Archive for March, 2009
You dream about what you’ll buy. (Maybe you can finally get that pony!) Or, what debts you’ll pay off. (“Credit Card Company, kiss my rear-end.”) The only fun thing about tax time is thinking about the refund check.
However, some of you – and I’m not pointing any fingers – are struck by “refund anticipation” disease. You sign a piece of paper and get an advance from your tax preparer on your refund check.
There is a serious side-effect from “refund anticipation” disease you may not realize: The advance loan comes with super high interest rates. Fortunately, there is a quick cure – don’t take out an advance against your tax refund. After all, why pay super high rates for borrowing your own money? Instead, simply wait for the check to arrive.
What if you need the money not for impulse shopping but because you really need it? Try as hard as you can to refrain. The high interest rates will cause you to fall further into debt – remember refund advances are short-term loans which are due and payable – high interest payments and all.
March 30th, 2009
You’ve seen the commercials: “Gold prices are high so send us your gold jewelry and we’ll send cash.” You think to yourself, “I like my old jewelry but I like cash better. I can use the cash to buy new jewelry or something else equally shiny and pretty – I’ll do it!” But, is it a good idea? Is now the right time? And, more importantly, do you understand the underlying principals behind the price of gold.
Gold has many identities: commodity (jewelers and some manufacturers view it as raw material), currency (bankers and others actually use it instead of cash to buy things) and treasure (pirates and others just like to own it because it is shinny and pretty).
Gold is usually measured by weight in “troy” ounces and all of those ounces are uniform in their purity. Just like diamonds have different levels of quality, so does gold. Gold’s quality is measured in a few different ways: “parts fine,” “% gold”, and “karats”. Pure gold is 24 karats. The percentage of gold in a piece of jewelry is the number of karats divided by 24. 24 karat gold is 100% gold, no impurities. 14 karat gold is only 58.3% gold.
Gold is bought and sold in large amounts on commodity exchanges. Commodity exchanges are like stock and bond exchanges (remember exchange = market), but instead of stocks and bonds “real goods” are bought and sold. Other examples of “real” things bought and sold on commodity exchanges include coffee, steel, frozen orange juice, and pork bellies. You can invest in gold without actually having to buy the physical metal. You can invest in the stock of a gold producing company and the price will rise in fall (in most part) based on the price of the metal itself. You can buy a mutual find that invests in gold stocks. Or, if you are adventurous, you can buy a contract to take physical delivery of the metal itself and sell that contract to some one else before the delivery date. (Don’t forget to sell – which is called closing out your contract – or the delivery man will be bringing a very heavy albeit shiny package for you to sign for.)
It’s true, right now gold is selling for high prices. This is because in an uncertain economy – like we have here and around the world – gold is seen as a standard valued by everyone. Many people believe that because gold is a physical thing it will retain its value even if stocks, bonds and dollars lose their value.
So, should you run out and sell your jewelry? It is true, gold prices are high right now. However the firms you see on Television do not pay top dollar for your jewelry. They like to buy low and sell high. They buy your gold for less than they can sell it to someone else. Selling to these folks is no different than going to a pawn shop and selling your old jewelry for cash. If you need to pawn your jewelry, as with everything else, you need to do your homework. Jewelers may give you more money because they can resell your pieces and there are websites which can offer you additional tips on the best ways to deal with cash for gold offers. Also why are you selling it? If you are going to use the money you make to pay down high interest debt, receiving a little less than the jewelry is worth might pay off. If, however, you want the money to buy some newer shinier prettier object then you might want to hold out for a better offer.
March 23rd, 2009
Why is it, women can talk about ANYTHING with each other except money? We chat, chat, chat about everything except really important economic matters like how we are holding up in this recession, whether any area of our financial lives is out of control, or how we can use what is happening in the economy now to educate ourselves better.
Talking about money is key to understanding it – and understanding it is key to having more. So grab the girls, talk a walk (burn some calories and avoid spending cash on drinks) and talk about the economy or investing or money in general – you’ll be healthier, wealthier and wiser.
March 20th, 2009
(Yes, Really)
Adam Smith: Optimist – individuals should be allowed to pursue their own private economic interests as much as possible. And, the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by an “invisible hand”.
Translation: Buy whatever you want so long as it looks good on you.
Thomas Malthus: Pessimist – population will increase at a geometric rate, the numbers of workers on farms will increase at a slower pace, productivity and wages will not keep up, and our overall lot will not improve and everyone starves to death.
Translation: Don’t buy anything regardless of how it looks on you.
John Keynes: Realist – allowing individuals to pursue their own interests sometimes leads to inefficient outcomes, requiring policy responses from the government.
Translation: Bring a friend to make sure what ever you buy really does look good on you.
Karl Marx – Revolutionary – the “inevitable” cycles of economic breakdown from individuals pursing their own interests leads to revolution.
Translation: Be careful of trends.
Joseph Schumpeter: Creative Destructionist – innovation lays at the heart of economic development and requires entrepreneurship
Translation: “Fashion is made to become unfashionable”, Coco Chanel
March 17th, 2009
Researcher Kent Monroe has developed a test to tell if you are a shopaholic. The new test includes six statements, for which individuals answer on a 7-point scale from strongly disagree to strongly agree:
1. My closet has unopened shopping bags in it.
2. Others might consider me a “shopaholic.”
3. Much of my life centers on buying things.
4. I buy things I don’t need.
5. I buy things I did not plan to buy.
6. I consider myself an impulse purchaser.
Respondents who score 25 or higher are considered compulsive buyers. Monroe administrated his test to 550 staff members and found nine percent (men and women) qualified as shopaholics. LiveScience.com reports that previous studies have shown that between two percent and eight percent of the population are shopaholics.
March 16th, 2009
Our consumer society has stopped consuming. Whether for big ticket items or smaller desires, we have stopped shopping. But is this a temporary reaction to the current economy or something deeper and permanent? Have consumers changed their ways for good?
Consumer spending makes up approximately 70 percent of the economy. It topped out at 71 percent in 2005. Current economic conditions combined with the upcoming credit card bust (see “Credit Cards and Hemlines”, December 1, 2008) means that many folks will not be able to borrow money at good rates for a while. People who have lost 40+% of their net worth over the last six months won’t soon forget this year. Stories of hoarding for years after the great depression are common. On the other hand, 20 years from now, consumers who are now in their 20’s may not remember this downturn when they reach their peak spending.
Prevailing wisdom says that permanent change will never happen to the American consumer. What do you think? Has our love of owning plentiful and fine things altered permanently?
March 13th, 2009
Dorothy Parker once said: “Take care of the luxuries and the necessities will take care of themselves.” She obviously said this before this recession started (plus she died in 1967).
These days, you must take care of the necessities. One important necessity people often forget about is a cash cushion – ideally three months of living expenses. Start by saving up to one month’s worth of living expenses. This may take awhile, but it is really crucial. You want to be able to take care of yourself if you hit any bumps. Work your way up to three months and then promise yourself you won’t touch that money unless there is an emergency.
The sooner you start saving, the better. I urge you to start saving now – even if you only have a little bit left over every month. For example, if you are 21 and do not have any savings, but can start saving one hundred dollars per month (25 dollars per week), and earn five percent interest on your money, by doing nothing more, you will have saved a little over 78,000 dollars by the time you are fifty. (See my January 19, 2009 blog on Interest). If you wait until you are 31 to start saving the same 100 dollars per month, when you are 50 you will have a little less than 38,000 dollars. In this example, by waiting 10 years to start your savings meant you saved 40,000 dollars less. The higher the interest, the bigger the difference will become between saving now and saving later.
Dorothy Parker also said, “I’ve never been a millionaire but I just know I’d be darling at it.”
Fashionista Fact:
Dorothy Parker (www.en.wikipedia.org/wiki/Dorothy_Parker) was an American writer and poet who is best known for her acerbic wit, wisecracks and sharp eye. You could do a lot worse than to read her.
March 10th, 2009
What’s hot? What’s new? What’s now? What to buy? Keep? Store? It can be hard to stay in style. What’s the hottest fashion trend these days? Learning how to manage your money. Whether it’s getting out of debt, making and using a budget, or simply spending less and saving more – understanding personal finance, and the economy at large is totally in.
Fashionista Fact:
Economics is the new hot major on campus!
http://www.npr.org/templates/story/story.php?storyId=101321353
March 3rd, 2009