Wednesday, August 26, 2009

Surviving the Economy...

Earlier this week, it was reported that Michael Jackson's finances were in ruins at the time of his death. How could that be? He was the biggest Pop Icon of our generation. Maybe ever. Well, other than having to pay off millions to the families of his alleged victims, apparently he was spending billions, even though he was only making millions.

If you're like me, you are not a multi-millionaire. You are also not on welfare, feeding off of my tax dollars. Contrary to popular reports, the middle class in America is alive (albeit not well). There are the super rich and ultra poor. And somewhere in the middle, more than likely, lies you and me. We don't make millions of dollars playing a sport or acting in movies or TV shows for a living. We also don't sit home and let the Gov't take care of us. We go to work everyday, work hard, and try and support a family. Over the past 18 months or so, that has gotten increasingly difficult. Unemployment is way up. The housing crisis has made owning a home a giant risk, from an asset standpoint. Most people's 401Ks are in the toilet. And forget about the stock market. So how is a middle class family supposed to stay afloat without becoming a statistic?

I have developed a few ways that I have been able to not only stay afloat, but actually increase my net worth (albeit, it's peanuts) during these troubled times. My methods won't make me a millionaire, but hopefully, they will keep me and my family afloat and get us through these tough times and set my son up for success down the road. A few tips....

When your child is young, buy them a whole life insurance policy. It costs pennies. And, since it is a whole life policy, it matures and when they are 18, they have themselves a nice little savings for college. If times get really tough, you can even borrow against it.....though I would not recommend this unless it was a dire emergency.

In addition to having a short term savings account and long term savings account (IRA, Retirement Account, 401K, etc...) set up an "untouchable account". A short term account can usually be accessed without penalty and a long term account can be accessed with penalties in times of need. But set up a third account that you do not touch under any circumstances. In a few paragraphs, I will tell you how to build equity in this account.

Cut back on expenses. It's easier than you think. If you research certain bills, often times, you can save on simple things like your phone bill, cable, insurance, etc...Clip coupons. There is a lot of money to be saved if you do a little research.

Save in unconventional ways. Bank of America offers a keep the change program. Every time you use your debit card, the leftover change goes into a savings account. If you buy something for $37.28, then $.72 goes into a savings account. It doesn't sound like much....but how often do you use your debit card? It adds up. Trust me. And Bank of America matches your deposit once a year. So, if you have saved up $55.12 over the course of the year in the keep the change program, they deposit $55.12 into your savings account. That's a free $55.

The untouchable account. Making a monthly budget is great. Everyone should do one. But what is the purpose of the budget if you don't do anything with it? Your budget should include all of your monthly expenses, income, spending (fun) money, short term savings and long term savings. And here is where the untouchable account comes into play. Anytime you get unexpected money (the annual match from Bank of America's keep the change account, a reimbursement check, etc...) deposit it into this account. Anytime one of your expenditures comes in under what you budgeted, put the balance into your account (you budget $400 for monthly groceries, and you only spend $375. Put $25 into the account. And so on). ING offers a risk-free account that offers a small interest rate. But, it's better than the mattress.

None of these are get rich quick schemes. But once the dust settles on this crappy economy, hopefully some of these tips will help you and me keep our heads above water and come out better on the other side. Good luck!


  1. Good insight David! Thanks!

  2. If there's one thing I've learned in life, it's that your financial soundness has very little to do with how much money you are making. Some people make millions and yet are one paycheck away from the poorhouse. Then there's the old lady who struggled all her life to stay above the official poverty line and yet saved like a miser and left a huge inheritance for her kids.

    Some good advice in that post. I'd also add that you shouldn't be afraid to invest. As long as you're in it for the long term, you can ride out volatility.