Thursday, March 5, 2009

A little financial advice

I'm not a financial adviser so you probably shouldn't listen to anything that I have to say on the subject. Everyone else is doing it, though, so I figured I'd go ahead and give you my view. To this day, everywhere I turn, I keep hearing everyone scream "ZOMGZ PAY OFF UR DEBT!11" This was great advice when interest rates weren't that great or even absolutely ridiculous and you could invest your money in places that yielded a very high return. What can you possibly invest in right now that will yield you a better return? What you can do (if you have good credit) is refinance your debts to get lower interest rates. Got a mortgage? Refinance it and get that payment down. Got a car? See if you can get that payment down. Maybe stretch the payment out by a year or two to make it easier on the pocket book. Secured debt isn't a bad thing to have if you manage it correctly.

Most people who hate debt think that credit cards are the devil and the core root of all of our problems. If you can control yourself they can be an extremely useful financial tool. It's really easy to overstretch yourself, though. If you can't control your spending on your plastic then bury it deep enough in your back yard that you won't even think about digging it up unless it's life or death. If you can control yourself then just buy what you can afford with it and pay it off in full every month. If you overstretch yourself and can't pay the full balance one month then DON'T USE IT AGAIN until you HAVE paid it off. If you don't use it regularly then just keep a small balance on it so that your credit card company doesn't lower your limit or completely cut you off. They say that you should maintain a balance of 30% of the available line of credit.

So now you've refinanced everything so that your interest rates and payments are just a fraction of what you were paying before. What should you do with all of that extra money that you're bringing in every month? You've got a few options. The first option is to take that extra money and apply it to your smallest debt balance. Once you eliminate your first payment then take whatever you were putting towards that payment towards your next biggest debt balance. Once that debt is eliminated then put everything that you were paying towards that balance towards your next balance. See how that works? This system is very simple and effective. The key is to have extra money after your bills are paid every month. With a little bit of discipline you should be able to find some with no problems.

Before you go throwing every extra penny that you make towards your debt you'll want to have a nice cushion in your savings. Three months worth of expenses is good. More than that is better. Having enough money lying around to be able to pay off all of your debt immediately is best. When you get to that point then you'll truly have complete control over your life and finances. You can keep your money at home or you can keep it in the bank. I'm not a fan of stuffing the mattress or finding creative places to hide my cash around the house. I'd rather just leave it in the bank and be done with it. If you've got more than $250k in the bank then you might want to rethink that strategy. Out of your three month cushion I'd keep about a month's worth at home.

Despite popular belief the stock market isn't a bad place to put your money. There are some killer deals out there if you know what to look for and you have no intention of cashing in for a long time. Obviously, there is some risk. There's also the potential for some absolutely ridiculous gains. Just look at GE. It's about $6 a share as of today yet they're still paying out a $.33 dividend every quarter. Who do you think is going to get the lion's share of the government's business when they start implementing all of these alternative energy resources and the smart grid system? Speaking of which, there are a lot of publicly traded alternative energy companies that are a real steal right now. What do you think is going to happen to that stock when the stock market comes back? There are a ton of stocks out there right now that are in this position. If you have a few extra bucks that you will never miss then this could be the best opportunity in your lifetime to get on the bandwagon. I do think that it's going to get worse before it gets better but I also think that someday it's going to be MUCH MUCH better than it is right now. Do your research now, put some of your beer money into the stock market and in 20 years you may be able to pay cash for that 10,000 acre ranch with a mcmansion on top of a 20 floor bomb shelter without breaking a sweat.

Putting your money into gold and silver is another option. Money that you spend on gold and silver, much like what you spend in the stock market, should be money that you don't need and will never miss. This is your insurance policy. If the economy crashes or there's a major catastrophe then it will be the first thing that people start recognizing as money again. If nothing bad ever happens and you need some cash right now then it will always be accessible as long as you maintain physical possession. It will always be worth something.

There are some other investment options like bonds, cds, mutual funds, etc. My 401k is the closest thing to a mutual fund that I invest in. The 5% employer match is the only reason that I'm still funding it. CDs are good because they give a guaranteed return and they're insured like a savings account. They're bad because you're very limited to when you can access it and the interest isn't that great. If you need the money right now then too bad. I hate mutual funds. Bonds are good because they're guaranteed but they're bad because they take time to mature. Once again, if you need your money you have to wait for it.

Some people seem to look at preps as an investment. I guess that they could be. I see them as more of an insurance policy. Part of my budget goes towards preps. None of my budget goes towards investments. The money that I spend on investments is money that I don't need and can easily afford to lose. Whether I can afford it or not I always find a way to fill holes in my preps as needed.