INTRODUCTION

The sub-prime mortgage crisis has had a cataclysmic affect on our economy. As a result, this domino effect caused banks to fail, corporate mergers, unemployment, home foreclosures, and a continuous stream of layoffs that grow in numbers each month.

While the Treasury bailout, more commonly known as TARP, whose purpose it was to infuse banks with capital so they could continue the lending process; this did not occur. Instead, the banks are withholding money due to the fact that they are anticipating more home foreclosures that will drain their resources over time.

As one United States Senator put it, “An unknown fact is that many banks are insolvent, and the money they have received is being held for future debt contingencies.”

What does this mean for the average consumer? Tightened restraints on spending, paying down debt, and ensuring there is enough money available to weather the economic storm that is still raging.

For businesses, the result of this crisis is alarming. They cannot borrow money for additional inventory. One example is the auto industry. Last year alone their sales were down an average of 44%. Many of the well-known electronic chains are closing, one of whom is Circuit City. Microsoft let go of 5,000 of its employees. And the news just keeps getting worse.

The volatile market shows no signs of leveling off, and every time a company reveals its quarterly earnings, the market takes a dive. A recent report stated that London is officially in a recession. The market has affected the global economy and its workforce as well.

Here are some basic statistics. The average family is receiving a reduced income of $2000; there are approximately 9,000 families that are losing their healthcare insurance every day, 11000 workers are losing jobs on a daily basis, and one in ten families are currently in foreclosure.

While the news is grim, the new Stimulus Recovery Package may be our saving grace. It will take time for it to trickle down to the average consumer; nonetheless, all efforts by top economists in the country are aimed at solving this financial crisis.

This report will offer tips and suggestions on how to survive this credit crunch. Much sacrifice will be required; from budgeting to eliminating wasteful spending. It will also address the need to change one’s mindset about utilizing credit cards and becoming more financially responsible.

We will also add a resource page offering websites with tools to help you determine the best way to pay off the amount of debt you currently sustain. In addition, there will be websites including FDIC, FHA, and others that offer information on credit and mortgages. Coupon and discount sites, comparison shopping sites, and others will also be listed to help you trim the fat off your budget.

The Family Budget

Today, more than ever, it is important to have a working family budget. While statistics reveal that most families become bored with the budget after two months, the method you use will determine its effectiveness.

Prepare a budget that you can access on a weekly basis in order to keep track of your spending. Purchase an accordion folder in which you can place your weekly receipts. This will serve you well at tax time.

Try to be as realistic as possible based on the family’s income. If you have a budget, revisit it and eliminate additional wasteful spending.

TIPS:

• Cancel magazine and newspaper subscriptions. Also consider whether those gym memberships, that you hardly use, are worth the added expense.
• Instead of dining out every week, limit it to once a month and choose an affordable restaurant.
• Do you really need to go to the car wash every week? Get the kids involved and wash your own car.
• If you go to a salon to have your hair colored once a month, you can easily do it at home. Also, eliminate expensive haircutting salons. Surely, you have one in your neighborhood who could use the business.
• Manicure and Pedicures monthly? Save money by doing it yourself at home.
• We’ve all been in the position where upon purchasing electronics we are relentlessly talked to about warranties. If it is not necessary, forego the exorbitant purchase.
• Do you really need all those premium cable channels? Eliminate those that offer a substantial savings.
• Put away at least six months worth of income in case you are laid off or unemployed.

As mentioned earlier, fine-tune your budget so that it covers only those necessities you need, not what you desire. If you smoke; quit. Take the $10.00 you would spend on a pack and put it into a vacation club or apply it a credit card debt.

In a recent news article, a teenage girl spent over 30,000 hours text-messaging her friends. Check your cell phone bills and limit the amount of text-message usage per child.

Note: A recent study on the affects of text-messaging revealed that students were unable to properly articulate their answers on tests. This was due to the fact that they were unconsciously answering questions using text-message lingo.

While cell phone technology has advanced over the years, it can be a costly item to own.
These devices also pose a danger to drivers who willing choose to put themselves and other drivers in jeopardy by talking while driving.

There is current legislation prohibiting the use of hands-free cell phone use. This is yet another safety measure to ensure drivers of all ages to not fall victim to the carelessness of others.

Become Supermarket Savvy

There was a time when you could buy more groceries for $100.00 than you can today. Now is the time to consider alternative methods when shopping at the supermarket.

This requires a change in habit. Reduce food waste. Billions of dollars are attributed to the disposal of food. According to the USDA, 25.9 million tons of food gets thrown out every year.

In addition, it is a detriment to the environment. The EPA tells us that “when food rots, it releases methane – a greenhouse gas which the EPA says is 20 times more damaging to the environment that carbon dioxide.”

You can easily prepare leftovers so that every scrap of food is utilized and thus the waste is eliminated. Another way you can save money during this credit crunch is to shop wisely. Check our resources page for online coupon sites.

TIPS:

• Before your trip to the supermarket, make a list. Ensure that you are not buying items you already have. Take inventory of your pantry closet and note only those items you need.
• Check the Sunday newspapers and circulars and start clipping coupons. Go online to find grocery coupon sites and print those coupons as well.
• Never shop on an empty stomach.
• Buy store brands and/or generic brands.
• Avoid impulse buying.
• Buy in bulk, if warranted.
• Avoid buying an item that you don’t need simply because it’s on sale.

Prepare meals ahead of time. In today’s world of long work hours and little time in the day to accomplish most essential tasks, dining out instead of cooking at home can be a costly endeavor.

Here’s a suggestion: After your supermarket trip, spend a Saturday preparing meals for the following week or, in some cases, two weeks. Place the meals in separate containers, label them, and put them in the freezer.

This is not only a great time saver, but money saver as well. Besides, the meals can be easily prepared (such as soups and stews), and are very healthy and nutritious as well.

As for buying in bulk, ensure the item you do buy will be used in a timely manner. It makes no sense to buy bulk items that may save you money but are only going to prepared twice a week.

Note: Most generic brand names are actually made by well-known companies. For example, there is only one Cheerios, but its counterpart is made by the same company and is aptly labeled due to the way in which it was processed. That is, it may not have evolved into the highest grade of Cheerios – but it is still Cheerios.

Energy Efficiency

Becoming more energy efficient has become one of the most important topics of our day. In addition, besides its positive affect on the environment, a family household can save substantially by following some these suggestions.

TIPS:

• Winterize your home.
• Purchase energy-efficient light bulbs.
• Ensure all appliances have the Energy Star seal.
• Utilize energy star fans.
• Turn off the lights when leaving a room.
• Shut down the computer when not in use.
• Ensure that the TV is turned off after you shut down the cable.
• Wash a full load of clothes on the cold cycle.
• Take shorter showers.
• Do not let the water run while shaving.
• Check all pipes to ensure there is no leakage.
• Maintain all drains.
• Clean the air conditioner filter regularly.
• Keep the thermostat at a low temp during the day.
• Keep the refrigerator thermostat at its recommended temp, and ensure the compressor is working properly.
• Use the microwave whenever possible.
• Use the dishwasher only when you have a full load.
• If your energy bills are too high, call other companies and compare rates.

As far as gas is concerned, while the prices are at their lowest it doesn’t mean they will not increase.
• Make a list of errands and carry them out in one trip.
• Walk to local stores instead of driving.
• Carpool when you can.
• Park on neighborhood side streets instead of feeding the parking meter.
• Keep your vehicle well-maintained.
• Increase the deductible to save money on insurance.
• If you are going on a weekend trip with the family, check the online gas prices in the areas along the way.
• Always drive the speed limit and use HOV lanes whenever possible.

There are many avenues you can explore in order to survive the credit crunch. Energy efficiency will not only save you money on a yearly basis, but aid in protecting our precious environment.

Check the resources page where we have provided you with information on Energy Star products, as well as a website listing gas prices by state.

Credit Card Debt and Mortgages

Probably the most stressful part of this recession is the debt most of us have incurred and need to pay down. The credit crunch has not only increased mortgage rates, but credit card interest rates as well.

Here are some suggestions to pay down your current debt so that you can put money aside for any eventuality.

TIPS:

• Begin paying down credit card debt using the “debt snowball.” Make a list of the highest interest card first, then the second, and so on. Pay as much as you can towards the first card. When it is paid off, use the same amount plus a bit more to pay off the second. Follow the process until all the cards are paid off.
• Cut up the credit cards except one. Only use it for emergencies.
• Contact the credit card companies and ask to have the interest rate lowered.
• Pay for all purchases with cash. If you can’t afford it, don’t buy it.
• Utilize debt consolidation, if necessary.
• Transfer high interest rate cards to one that offers 0% APR for at least two years.
• Check your credit report annually. Make revisions to any items that are questionable.
• Find out what your FICO score is. This can determine whether or not you will be approved for a loan, whether it’s a debt consolidation loan, student loan, or second mortgage.
• If you find that you can no longer afford to pay your debt, seek the advice of a certified financial counselor.
• Use automatic deduction from your checking account to pay credit card bills. This will reduce any chance that the bill will not be paid on time which could adversely affect your credit rating.

In line with this credit crunch are worries that mortgage rates will increase the foreclosure rate. As we have seen, this is exactly what is occurring.

• If you are having difficulty paying your monthly mortgage, check to determine if there are cheaper mortgages available. Note, however, that fees will be included.
• Look into interest-only mortgages. This is where you pay the interest for a specified amount of time and then proceed to pay the principle.
• Check our reverse mortgages as well. This may make the difference between keeping your home and foreclosure.
• Increase the deductible on your home insurance to save money.
• Do not fall for the latest predatory lending scams. Seek out information from credible online sources. (We have included many on the resource page.)

IRA, 401K, and Taxes

Undoubtedly, you may have lost a substantial amount of money from your 401K. Keep contributing to it. Eventually the market will correct itself and the last thing you want to do is withdraw the money prematurely.

Keep your money in the bank. The FDIC has increased the insurance to $250,000. If your bank has closed and has been taken over by another bank, contact them to ask questions about your accounts.

As for the IRA, there is new information that can offer additional savings to you and your non-working spouse. The “Spousal IRA” as explained by Smart Money as:

“A nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2009 ($6,000 if age 50 or older as of 12/31/09) as long as the couple files a joint return, and the working spouse has enough earned income to cover the contribution. However, the deductibility of the nonworking spouse’s contribution is phased out for couples with adjusted gross income (AGI) between $166,000 and $176,000, provided that the working spouse is covered by a qualified retirement plan (via a job or self-employment). The working spouse’s ability to make a deductible contribution for 2009 is phased out starting at AGI of $89,000. For example, say a married couple has 2009 AGI of $120,000. All the income is from the wife’s job, and she is covered by a qualified retirement plan at work. The nonworking husband can make a $5,000 deductible contribution (because joint AGI is well under the $166,000 threshold for the phase-out rule). If he will be age 50 or older as of 12/31/09, he can contribute and deduct $6,000. However, the working wife cannot make a deductible contribution (because joint AGI exceeds the $109,000 top end for the phase-out range).”

Another area you should explore is Certificates of Deposit, Money Market Accounts, and savings accounts. For your information we have listed the appropriate websites on the resource page.

Tax preparation is just around the corner. Most working individuals claim zero on their tax return. This enables them to receive money or pay fewer taxes. One way you save money is by claiming dependents and thus you will receive more money in your paycheck. If you take that money and place it in a CD, IRA, 401K or savings account, you will be that much better off at years end. Although you may have to pay taxes, consider that the money saved is earning interest.

Note: If you itemize your tax deductions, we have listed the IRS Tax Deduction Write-offs on the Resource Page. This is important because most of the time items that can be written off are not.

Check out the IRS page to ensure your accountant is not only in compliance with the current regulations, but are utilizing every write-off accordingly and appropriately.

The Lilly Ledbetter Fair Pay Act

While this may not fall under the heading of “credit crunch,” it is nonetheless an important topic to mention since it affects all working individuals, especially women.

The Lilly Ledbetter Fair Pay Act was enacted into law in January of this year. This came about because the plaintiff, Lilly Ledbetter, was discriminated against by her employer.

When she rose to the ranks of manager in her company, she was paid a specific salary. What she didn’t know was that a male counterpart, with the same job description, was making significantly more than she.

When she was anonymously informed of this situation 15 years after the fact, she filed a lawsuit. Although she won the suit, it was appealed to the Supreme Court. They, in turn, denied her case since they claimed “she did not file a lawsuit within 180 days” after obtaining knowledge that her salary was not commensurate with the male manager.

In other words, she would have had to file the lawsuit after receiving the first pay check as a manager. This is ludicrous since there was no way for her to know that she was being discriminated against until she was informed years later. Therefore, complying with the law by filing a lawsuit within 180 days of the first check is a moot point.

In essence, the Supreme Court overturned a law that had been in effect for 40 years. The U.S. Senate decided to reinstate the original law and was successful in their endeavor.

The point of relating this information is that women currently earn 77 cents for every dollar a man makes. But any woman who may be affected by wage discrimination may not be aware that such an egregious act is occurring.

Thus, there may be women around the country who are not receiving fair pay for equivalent work.

One of the arguments made during this case was that most corporations do not allow their employees to discuss their pay. This is true. The only exception is the Department of Education and the US Senate. Their pay scales are posted.

At a time when there are more women in the workforce than ever before, it is critical that women ensure their pay scale falls in line with those of their counterparts: Equal pay for equal work.

If you find that you are not receiving your fair share, it is incumbent upon you to talk to your employer. Wage discrimination is against the law.

TIP: Talk to your employer and ask if you can work extra hours to make additional money. Moreover, demonstrate that you are a hard worker and will make yourself available for any project your boss requires. With many corporations laying off workers, they may think twice after witnessing your strong work ethic.

If your current employer cannot afford to offer overtime work, seek out a second part-time job, either at home or close to your home.

Spending Habits

As the nation faces more than a trillion dollar debt, consumers around the world are facing insurmountable debts of their own. At the outset, we began this report with the importance of family budgeting. Enough cannot be said why it is important to create a budget that is sensible and one the entire family can live with and up to. Yet, there is one aspect of spending that causes great angst among consumers – credit card debt.

There is a widening trend among credit card owners that prevents them from accepting their debt from a realistic point of view. They know they owe quite a sum of money, but are hesitant to look at the actual numbers. This type of denial is the catalyst that brings them to the inevitable task of seeking help because they have fallen deeper into debt.

Some would argue that consumers view credit cards as “play money,” and as such, are so emotionally attached to their cash that parting with it can cause additional angst. With most stores offering quicker methods to pay for items, one would have to ask if we are not falling prey to the credit card company’s insatiable desire to increase credit card usage. There is a TV commercial promoting a store that literally has customers singing and dancing as they order food and then swipe their cards to pay in a most orderly fashion. And the one lonely customer who has sense enough to pay with cash is portrayed as the outcast, because he is holding up the line.

This commercial and others like them are subliminally planting messages in our subconscious that it’s not only appropriate to own credit cards, but it saves time and rewards you with points, cash, gift certificates, and other compensation. This is another incentive to bring new customers into the fold.

While not everyone follows the path to credit card usage, not having a card prevents you from establishing credit. Thus, if you wish to buy a car, take out a student loan, or make improvements on your home – without a credit report you probably will not succeed in acquiring the desired loan.

This catch-22 situation has plagued many consumers for years. Yet, the most responsible among us, that is, those who only pay with cash, have become relics in a society that views credit as the only legitimate form of purchasing power.

At a time when this recession may mirror the Great Depression, economists around the world are concerned about how we can turn the economy around. The phrase often used is, “We’ve never faced anything like this before.” This holds little hope for those of us who have been waging our own battles to eliminate credit and become more financially responsible.

What is the answer? Perhaps, it is returning to a time when credit was unheard of and cash was the only method of payment. If one couldn’t afford to buy anything with cash, one had to save until they could. If you are in the same predicament most consumers are today, and have mounting debt that is becoming more unbearable by the day, here are some tips you can utilize to alleviate the stress you are currently facing.

TIPS:
• Think twice about the item you are about to purchase. Do you really need it?
• Either bundle your TV, phone, and internet service or eliminate the home phone in lieu of the cell phone. Also, you can use SKYPE to make long distance calls from your computer for free.
• Comparison shop as often as you can. While it make a little more time to find the best bargain, isn’t it worth it to save money?
• Shop online if you must. Utilize the discount sites offered on the Resource page and look for well-known safe sites that offer free shipping.
• When planning your next vacation, look for special deals through your travel agent or online. Currently, the airlines are offering terrific prices. Check to ensure kids are free when booking hotel accommodations.
• If you are in the market to buy a new home, it may be worth it to wait until the economy becomes more balanced. Even though homes are decreasing in value, it may be prudent to put off buying a home until you have more than 25% available to place as a down payment. This will allow you to obtain lower interest rates as well.
• Take inventory of items in your home. Those items that are new or used and have cluttered up your attic, basement, or garage can be sold on eBay. Any profit is still a profit.
• Have a family discussion about the household budget. Determine where additional cuts can be made. If you have teens, determine if this is a good time for them to acquire a part-time job after school so they can contribute to the household expenses.
• If you have been let go or laid off, seek out some form of health insurance for you and your family. (Check out the website on our Resource Page)
• Stay healthy. Exercise and a proper diet are essential during these difficult times. With healthcare costs rising, preventative care will not only get you through this recession but will leave you feeling stronger and healthier.

Finally, and this cannot be stressed enough, don’t panic! Panic creates stress, and when you are stressed you can no longer think rationally about the problems you face. Just do the best you can under the circumstances. Keep hope alive and create a home environment that is healthy and calm. The children will notice any change in your behavior, so have a family gathering and discuss the economic crisis in terms they can understand.

Note: There are several supermarkets that are offering to fill antibiotic prescriptions for free. Check Stop & Shop, Wegmans, and Safeway to determine how long this offer will last.

Resources

Budget Plan Worksheets: http://www.bankrate.com/brm/news/Financial_Literacy/Jan07_budgeting_worksheet_a1.asp?caret=6

Comparison Shopping Sites:
http://www.pricegrabber.com
http://www.bizrate.com
http://www.nextag.com
http://www.dealtime.com
http://www.mysimon.com

Online Grocery Coupons:
http://www.wow-coupons.com/grocery.php
http://www.couponcabin.com/grocery-coupons.htm

Discount Coupon Sites:
http://www.couponwinner.com/
http://www.anycoupons.com/
http://www.couponalbum.com/category/food.htm
http://www.couponfetch.com/
http://www.ebates.com/index.htm;jsessionid=abc0nCW5q3msfcIKYBIxr
http://www.dealhunting.com/
http://www.currentcodes.com/

Energy Star Light Bulbs: http://www.energystar.gov/index.cfm?c=cfls.pr_cfls

Energy Star Ceiling Fans: http://www.energystar.gov/index.cfm?c=ceiling_fans.pr_ceiling_fans

Gas Prices by State: http://gasbuddy.com/GB_StateList.aspx

FDIC and Credit Cards: http://www.fdic.gov/consumers/consumer/alerts/facta.html

FDIC and Mortgages: http://www.fdic.gov/consumers/looking/index.html

FHA: http://www.fha.com/

FHA Mortgage Guide: http://www.fhaloanpros.com/

Certificates of Deposit: http://www.bankrate.com/brm/calc/cdc/CertDeposit.asp

Money Market Accounts: http://www.bankrate.com/brm/rate/mmmf_home.asp

IRS Tax Write-Offs: http://www.irs.gov/taxtopics/tc500.html

The Lilly Ledbetter Fair Pay Act: http://www.nwlc.org/fairpay/

Health Insurance Information: http://www.ehealthinsurance.com/ -

CategoriesBasic Rules on Buying Real Estate Are Good (8) Free Is Good (8) General (16) Sticking to the Basics Is Good (5) Tax Tips (8) ArchivesMarch 2009 February 2009 January 2009 BlogrollCapital Investment Advisors MetaSite Admin Log out Entries (RSS) Comments (RSS) Should My Teenager Have A Credit Card?posted by: woody | » Edit «• Sunday, March 15th, 2009
According to an article in the Wall Street Journal, “plastic has become a fact of life in the U.S., even for teenagers, who made $169 billion of consumer purchases in 2005. 18% of youths ages 12 to 19 had debit cards, while 8% had credit cards.”

There is something inherently wrong with these statistics. Giving a 12-year old a debit or credit card is sending a message that could be interpreted in the exact opposite way in which it was intended.

While most financial planners and bank officials feel that is it perfectly okay to give teens credit cards, it seems that opponents of this argument should also have their day in court as well. In their defense, here are some thoughts.

Children learn from their parents. If parents have conversations with their children and involve them in household budgets and the like, it seems clear that as they grow up they are more likely to become financially responsible. Does this mean they should be given credit cards? Probably not at such a young age, but in the likelihood they are, they will be better equipped to handle the responsibility of owning one.

Some parents, on the other hand, feel justified in allowing their teens to own credit cards as long as boundaries are met and responsibility is shown by the holders of these cards.

One financial planner recommends that children should be taught at an early age about the basic principles of saving, budgeting, and being able to distinguish between things they need and things they want.

If parents believe their children are able to cope with responsibility of owning a credit card, they can choose either a debit card or a prepaid debit card.

However, there are disadvantages in allowing teenagers to have a credit card. Children and/or teens are not always aware of the consequences of using credit. They may overuse the card and expect it to have a balance no matter what they buy.

Brought To You By
Woody Alpern
CPA/PFS
www.yourwealth.com
Woody@yourwealth.com