Category Archives: finances

How to cut expenses

Every year, the US congress has a difficult time deciding how to pay for the expenses that have been approved in previous sessions of congress.  The confrontations leading to the “Fiscal Cliff” are similar to the problems that a husband and a wife have in trying to meet the needs of the family while staying within the household budget.

A wife may think that it is necessary to spend $100 every three weeks, about $1700 per year, in the beauty shop.  A husband may feel that a 60-inch flat screen television with a special audio system for $2000 is necessary for entertainment.  Of course, the additional cable bills for $300 dollars a month, or $3,600 per year, are also necessary.  If the family has children, there are additional expenses for toys, school supplies and clothing which is outgrown quickly or worn out.

The only way to cut expenses is to eliminate those things that you can do without.  All the members of the family have to get together to agree on the expenses that will be eliminated.  Nobody will be happy because everybody has to sacrifice.  Just like the members of congress, everybody will grumble and complain.  If you are single, you are the only one who has to sacrifice and you have to have the discipline to stick to a budget.  Here is a list of things that you may try:

  • Stop smoking to save your health and your money.
  • Sell your car and use public transportation to go to work.
  • Take your lunch to work instead of going to a restaurant.
  • Read books from the public library instead of going to movie theaters.
  • Brew your own coffee instead of buying it in expensive coffee shops.
  • Pay down your credit card debt.  If possible, pay in full every month to avoid fees.

The most effective way to save money is to make a list of your monthly expenses and then determine which ones you can eliminate.  Looking at a complete list of expenses gives you a perspective of your spending habits.  Eliminating many small incidental expenses sometimes can save big bucks, but small cuts in recurring large expenses may provide the greatest savings.

Learn how to budget your income

BET Information Systems nSphere scam

Beware of working with BET Information Systems, doing business as nSphere, which is supposedly a Boston-based high-growth technology company that builds informative aggregate websites targeting local markets.  BET lists its address as 100 Franklin Street, Suite 900 in Boston, but the address is occupied by a real estate investment company.  When I contacted the Better Business Bureau, they could not find any information about BET or nSphere, but they told me that the address had come up before as a virtual office.

The scam works by teaming with a web site owner who agrees to split revenue 50/50 for a “localmarket” subdomain of the website which is hosted by BET/nSphere.  The web site owner only needs to provide a few articles, add a few links in the home web page, and redirect the subdomain to a server controlled by BET/nSphere. nSphere organizes local information and connects users to the local data that they need.  It takes some time for the traffic to build up on the localmarket.website.com, but BET/nSphere starts collecting ad revenue from Google AdSense and posts the monthly earnings in a database accessible to the web site owner.  BET/nSphere is supposed to send monthly reports, but they don’t do it, and they also don’t make the payments for half of the revenue as required by the contract. E-mail messages about the missing payments are ignored, and even written invoices sent by certified mail are ignored. As far as I can tell, nSphere only has people setting up systems to collect revenue, but all the people disappear when it is time to pay. Some web site owners may forget that they redirected their localmarket subdomain and may continue being victims of the scam for years.

My advice is to avoid doing business with BET Information Systems or nSphere.  The company does not seem to have honest management.

Learn more about scams

How we get fat: Buy one, get one free

Free Bacon, Free Sausage  Buy one, get one free (BOGO)
Buy one, get one free

According to the World Health Organization (WHO) there are now over 1.6 billion overweight adults in the world. That number is projected to grow by 40% over the next 10 years. The following list reflects the percentage of overweight adults aged 15 and over. These are individuals who have Body Mass Index greater than or equal to 25. Obesity is defined as a BMI greater than or equal to 30.  In the United States 74.1% of the people are overweight or obese.  That is almost 3/4 of the entire population.

Rank Country %
1. Nauru 94.5
2. Micronesia 91.1
3. Cook Islands 90.9
4. Tonga 90.8
5. Niue 81.7
6. Samoa 80.4
7. Palau 78.4
8. Kuwait 74.2
9. United States 74.1
10. Kiribati 73.6
11. Dominica 71.0
12. Barbados 69.7
13. Argentina 69.4
14. Egypt 69.4
15. Malta 68.7
16. Greece 68.5
17. New Zealand 68.4
18. United Arab Emirates 68.3
19. Mexico 68.1
20. Trinidad and Tobago 67.9

One of the reasons why Americans are so fat is that they cannot pass up a bargain.  The way in which food is merchandised makes it virtually impossible to buy only a reasonable amount of food.  Look at the receipt above.  You buy one and you get one free.  If you buy only one, it is like throwing half of your money away.  Who is going to do that?  Nobody.  We would rather eat it than waste it.  That is how we get fat.  Interestingly, you seldom see such sales for fruits and vegetables.

Reduce Your Credit Card Debt

Dollars and Cents

One of the best New Year resolutions that you can make is to reduce your credit card debt.  It is not unusual to have to pay 21% interest when you carry a balance on a credit card.  In addition, you can be penalized with late fees and lower credit scores if you do not pay by the date your payment is due.

Although credit is convenient when you do not have the money, it places a great burden on your future finances.  Suppose that you bought some new furniture for $1000.00 on a credit card.  The lender usually will ask you to pay only 5% of the total amount per month, which is around $51.39 Dollars per month.  It will take 24 months to pay off the loan at 21% annual interest.  At the end of the two years, you will have paid $1,233.26 Dollars, including $233.26 in interest.

You can reduce the interest that you pay and accelerate your payment schedule by increasing your monthly payment.  For example, if instead of paying $51.39, you pay $70 Dollars per month ($18.61 Dollars extra), you will pay off the loan in 17 months instead of 24, and you will save $72.34 Dollars in interest.

The Danger of Portfolio Balancing

Many brokerage houses offer portfolio balancing between different asset classes to minimize risk.  The idea is that you can reduce your risk by having a mix of fixed income assets such as treasury notes or municipal bonds and a variety of small cap, large cap and international stocks.  If your stocks are booming, you should sell some of your gainers and put the gains into your fixed asset classes.

However, during down markets, your cash reserves are higher relative to stocks that have lost value.  In this case, portfolio balancing consists of buying stocks at the depressed values in the hope that they will eventually grow.  But what happens when the stocks continue to go down in value?  Should you continue putting good money into stocks that are likely to lose value?  I don’t think so.  During these times it is probably more prudent to keep your cash and fixed income assets and wait for the market to stabilize.

Brokers say that you never know when the stocks will go up.  They insist that gains are made during sudden market moves.  You have to stay invested in order not to miss the upward market movements.  I think that the times are changing and the old rules don’t work.  The market has dropped so much and so fast that if you had put all your assets as fixed income at the beginning of 2001, you would now have more money than if you had invested in the S&P 500 index or a fund based on the Dow-Jones index — even accounting for inflation and all the dividends! Automatic portfolio balancing is dangerous because it can reduce your funds substantially during a long period of recession.  With current market conditions, it may be wise to wait for a period of economic stability that lasts at least three months before you put some of your hard-earned cash into stocks.

Is it time to buy stocks?

S & P 500 Index
Six-month prices

The volatility of the stock market is being reflected in the values of 401k retirement funds.  Your Third Quarter statement for 2008 will be a shocker.  Your savings of the last two or three years have been wiped out by the falling values of index funds like the S&P 500 which is the basis of many retirement plans.

The companies that have survived the financial collapse of the sub-prime mortgage industry may offer some opportunities for investment.  Warren Buffet has a good track record of investing in solid companies.  Warren Buffet just bought General Electric (GE) stock.  In October 2007, a share of GE stock was above $41 Dollars.  Today, a share of GE is at $22 Dollars.  GE is a diversified company involved in technology, media, and financial services.  It pays a dividend of $1.24 per share which translates to 5.1% at today’s prices.  This is not bad considering that bank savings accounts are paying miserable rates way below 2%.  GE is a good buy with a Price-to-Earnings ratio (P/E) of 10.31 and $2.15 earnings per share (EPS).

Should you have a Money Manager?

Declining stock prices
S&P500 for the past 6 months

The economy is taking a dive. Every day you hear negative news. There is a banking crisis fueled by defaults in the repayment of subprime loans. The downturn in the housing market has caused house values to plummet and people who hoped to make a profit from increased real estate values have been disappointed. Increased unemployment has many people scrambling to get any job just to meet living expenses. It is harder to get a loan because of the banking crisis, and as if that were not enough, stock prices are down.

Have you looked at your retirement savings recently? A typical portfolio that invests in the Dow Jones or the Standard and Poor’s 500 (S&P 500) Index has decreased in value by 11% in the last six months. Some individual stocks have lost 90% of their value! If you had equity investments of $100,000 in October of 2007, now you have less than $90,000 Dollars. It is at times like these that you start doubting your ability to invest your own money, and money managers come out of the woodwork offering to take charge of your portfolio and make you rich through their sophisticated market research. The problem with money managers is that they are not content to just take a percentage of your profit like the IRS. They want to take a chunk of your principal whether you make money or not.

A pushy stock broker called me recently. I had not heard of him or of his firm before. He was a really good and convincing salesman. I refused him because I was concerned that the call might be a scam, and because I thought that the fees were high. Also, other than his promises of high returns, there was no guarantee that I would make money. He had one hot stock tip. An executive of some energy company had bought a large number of shares in the open market. Since this executive was an insider, he obviously knew that there would be a large payoff. I should also jump in to take advantage of this rare opportunity. I hung up on the guy when he did not take “no” for an answer. His partner called me a few minutes later. He was equally pushy and I also hung up on him.

I had to ask a lot of questions to find out how much this company charged, but basically, these money managers wanted 1% of the principal when you deposited your money, and they wanted another 2% when you withdrew your money. In addition, they would charge over $100 per stock transaction. I figured that if I let them manage $100,000, they would take $3,000 off the top, and then they would take at least another $1,000 per year on 10 brokerage transactions needed to buy and sell stocks to implement their investment strategy. That is 4% in fees! Assuming average returns of 7% in the market, it would have been hard to keep ahead of inflation with bloodsuckers like these.

Social Security and Medicare for Baby Boomers

Medicare Card

The Social Security Act of 1935 established retirement benefits for workers, for the handicapped, and for victims of industrial accidents. Payroll deductions taken under the Federal Insurance Contributions Act (FICA) provide the funding for Social Security. The age for retirement was originally 65 years of age, but as life expectancy in the United States continues to increase, and the sources of funding for Social Security continue to dwindle, the retirement age is being gradually extended. People born from 1943 to 1954 will qualify for retirement at age 66. Those born after 1960 will not get a full pension until age 67.

According to the Center for Health Statistics, the average life expectancy in the United States is approximately 78 years. This means that retirement income should be able to sustain you for at least 10 years if you were to die at the average age, but you are likely to live much longer than that with modern medical interventions. Social Security and individual retirement accounts (401K) are supposed to provide the funds to meet your expenses when you no longer work, but Social Security is in trouble.

One of the problems with Social Security is the uneven population growth known as the post-World War II “baby boom” between 1946 and 1964. The large population of boomers started using birth control and had fewer children who could fund Social Security. This means that Social Security will run out of money. The trustees of the fund estimate that by 2017 the revenue collected by Social Security will be less than what is needed to pay the beneficiaries. If Social Security then starts using its surplus reserves, the reserves will be exhausted by 2041. Medicare, which provides medical benefits to retirees, will start going negative in 2013 and will consume its reserves by 2019.

The United States is heading toward a crisis in social services and health care in ten years. The traditional services that serve our seniors today may not be available to those who were born after 1954. What are you going to do about it?

Global warming will increase your insurance

Ice-Free Arctic Ocean An ice-free Arctic Ocean

Earlier this month, the European Space Agency released satellite photos showing an ice-free passage in the Arctic Ocean along northern Canada, Alaska and Greenland. The amount of ice in the polar region is at its lowest level since 1978, when NASA first started getting images of the Arctic. The melting of the polar ice has been attributed to climate changes caused by an increase of atmospheric carbon dioxide produced by our industrialized society. Most of our energy is derived from fossil fuels such as coal and petroleum which generate carbon dioxide when they burn.

There are still many people who do not believe that global warming is a cause for concern, but researchers predict that the climate change by 2050 will place a large number of species at risk of extinction. The organisms affected will include corals, seals, and polar bears. Humans are so widely distributed that they will not face extinction, but many people will lose their homes.

If all the ice in Greenland melts, the sea level will rise by 7 meters (23 feet), and low-lying islands, such as the Maldives, will be swallowed by the sea. Parts of Bangladesh will become uninhabitable and create a humanitarian catastrophe as millions of people lose their homes and the fields on which they grow their food. New Orleans and the southern half of Florida will be underwater. Miami will disappear under the sea like the legendary city of Atlantis. Even a one-meter rise in sea level would be very damaging to the cities on the Gulf Coast and eastern seaboard of the United States.

Insurance companies have been paying close attention to these scientific predictions and adjusting their rates accordingly. During a trip to the North Carolina Outer Banks, I read a story in a local paper about a man who had bought a beautiful house by the shore many years ago. He had always thought of the house as a nest egg which would finance his retirement. Before he could sell, he was notified by his insurance company that the land on which the house was built had been recategorized as having a high risk of flooding and that his insurance would not be renewed. This also meant that any prospective buyers would not be able to get a mortgage to buy the house because they could not get insurance either. This is a story that is likely to be repeated many times as the sea level continues to rise.

Can we do anything about global warming? It is probably too late to do anything to prevent the Arctic from melting, but our individual actions could be significant.

  • Cut down your driving
  • Use less electricity
  • Telecommute (work from home)
  • Take public transportation
  • Support solar, geothermal, and wind power
  • Move away from low-lying coastal areas while you can still sell your house at a profit

See the Timeline of the Earth and flooding predictions