DEAR SMARTIES Living TheSmartestWay™

 

 

 

                                            

 

 

DEAR SMARTIES: I’ve been feeling kind of guilty that I’ve been cutting back on my spending, as far as the economy is concerned. After 9/11, we thought it was our patriotic duty to go out and spend. We probably overdid it. But what about now, that the economy is sluggish? I read that economists are upset that consumers aren’t spending enough.—Guilty in Glendale

HEIDI: Economists cannot simply say that if people slow their spending, the economy slows, too. Consider, for example, the fact that, when the economy slows, prices go down and that stimulates sales. For people who can buy, they get the best deals. Also, if people are saving, and putting their money into a bank, instead of into stores, it helps the banks lend money, which helps create new businesses, which help stimulate the economy.

SAM: What Heidi says is true. But some people may still be waiting on the sidelines before they start spending, even with falling prices. Others cannot take advantage of falling prices if they have lost their jobs or are concerned about losing them. Also, her reasoning assumes that banks are lending money. If they are hoarding money too, just to prop up their balance sheet, they are not lending to businesses that need them to create jobs, etc.  Banks lost major net worth with all the mortgage defaults. They have set up new and stricter requirements for credit, due to lessons learned in this recession.

As far as the economy is concerned, (if that is your first priority): If you are not putting money in a bank, just hoarding it in your vault, it is not stimulating anything in the economy. As far as your own personal economy is concerned (and that should be your first priority, in our opinion): If you’ve got extra money, pay down all your debts and then make investments that will support your ncial independence rather than increase spending. 

DEAR SMARTIES: A lot of the financial advice seems to apply to people who have money to invest in Roth IRAs, etc. I live very frugally on my Social Security benefits., barely covering my food and rent. What about those of us who are on benefits programs? We need financial advice, too.—Frugal in Fontana

HEIDI: We believe that everyone needs to save, regardless of the size of income. Even though you are covering your food and rent with little to spare, there are other ways to save you have not thought of yet. Go to the library and read books on saving, including our book. If you make tradeoffs, you can create a buffer fund to give you some security.

SAM: Also, figure out ways to make more money. Can you do babysitting, house sitting, plant sitting, dog walking, or be a part-time companion or personal assistant?

DEAR SMARTIES: I used to think that people who lost their jobs obviously were not trying hard enough. However, that is not true. I see how people treat my friend who just lost his job. Some are supportive, but others avoid him.           –Fathful in Fallbrook

SAM: Job loss is hard and it takes courage, creativity, and initiative to find a replacement in a recession like the one we are experiencing. Be helpful and supportive, as you would hope your friend would be for you, if you were laid off.

HEIDI: Here is a phrase my mother taught me when I was young: “There, but for the grace of God, go I.” It is never a good idea to look down on someone, no matter how confident you are “that will never happen to me.” Sometimes life has some surprising twists and turns, as we are starting to see these days.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com. 

 

DEAR SMARTIES Living TheSmartestWay™

                                          

 

DEAR SMARTIES: My wife’s birthday is coming up. I recently lost my job, so I only have a few dollars to spend on her birthday. She has been so supportive of me in this difficult time and I want to give her something special.–Frustrated in Fresno

HEIDI: As a wife, I know what I would cherish most: a handwritten letter that explains how deeply you feel about her, on special paper, in a dated envelope inside a decorative box. In addition, a promise to write a new letter for the box for her birthday every year.

SAM: You could gather copies of your favorite photos together in a frame. Or offer to do that project around the house that you’ve been putting off–cheerfully.  Or how about setting aside a day to do something special together, like a drive in the country. Time together is the greatest gift you can give.

 

DEAR SMARTIES: I recently graduated and am glad to say that I landed a pretty good job. I can finally enjoy life a little after years as a “starving student.” My parents say I should start paying off my student loan, but I’d rather get a bigger apartment.—Proud Grad in Piedmont

SAM: Perhaps you could delay repayment with deferment or forbearance or get your repayment extended. If you were still looking for a job, you should consider these options. Nevertheless, since you are working, you can start you loan repayment as soon as possible. Can you arrange for a roommate before getting that bigger apartment? Better yet, if you have extra cash, you should be starting a savings plan so that you can become financially independent and not have to work at all. Email us and we’ll send you The Principles of Financial Independence from our book.

HEIDI: If you are like most grads, your loans are sky-high. Unemployment is rising, job layoffs are increasing, and first hires are often the first to go. So don’t start “living large” yet. Adjust your “starving student” budget just a little–and save the rest.

DEAR SMARTIES: I want to save my money and not spend it on endless interest payments. What is a simple process for getting my arms around my credit cards?—Overwhelmed in Ojai

HEIDI: Gather all your bills, loans, etc. Take a big sheet of paper. Write down a list of all your debts, starting with the debt with the highest interest rate, the next highest interest rate, and so on. Write down the balance you owe on each debt. Then estimate how many months of paying the minimum amount it would take to pay off the card, if you never purchased on that card again.

The next step will motivate you: do a rough calculation about how much interest you will be paying on the card between now and when you pay it off. To save the most money in interest payments, pay off the debt with the highest interest first.

Set up a budget that pays all you can each month toward reducing your debt. Pay off the highest-interest-rate credit card first. Then apply the same amount to the other cards until you pay each card off, one by one. Then don’t use the cards except for true, dire emergencies.

SAM: If your debt exceeds what you can handle, call your credit card company to ask if they would please reduce your interest rate and even waive a portion of the principle you owe. Explain that you have been a good customer, and you are setting up a plan to pay them back and you want their advice and support. The worst that can happen is to get a “no.” People who do this are surprised at how many companies these days are willing to adjust the terms of their debts.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com