Money Hacks

The Best Recovery for a Financial Hangover

Resolutions Can Provide Rebound in 2010

For most Americans, the New Year is a time for resolutions. Resolving to become a better person is admirable. But as we emerge from the recession, from which some of us are still reeling, it's time for changes in financial habits that are permanent and have more staying power than the average beginning-of-the-year promises.

Before the recession, spending and consumption were the way of life in America. But during more recent, leaner times, we have been forced to face the damage done by unabashed spending and financing "the good life" with high-interest credit cards. And the damage remains.

“During this recession, all of us learned something about credit, debt and how and for what reason we spend money,” says National Endowment for Financial Education^® (NEFE^®) president and CEO, Ted Beck. “It would be a shame if we go back to our old ways of accumulating mountains of debt and saving little if any for our futures as things get better.”

As the economy continues to rebound in 2010, it may be tempting for Americans to ebb into the bad habits that led so many of them into financial trouble. That’s why in 2010, it’s important to evaluate your financial life and take steps to be better prepared should the economy once again fall flat.

Managing Debt

First things first, 2010 will mean significant changes in the way credit cards are provided by banks and accessed by consumers.

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 gives consumers more control over their relationships with credit card providers. As part of the CARD Act, back in August, credit card companies were required to provide consumers with 45 days’ notice before increasing rates or changing any significant terms of the credit agreement and to mail statements at least 21 days before payment is due.

These changes will help Americans to start paying off their average $8,000 in credit card debt, or $5,612 per card, according to the credit-reporting agency, TransUnion. However, more diligence on the behalf of consumers is necessary to get the most out of the legislative changes.

"[The CARD Act legislation] will level the playing field between the credit card companies and the consumer to have a real fair shot at planning and taking action on their personal finances,” says Brent Neiser, CFP^®, and NEFE director of Strategic Programs and Alliances. “Consumers will have to be proactive though to get the full benefits of the CARD legislation. This means being diligent with reading and fully understanding all correspondence that is sent from your financial institution.”

On February 22, new rules will kick in including: a ban on retroactive rate increases on existing balances, except in cases of severe default; better disclosure in credit card terms so consumers can easily understand the contract and avoid unnecessary costs; and protections for college students and marketing done on campuses. For more information, visit here.

Next up: Changing the Way We Save

Only 43% of consumers will cut back on holiday spending this year, compared to 55% in 2008, according to a Consumer Federation of America survey. While increased consumer optimism spells good news for retailers, for Americans planning to “stretch” the budget, the New Year could bring falling credit scores, and with it, serious consequences.

Here are some fail-safe tips from FICO Credit Guru Shon Dellinger to help enthusiastic shoppers stay financially sound:

1. Be Smart with Credit. Using a credit card is ok – experts agree having 3-5 credit cards helps your credit, if used responsibly. But carrying a balance on your credit card leaves you (1) stuck paying interest that could cost you, in some cases, double or triple the cost of those gifts in the long run and (2) with a much lower credit score, which could jack up interest rates on your credit cards and jeopardize your chance of getting lines of credit elsewhere (buying a house, a car, etc.). Services like FICO Score Watch combat this by providing emails or texts alerting you to any changes in your FICO score (either positive or negative), and notifying you when you’ve qualified for a better interest rate. A credit score increase of 30 points will save the average consumer $105 per year.

For more information on FICO Score Watch, go to: www.myfico.com/Products/ScoreWatch/Description.aspx.

2. Resist “Short Savings.” The salesperson at your favorite department store offers you an instant 20% savings just for opening up a credit card in their name. While that $20 seems tempting at the time, it can quickly put you in debt if you’re not careful. The temptation of the deal is also one reason why the average consumer has a total of 13 credit cards. Opening new lines of credit can also hurt your credit score, so make sure the card meets your overall needs and not just your desire for quick savings.

3. Don’t Wait Till April! Many holiday shoppers use their Tax refund to pay off credit card balances left over from the holidays, which can be incredibly expensive, not to mention detrimental to your credit standing. A credit card balance of $500 dollars from January until April will cost you $237 dollars based on today’s average credit card interest rate.

4. Get Info on Your Credit. Go to the myFICO Forums, where you can connect with thousands of other people all in your same boat. Don’t wait til after the holidays, when the damage is done. FICO is offering 30% off all products on its web site if you enter the discount code MYFICO HOLIDAY.

Now what?

In 12 years, Antoine Walker(notes) made more than $110 million playing professional basketball moderately well.

It always seems to happen.

Whatever the details, it was a big chunk of change, which, amazingly, wasn’t enough.

These guys seem to wind up in debtor’s prison or the poor house, or both. It’s a shame, in a way, to see all that money wind up gone, but at least these guys stimulate the economy, right? I mean, that money didn’t just vanish; it just moved from his pockets to everybody else’s.

I’m really surprised that the professional sports leagues haven’t really come up with a solution to this widespread problem. Why haven’t they employed the likes of American Express, Fidelity, or some of the better-known financial institutions to not only teach these guys how to manage their money, but why not even do more than that?

Don’t you see a very lucrative niche here? I guess much of this is handled by the athletes’ agents. But maybe therein lies the problem.

Why not employ financial planners? Why not, instead of giving them x percent (10 percent, is that the going rate for “talent?”) on the front end, give them 7 percent on the backend?

If I make you money as a financial guru, give me a piece of it when it’s bigger? Then, there is an incentive for both parties to utilize my services?

What am I missing here?

Is it that these guys are so toxic that nobody wants to touch them? Are the sports agents so powerful that nobody can “break in” to this aspect of an athlete’s life?

Why aren’t the players unions more involved? Or are they in on the money grab, too?

Just think what a really talented money manager could make out of an NBA star? It boggles the mind how much better off he could make not only the athlete, but the athlete’s community. And all without the extreme sadness experienced by the once highly-sought after athlete, once he is put out to pasture.

Yeah, sounds like Washington DC speak, right? “Budgetary shortfall…”

If you are taking in less money than you spend, you have a budgetary shortfall. A deficit. A hole. You may not yet be going into debt; you may be using available savings.

A short-term budget shortfall is sometimes necessary. Perhaps your car broke down and you needed a repair. Washing machine stopped working. Got laid off.

Nevertheless, a prolonged shortfall can wreak havoc on your household. What do you do?

There are two things you have to do in a lengthy budget shortfall. The first, and I think it’s obvious, is to “tighten the belt.” Cut out unnecessary spending. That cable bill? You don’t need it. Cell phone? Cut your minutes, get a new, cheaper plan (pre-paid is a viable option). Netflix? Can it.

But companies that sell you this sort of stuff have gotten smarter. They tie you into contracts with early termination fees. Cell phone companies are especially adept at this.

You can only cut your expenses so much.

So you have to tackle the other part of the equation:

Income – Expenses = Cash Flow

Obviously, you want a positive cash flow. Once you’ve gotten your expenses down, there’s only one thing you can do to make your cash flow rise: Increase your income.

Today, with unemployment higher than it’s been in my short memory, you are likely facing a layoff or salary cut. No increases are in sight for “Average Joes” so you best think of another alternative.

Do you have a hobby? Can you convert your passion into cash? (By the way, my hobbies are generally expensive, so I face a dilimma – cut it out or turn it into income?)

Do you have unique skills (you do, you just have to find them and monetize them)?

Can you hold down a second (or a third) job for enough time to even out the income and expenses?

I have talked about this before here, here, and here.

I am convinced that the only sure thing nowadays is to own and operate your own online business. Become an “information marketer.” You know things other people don’t. If you have a penchant for writing, you can build a  “small reports fortune” by writing short (5-15 pages) reports about your area of expertise. You can often sell these for $5-$27!

If your writing isn’t great (it’s way better than you think – just write like you talk; people like that), start up a private label rights business. Here, you acquire (often for free, sometimes for a fee) pre-written reports that you can call your own and sell them. Two other great sources are PLRWholesaler and PLRSO Club.

You can set up blogs and websites with AdSense ads (you get a few pennies every time somebody clicks on an ad). I have posts with AdSense ads on this blog. While I don’t make a ton of money with ads, the money they generate adds up.

Another way to build up an online income is become an affiliate and sell other people’s products. Commission Junction, LinkShare, Google, and many others offer affiliate programs. All you do is sign up, put some affiliate links in your blog posts or web pages, and wait for the commissions to come in. It’s not exactly that easy, but it is that simple. Of course, the more smart effort you put into it, the more money you’ll generate.

The best part about all of this? Once you set it up, it’s all pretty automatic! Of course, your web site, whether it’s a blog or a more traditional site, has to be full of content that people want. It’s not good enough to throw up some feeble content and then let the site go. Constantly update it; keep it fresh. Keep people coming back for more.

Offer VALUE.

These are just a few examples of how you can create more income (out of virtual thin air). There are hundreds of ways to start a budding online business.

One of the best systems I’ve come across is the Internet Millions System. It’s a PLR product I bought, modified my way, and put together in a digital download. It shows you how to begin a Private Label Rights business – how to acquire product, promote it, get traffic to your web site, convert browsers into buyers, etc. Basically, everything is covered from start to finish.

If you are currently suffering a negative cash flow, I encourage you to act on the information you’ve read here. If you need any help, please contact me via the Comments.