Warren Buffet recently said that he has been studying recent bank balance sheets and is very concerned about the growing number of defaults on their books.

The point is that even though banks aren’t prepared and well diversified it means that you should be even more so! How to prepare yourself is discussed in detail in the recently issued eReport entitled “Recession – How To Survive and Thrive”.

Tags: Banking System, Banks, Business Investment, Business Opportunity, Consumer Choices, Economic Boom, Economic Growth, Economic Justification, Economy, Financial Situation, Herd Mentality, Interest Rates, Inventories, Jobs, Loans, Money System, Pool, Real Estate Bubble, Salaries, Smart Decision

Where Did My Paycheck Go?

The typical scenario is that you get your paycheck. After you recover from the shock at how little is left after taxes, you proceed to divvy it up among all your outstanding bills, intending to put whatever is left over into your savings.

But there never seems to be anything left over and your savings dont grow.

A better plan would be to pay yourself first. Dont let the money get into your hands.
You might find that you actually begin to grow your savings much quicker this way.

If you work for an employer with a 401K plan, the first thing you should do is to fund it to the max. If you cant afford that, at least put enough in to get the full matching contribution form your employer.

This investment is made before taxes. Your investment is larger and with the employers contribution grows quickly.

Next have a brokerage or mutual fund company debit your banking account monthly. This money should first go into an IRA if you have five years or more to go to retirement, make it a Roth IRA.

Next have a few dollars more be debited to go into a no-load, low cost mutual fund. The younger you are, the more aggressive your choice of fund can be.

After that is done, then figure out how to pay your bills and living expenses. If money is tight, cut back on your living expenses and use the extra money to pay down your debt.

Start with the lowest balance first. Once that debt is paid, take the amount of money you were paying on that debt and add it to the payment on the next lowest balance debt. Continue doing this and you can be totally debt free within 5 to 7 years.

Another version of this method is paying the highest interest rate debt first. The principal is the same, you just see more progress with the first method, although it could be more costly based on how your debt is distributed.

(If you dont believe me, get the premier version of Microsoft Money or Quicken and use the Debt Reduction module. You will be shocked at how much money you will save and how fast you can eliminate debt this way.)

The idea is to scrimp at the expense of your current lifestyle, while leaving your savings to grow and you debt to shrink.

I know many of the people reading this will scream that this is an impossible plan.
But it is quite doable with a little will power and the ability to delay gratification for a while.

The problem is that if you dont do this, your future might turn out to be very bleak.

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