Aug 16 2012

Protecting Your Income from a Recession

By |August 16th, 2012|Blog, Personal Finance Tips|9 Comments|

In the last few weeks I’ve been looking at a bunch of job postings at my company to try to find a promotion. I’m hoping to take my career to the next level while increasing my income.

However, there is a big “recession” cloud looming over my head. I need to make sure my career is ready just in case the economy doesn’t get any better and we head into another recession.

With this potential recession in mind, I am doing two things to make sure I can make it through a recession with a steady income stream.

Be Valuable to Your Company

Let’s be honest: any job is expendable. With that being said, make yourself as valuable as possible to your company. The more valuable you are, the less likely you are to get that pink slip when the bad times roll around.

suit and tie

photo credit: JonoMueller

First, be great at what you do. My job does performance evaluations every year and I work hard to make sure I’m in the high performing group. If your company doesn’t tell you whether or not you’re a high performer, ask your boss. It’s as simple as, “What can I do to be even more valuable to your team and this company?”

Then do what he or she says.

Finally, understand the nature of your role. You might be the best person on the entire planet at making powerpoint presentations look pretty, but your company can survive with ugly powerpoints. On the other hand, there are certain positions that are absolutely essential to a company staying in business. If you aren’t in one of those positions right now, try to move yourself into one as soon as possible.

Have a Backup Plan

You can literally be the single most valuable person at your company, but that doesn’t mean jack squat when that company goes out of business. In scary economic times like today there are two things that everyone should do to prepare for the worst.

First, keep your resume updated. If you get canned today, you should be ready to find a new job tomorrow. That means having an updated resume and maintaining relationships with business contacts. You should have a network of people, both within your current company and outside of it, that you could reach out to if you were looking for a job.

Second, diversify your income. If I lost my job today I’d be in trouble, but at least I’d have the little bit of income this website brings me. I could also start freelance writing or using my skills to do odd jobs until I could find a new career. Having multiple income streams gives you extra money in the good times. More importantly, it gives you at least some money in the bad times.

Understand Your Risk Tolerance

It’s a scary time to be looking for a promotion because the last guy in is usually the first one out. On the other hand I can’t pass up the right position if the opportunity presents itself. I’m a bit of a risk taker and can handle the idea that I might be in trouble if a recession hits.

If the thought of losing your job scares the pants off you then it might not be the right time to look for a promotion (as long as your current job is a vital position to the company and you’re good at it).

Readers: What precautions do you take with your income to prepare for job loss, a recession, or some other bad situation?

Carnival Links

Canadian PF Happy Hour at Canadian Personal Finance
Carn. of Financial Camaraderie at My University Money
Carnival of Financial Planning at One Cent At A time
Carnival of MoneyPros at Aaron Hung.com
Carnival of Retirement at Young Family Finance
Festival of Frugality at CashNet USA
Wealth Artisan’s FinCarn at Wealth Artisan
Y & T’s Weekend Ramblings at Young and Thrifty
Yakezie Carnival at The College Investor

Aug 13 2012

I Might Get a Fixer Upper When I Buy a House

By |August 13th, 2012|Blog, Life|16 Comments|

Lately Tag and I have been hooked on watching Property Brothers on HGTV. The show is about two brothers, a realtor and a general contractor, who team up to find people fixer-uppers and then help them buy and fix the house all at once.

If you are even thinking about buying a home at any time in the future and don’t have a boatload of money then this is must see TV as far as I’m concerned.

The great thing about this show is that it shows how you can get aspects of your dream home at a fraction of the cost of what a dream home might cost you. Plus doing a custom renovation means you get EXACTLY what you want (as long as the contractor does what you ask).

Cheap House With Renovations or Expensive House?

renovation

photo credit: nickytheblade

When I’m looking for a home in about two years, I’ll have two options: either get a fixer upper for a low price and pay a bunch of money to renovate parts of the home, or buy a move-in ready home for a higher price.

Property Brothers is all about people buying that crappy house and turning it into a dream home. I like this strategy for a few reasons:

  • I like to work with my hands and I’d be happy to help on the renovation (which would also reduce costs).
  • The renovations will help increase the value of the home.
  • I could get exactly what I want with the custom renovation.

I’d Need the Magic of TV

I do really like the idea of getting a fixer upper, but there are two things that happen in the TV show that I would need in real life to feel comfortable doing a fixer-upper renovation.

First, I’d need to see a computer generated design like they do in the show. Here’s the software they use to give people a great visual of what the house would look like when the renovation is over. Without seeing this I would never be able to visualize how a home would look after the renovation were done.

Second, I’d need a contractor I can trust to deliver what he promises on budget. Obviously that always happens on the TV show, but the Property Brothers do their show in Canada and I’m not moving there. Finding the right contractor would be the most important part of the whole entire process.

I Have Two Years to Decide

Luckily I don’t plan on buying a house for at least two years so I have some time to decide, but I’m curious to hear about anyone who has some experience with renovating a house. If you’ve done a big renovation in your house, let me know in the comments what happened and if you’d do it again.

Carnival Links

Carnival of Financial Planning at The Skilled Investor
Carnival of MoneyPros at Finance Product Reviews
Carnival of Retirement at Debt Black Hole
Festival of Frugality at Buzzraid
Nerdy Finance Carnival at Nerdy Finance Carnival
Wealth Artisan’s FinCarn at Wealth Artisan
Y & T’s Weekend Ramblings at Young and Thrifty
Yakezie Carnival at See Debt Run

Aug 9 2012

Japan Might be More Screwed Than America

By |August 9th, 2012|Blog|4 Comments|

This is a guest post from Nelson at Financial Uproar, one of my favorite personal finance blogs. If there are any oldtimers here, this is the kind of writing I used to do (aka funny) when I started my blog two years ago. If you miss the sarcastic humor I used to inject in my posts, you’ll love this one!

In the past, Kevin has posted all sorts of stuff on why he thinks his fair country is headed for financial armageddon. In the past he’s described U.S. Government debt as “the next bubble to burst” and has advocated people invest in precious metals, including “junk silver”, which is just old American change that has enough silver in it to make it worth significantly more than face value.

Admit it, you thought he was a little nuts. I sure did. I thought about filling his comment section with jokes about tinfoil hats and recommendations for the best brand of canned pears for his bomb shelter, but I didn’t. Hey, I’m lazy.

I’m still not sure America is screwed. There is still a significant appetite for American government debt, especially from foreign investors who want nothing to do with the Euro. Super low interest rates have made the cost of servicing this massive debt really quite reasonable. American debt is still perceived to be the safest in the world. If investors had any real concerns at all, the U.S. Government wouldn’t be able to issue 30 year bonds with 3% yields.

As bad as America’s balance sheet looks, (which, as a Canadian, kind of amuses me) there’s another country’s that looks even worse. As you probably figured out by the title, I’m talking about Japan.

SUSHI JOKE.

Why is Japan in such bad shape? Let’s look at the basics. Japan’s total debt to GDP ratio is 229%. For a second, let’s compare that to your finances. If you made $50,000 per year, that would mean you’d be in debt to the tune of $114,500. This is by far the highest ratio in the world. Japan’s debt to GDP ratio is more than double America’s, which checks in at right around 100%. Both countries are borrowing heavily, Japan is borrowing to rebuild from last year’s earthquake/tsunami disaster, while America is borrowing so you don’t have to pay slightly higher taxes.

tokyo

photo credit: this guy

Currently, Japan has the highest debt to GDP ratio in the world. Who’s second? Just a little country called Greece. (at about 140%) The United States is 3rd, while some of the other countries you’ve been hearing so much about (Spain, Portugal, Italy) are littered among the top 10.

How can Japan afford to pay the interest on all that debt? It turns out they really can’t. The U.S. spends  about $250B per year on debt interest costs. The federal government takes in about $2.5T in revenue per year, which means the U.S. government spends about 10% of their revenue on interest. In Japan, their government spends over 25% of revenue on servicing the debt, even though their interest rates have been essentially zero for a decade now.

It gets worse. Since Japan’s population is so old, their government pension needs to pay out billions of Yen more than what it takes in. An additional 25% of government revenues are paid out to old people’s pensions. That only leaves half of government revenues to spend on schools, hospitals, and giant gongs. No wonder the Japanese are running significant deficits every year.

Because Japan has historically had a current account surplus, their national debt is largely held by their own citizens. Japan has also historically had a high savings rate, which means there’s lots of available capital to buy their debt. Pension funds have also held large baskets of government debt because there’s a giant glut of Japanese people who are approaching retirement age. Japanese people have always ate their own cooking, so to speak.

Unlike America, Japan has another problem – a declining population. Over the past few years, Japan has lost 3 million people, probably from that silent killer, Bieber Fever. Most every other industrialized country has similar demographics, and they’re dealing with it – through immigration. The problem? Japan is perhaps the most xenophobic country in the world. Less than 1% of their population is non-Japanese. There’s little chance a country can grow their way out of a fiscal problem with a declining population.

There’s little doubt government revenue will start to fall in a major way. Their population is aging, old people generally pay less in taxes and need more in health care. They also tend to sell their government debt so they can afford to eat. Immigration isn’t making up the difference. Government expenses will continue to go up as revenues fall. This will lead to more borrowing.

There will come a point where Japan will have to reach out to foreigners to start buying their debt. Other countries will take one look at the demographics or the debt to GDP ratio and start demanding higher interest rates. Japan simply can’t afford to pay higher rates. You can probably guess what’ll happen next.

Hopefully I’ve done a good job outlining why Japan may be the next sovereign debt crisis. If not, I’m sure you’ll all fill the comment section with angry ALL CAPS comments. But how can you make money at it?

There’s an exchange traded fund that goes short the Japanese stock market. It trades on the NYSE under the ticker symbol EWV. If you buy this ETF, keep in mind that the fund uses leverage so it will return -200% of the Japanese market. That one isn’t for the faint of heart. Or, you can short Japanese debt directly by buying shares in JGBD. It also uses leverage, it’ll return -300% of the Japanese bond market. Or, you can buy long term put options betting against the Japanese stock market.

Here’s the real question: should you actually bother? I firmly believe Japan will eventually enter into some sort of fiscal emergency. But I’m not going to do anything about it. I just don’t like going short.

This has been a guest post from Nelson who blogs over at the handsomest blog in the whole universe, Financial Uproar. His blog is more awesome than puppies combined with freshly baked chocolate chip cookies. Oh, and you should probably follow him on the Twitter.

Aug 8 2012

4 Reasons We May be Headed for a Recession

By |August 8th, 2012|Blog, Economics / Politics|11 Comments|

This is a guest post from William Cowie. He’s a new personal finance blogger AND he’s helping out with the Plutus Awards ceremony this year. Enjoy his guest post!!!

O crap! Not again! Didn’t we just have one?

If any of those thoughts went through your mind when you read the headline, you’re in good company.

But let’s cut the hype and look at the facts. Here’s a chart showing the U.S. economy (based on employment statistics) for the last 70 years or so.

economy dips

The dates in red show the bottom of ever recession we’ve had. Now look – how far apart are they? In our lifetime, 7-10 years. Look at the surprising consistency.

So… when would you expect the next recession?

Any time from 2016 on, right? That’s only 4 years away.

Believe it or not, that’s the good news. The bad news is more and more people are fretting that we might see a recession in 2013.

However, the mere presence of the bad news bears doesn’t necessarily mean we’re headed to disaster.

I believe in the cycle shown in the chart. Here’s the thing about the cycle: nobody can predict it, or even explain it. Every boom had a different reason and every recession had a different reason. Recessions happened with Republicans and Democrats as president. And yet those cycles moved like clockwork. So generally I don’t get swayed by the prophets of doom.

But… this time I’m not so sure. This time I’m thinking prophets of doom may be right.

Here are their reasons:

  1. Europe: Their economic mess is pushing our biggest trading partner into a double dip recession. We have no control over it, and it’s big enough that we can’t pretend it won’t affect us.
  2. China: their growth is slower than in the past. That affects us.
  3. Jobs: Here’s a scary chart for you:

    That red line shows how much longer it’s taking for jobs to come back this time round, compared to previous recessions. Experts are beginning to agree, and economists rarely agree on anything. Here’s a recent article in BusinessWeek where someone actually tried to say that we’re already in a recession.

  4. The fiscal cliff. That refers to tax increases and spending cuts scheduled to take effect on January 1, 2013. (After the elections, of course.) There’s a chance it may not happen, but it may. If it does, it will definitely take all the air out of the fragile economic recovery we’re in now. Nobody disputes that.

So, is the news all bad? No. It never is. Here are a few positives:

Small businesses (i.e. the most businesses) report rising revenues and profits. Hotel occupancy is up too. This is grass roots economy – millions of small business, from HVAC contractors to dry cleaners. And their business and profits are up, not down.

However, the recessionists say these recoveries are fragile and may run out of gas soon.

So, there’s enough opinion out there that we might hit a recession much sooner than usual for us to not blow it off.

So, What Do We Do?

Hurricane warnings allow us to prepare for hurricanes. The hurricane may still come (we can’t control that) but we can control its damage.

Same with recessions. Forewarned is forearmed. If you know it’s coming and you prepare, you can avoid the damage and even get ahead. How?

  1. Cash is king: You need an emergency fund. But you need more: you need an opportunity fund. Why? Because the best bargains are found in a recession. Recession is the best time to buy a house or car. It’s also the best time to invest, whether it be in stocks or real estate, even frivolous stuff like art or classic cars. But to take advantage, you need cash.
  2. Debt kills: Kill it first. Should you have your income cut by furloughs, layoffs or declining sales of your own business, you can cut expenses to a great degree. But you can’t cut debt payments. Best to have them out of the way as much as you can.
  3. Your employer: if you work for a company, pay careful attention to how recession proof they are. You don’t want to work for the next Circuit City. Read the trade press. If it’s a public company, check what Seeking Alpha says about them.
  4. Your job: do a realistic assessment on how layoff-proof you are. If you just punch a clock, you’re at risk. If you regularly do more than your job description, you’re a little safer. Are you the biggest earner in the department? You have a bulls-eye on your back. If you think you’re at risk, talk to your manager and let them know, casually of course, that if the worst happens, you’ll be flexible and take cuts in hours, share work with other departments, etc. If they know you’ll work with them, in most cases they’ll work with you.
  5. Network: The more people in your company (and industry) know you and think you do good work, the safer you are. My wife is an excellent worker. The department she worked in went from 80 people to 3, and she was one of the three. How? She stayed positive, flexible and helpful at all times. She only left when we moved out of state.
    Develop something on the side. We live in an era where the internet is allowing more and more people to turn their hobbies into internet businesses. This could be blogging or a focused how-to website. Start now when it doesn’t need to support you. All businesses take time to grow roots, so it’s best to start when you still have a day job. Whether you switch on your own time, or it’s forced on you, you have nothing to lost by starting now.
  6. In summary, we may get hit by a recession next year, or we may not. Much better to be prepared and have the storm pass by than not be prepared and get hit.

William Cowie learned the hard way that recessions can hurt, and the time to prepare is when it doesn’t seem necessary. He helps others manage their careers and finances on http://www.dropdeadmoney.com by exploiting the opportunities presented by the economy in both good and bad times.

Aug 6 2012

Prepare For An Emergency Today!!!

By |August 6th, 2012|Blog, Life|10 Comments|

Let me tell you a story about what happened to me and my girlfriend Tag over the weekend. It was seriously one of the scariest moments of my life.

Tag is house-sitting for a family that she babysits for every now and then. They are a very wealthy family and live in a super fancy house in the nicest neighborhood in Dallas (down the street from where George W. Bush lives).

It’s a pretty sweet gig to get paid to watch a fancy house like that, but it can also be scary at times because it’s just her and the dog in this big house full of nice stuff. Luckily they have a good security system so Tag could set that and feel confident that she’s safe in the home.

I went to bed Saturday night around 1am. I woke up Sunday morning at 5:57 to my phone ringing. It was Tag.

Tag: “Kevin, the security alarm is going off and I don’t know what to do.”

Holy Crap! What Should She Do?

I had no idea what to say. It’s not my house so I don’t know where the safest place would be. I don’t know if their alarm system would have already called the police. I don’t know if they have a maid or pool boy come over at 6am every Sunday. I don’t know anything.

I asked a few stupid questions like, “Do you hear anything?” (no) and “Where do you think the safest place in the house is?” (she had no idea). Eventually I told her to call 911 and we got off the phone.

Holy Crap! What Do I Do?

Now I’m sitting in my house (20 minutes away) thinking there might be an intruder somewhere in this house, or at least someone who tried to break in and got scared by the alarm. I know Tag is on the phone with the cops, but I decide that I should start driving over there. I don’t have a gun (yet), so I grabbed my pocket knife and started driving.

I was freaking out too much so I texted her. Here’s how the texting went:

Me: Are you okay? Are the police on their way?

Her: False alarm

Me: Are you sure?

Her: Everything is fine call you in a minute

Me: Okay I’m on my way over

Her: You don’t need to

So these texts are coming from my girlfriend’s phone, but I start wondering if it’s actually her. What if the guy who broke into the house did something bad to her, and then heard her phone ringing and responded to the texts telling me not to come over so he doesn’t get caught. And she wouldn’t answer her phone so I couldn’t talk to her and hear her voice; I was just getting the texts (that could have been sent by anyone).

She’s Okay

burglar

photo credit: ell brown

I finally get a call from Tag and she tells me she’s fine. Apparently the security system doubles as a flood detection system and there was a leak in the basement. The alarm was to let the homeowner know that there was water in the basement and it needed to be taken care of.

Tag wasn’t answering my phone calls because first she was on the phone with 911, and then on the phone with the nanny who was telling her about the flood alarm. Thank God it truly was a false alarm.

Lessons Learned

This was one of the scariest half hours of my life. I’m so glad everything was okay, but it also made me realize how unprepared Tag and I are for these kinds of situations. Here’s what we’re going to do to get prepared for the next time something might come up.

  • Create a safe word and a distress word – When I’m talking to or texting Tag, we should have a code to let each other know in secret if there is real danger or not. If I text “Are you okay?”, we should have a system where “I’m fine” means she’s fine and “I’m good” means I’m in danger and I need help ASAP, and any other response means it’s not her sending the text. I know it sounds like something you’d only need in a movie, but it sure would have been helpful this weekend.
  • Get my concealed handgun license and get a gun – If there was a bad guy and I did get there before the police, what the heck was I going to do with a freaking pocket knife? Probably get myself killed. I NEVER want to have to use a gun in my life, but I can’t be in this situation again and feel as helpless as I did today.
  • Act Faster – When Tag called me and said the alarm was going off, my response should have been “Call 911 and pull out your mace and pocket knife (that she keeps in her purse). Now barricade the door to your bedroom with something heavy. I’m on my way.” Instead I spent a bunch of time asking questions like “could it have been the dog?”, “are you sure you didn’t set it off?” and “maybe you should call the owners first”.
  • Be More Prepared – Here’s a link for How to Deal with an Intruder in your Home. I need to do more research and get a better understanding of what Tag or I should do in that situation so we aren’t questioning our actions and hesitating.

And Unrelated – A Blogging Vacation

Aside from that drama, I have so much stuff going on outside of this blog. I am behind schedule on launching my new website so I need to spend all my evenings this week working on that. My day job is going to be very busy this week which will require a lot of time, and I’m doing a lot of prep for the Plutus Awards that are just a month away (the song is almost written, but I need to practice it and figure out what the heck I’m going to do with my body because I don’t “dance”). In addition to the intro song for the Plutus Awards, I have a lot of other stuff to get done there to make sure it’s a really cool ceremony and I’m a good host. So I’ll be working on all that stuff this week.

If you are a regular person (not a spammer) and want to post a guest post this week I’d be happy to look at some submissions. Otherwise I’ll just work really hard to get everything done and see you guys next week.

Carnival Links

Wealth Artisan’s FinCarn at Wealth Artison
Totally Money Carnival at James Petzke: Graduating with a Surplus
Carnival of MoneyPros at Making Sense Of Cents
Carn. of Financial Camaraderie at The University of Money
Y & T’s Weekend Ramblings at Young and Thrifty
Yakezie Carnival at Kylie Ofiu
Carnival of Retirement at Life Insurance by Jeff
Nerdy Finance Carnival at Nerdy Finance Carnival
Carnival of Financial Planning at Broke Professionals

Aug 2 2012

I Spend Less than 50% of My Pretax Income

By |August 2nd, 2012|Blog, Life|15 Comments|

As I was updating my net worth this month I realized that my net worth has increased over $31,000 in the past 12 months. Wow!

That’s over $2,500 a month.

And we’re talking after tax here. I paid $10,069 in federal income taxes, $3,119 in Social Security and $1,077 in Medicare taxes in 2011. That’s another $14,265 I made but didn’t spend (I don’t count taxes as spending).

Of all the money I earned last year, I didn’t spend approximately $45,000 of it. I won’t give out my exact income, but I will say that’s over half of my pretax income.

Let me say that one more time: I did not spend over half of my pretax income last year.

Wow. I’m actually really surprised because I’ve never looked at it this way.

I do realize that I can never spend taxes so I never really had the chance to spend that $14k. I also realize that some of that $31,000 might be from investment gains (although it’s also possible I’ve lost money in the market over the last year, I’m not sure). But even if we take away the taxes and a few thousand for potential investing gains, I still didn’t spend somewhere between $20,000 and $30,000 I earned in the last year.

How did I do it?

Restricted Accounts

First and foremost, I actually don’t have access to a lot of my money. Lots of it is in my 401k, and a good chunk is in a Health Savings Account. I can’t spend that money unless I want to pay big penalties and taxes. Knowing myself I probably wouldn’t have spent it anyway, but restricted accounts are a great way to make sure you save money.

My personal finance teacher in college said to “pay yourself first”. When you pay yourself into a restricted account, it’s probably going to stay there.

My Lifestyle Inflation is Minimal

Let’s compare my life today to my life in college:

cash

photo credit: bfishadow

College:

  • A job (going to school 9 months, job making money in the summer)
  • A side job (writing)
  • An apartment (with roommates)
  • A 4-door sedan
  • A few hundred dollars worth of electronics

Today

  • A job (salaried position)
  • A side job (this site)
  • An apartment (with my girlfriend)
  • A 4-door sedan (albeit a newer one than I had in college)
  • A few thousand dollars worth of electronics
  • Travel overseas about once a year on a strict budget

My lifestyle has gotten a little more expensive, but I’m pretty much living the same life I was before and adding in one trip a year to a far away place. I don’t let the amount of money I CAN spend dictate how much I DO spend. I just spend what makes sense and save the rest.

Readers: How much of your income are you saving? Has your lifestyle gotten more expensive in the last few years?