Are We Headed For Another Recession?

The market has been selling off and people are coming to the conclusion that we are headed for another recession.  Some may say we never recovered from the last recession.  Others would states that we are in a depression and have been.  The only reason why the depression eased a bit was due to the stimulus packages.

In the first weeks of August 2011 the markets have lost $800 billion.  Experts are saying you should keep our eyes on job growth and real estate prices.  The current unemployment percentage stands at 9.2%.

If you haven’t notice – Treasury bond yields are down, interest income rates are down, and real estate prices are at an all time low.  On the flip side, electricity is up, gas is up, and food prices are up.

Some experts believe that the bad economy today is a correction to bad economy from yesterday.   Nevertheless, the trading markets have lost over $1.9 trillion over the last 9 sessions.

Do you think we are headed for another recession?

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What is a Self Directed Individual Retirement Account?  A Self Directed IRA is an IRA that is held by a trustee or custodian.  The trustee or custodian responsibility is to maintain assets and transactions records for reporting to the IRS.  They are also responsible for issuing regular statements to the account owner.

Self Directed IRA Restrictions

Self Directed IRAs come with some restrictions.  Certain asset types and transactions are prohibited with respects to a self directed IRA.  The IRS prohibits self directed IRA account owner from investing in these asset types:

• Life Insurance
• Artwork
• Rugs
• Antiques
• Metals
• Gems
• Stamps
• Coins
• Alcoholic
• And other personal property

Learn which Self Directed IRA transactions are prohibited — Wikipedia

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Financial leverage can be the key to financial freedom. So, what is financial leverage? Let’s get started by understanding the term “Leverage”. Thinking of leverage in the context of physics. A lever is a tool used to help or assist you in lifting something you couldn’t lift by yourself, or couldn’t do with ease. For example – a crane utilizes levers to help dig a massive hole. You could dig a massive hole yourself but how long would it take you. Surely, it would take longer to dig a massive hole manually then with the help of a crane.

Let’s applied the use of leverage and finance. The term leverage is use in the same context as the physics term lever. Let’s say you don’t have enough cash on hand to purchase something. Leverage would be the use a credit card. Leverage in this context is the borrowing of money to finance an investment decision.

If you have figured it out yet – Leverage always amplifies the effect. Whether we are talking about physics or finance leverage is always a multiplier. Because leverage is always an amplifier when you use it the outcome is multiplied. For example – You are using a crane to dig a massive hole. You read the plans wrong and the massive hole is in the wrong locate. If you have been digging the hole manually, maybe the error could have been spotted before you had a massive hole in the wrong location.

Financial Leverage Example (Using Real Estate)

In 2006 I purchase a house for $100,000 dollars. I borrowed $90,000 dollars and used $10,000 dollars I had on hand. The $90,000 dollars is leverage (money I borrowed from the bank). In 2007, the house market increased the value of the home to $105,000 dollars. Okay, that’s $5,000 dollars return on a $10,000 dollar investment. Remember, I only invested $10,000 dollars. Meaning I just got a 50% return on my investment. By using leverage I was able to multiply my return.

In 2008, the house market declined. The same house is now valued at $90,000 dollars. Because of the leverage (make I have borrowed) my return on investment is now ZERO. Remember, I borrowed $90,000 dollars and the house value is $90,000 dollars. Therefore, my $10,000 dollars is gone. Using leverage can produce greater returns and/or greater losses.

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Perhaps you have heard of Index Mutual Funds but know nothing about them. Read this article to learn about indexing basics. Choosing a index mutual fund may be the right investment for you. Let’s take a look at how index mutual funds work.

An index fund seeks to chart the returns of a certain market segment or benchmark. The goal is to produce a return based on the performance of that index. A good example will be the Standard & Poor’s 500 (S&P 500). Index funds hold the same securities (stocks) as the index. Securities include stocks, bonds, and other types of securities.

Why Chose An Index Fund Over Other Investments?

Diversification at a low cost is the best answer. Index funds typically have lower cost than actively managed funds because they are not actively managed. Since the fund simply charts a particular index, it doesn’t have to pay a fund manager. A fund manager actively seeks to buy and sell securities to try and beat the market. That is how the returns are generated. With an index mutual fund the lower cost is passed to the investors along with the returns the fund generates.

If all where equal, an index fund verses a similar managed fund – The index fund probably is going to be ahead of the game.

Other Benefits To Investing In An Index Mutual Fund

With index mutual funds there are less turnover of securities in the index. This is good because they will distribute fewer taxable gains. This is not to say that there are not good managed funds available. However, an index fund takes a simpler approach to the stock market.

Other Things To Know Before Investing In An Index Mutual Fund

Remember, just like any thing else – all index funds are not created equal. Many investment brokers charge a sales load or other fees to buy shares in an index fund. There is also an associated commission fee for the trade. Certain index funds run the risk of tracking errors. A tracking error is when a fund returns differs from its index. This type of error can be cause by many factors including:

• Fund Expense Ratio
• Transaction Costs

These are good reasons to choose an index fund from an investment company that has expertise knowledge with the ins and outs of indexing.

How To Get Started With An Index Mutual Fund

A good first step to get started with an index fund is to seek a fund that tracks a total market index. This could be an index that contains stocks, bonds, or both. Another option would be owning an exchange traded fund. An exchange traded fund goal is to track an index. However, an exchange traded fund or ETFs come with a commission fee to buy and sell.

Just as a single mutual fund diversifies your investments, there is nothing wrong with having managed funds as well. It’s not that there aren’t good managed funds that exceed the market, but remember the manager has to be paid.

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You’ve got a credit card or may be a car loan, right? You are making your minimum payments and you are making those payments on time. All of a sudden you receive an offer from your lender to skip a payment. For a small monthly fee some lenders are allowing customers to skip payments. Do you think it’s a good deal? Learn the facts about inflationary debt.

Inflation and Debt

To explain inflationary debt let’s use an example. Let’s say you have a credit card that charges 18% in interest. On that credit card you have a $5,000 balance. You monthly payments should be about $150.00 a month. However, when you skip a payment you are actually add your monthly payment to your balance. In the example above, you monthly payment is $150.00. And don’t forget the interest. That’s $150.00 at 18%. That means instead of just paying the $150.00, your have just added $170.00 additional to your $5000 balance.

Along with the addition to your balance many lenders charge a processing fee for this type of service. After you add up the small fee for the offer, $170.00 added to your balance, and the processing fee – you may be thinking, I should have just paid my bill.

Let’s make the math very simple. The only time you should ever consider not paying you debt is when you literally can’t. Any other circumstance falls under – not a good financial move. Not only should you pay your bills every month, you should try to pay then off fast. That means you should be added additional money when you can.

In short, keep paying off your debts. The quicker you pay off the debt the less interest you are paying. Plus, being debt free is a wonder feeling.

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If you have mistakes and wrong information on your credit report it will eventually ruin your credit score. To correct mistakes and wrong information on your credit report you will have to file a dispute with the three main credit bureaus. The three main credit bureaus are Equifax, TransUnion, and Experian. Below are the links to the three credit bureaus online dispute forms. Each year you should review your credit report for mistakes. All three credit bureaus provide free “Annual Credit Reports”.

Correcting Credit Report Mistakes By Filing A Dispute

Disputing credit report mistakes start with writing a letter. You can also call or go to the websites of the three credit bureaus to file a dispute as well.  The dispute process normally takes about 30 days. Keep in mind, Experian, Equifax, and TransUnion are credit reporting agencies. They are not the creditor to whom you owe money to. Credit bureaus simply report what the creditor submits as debt owed. If the mistake on your credit report was not a simply error and the creditor insists you owe the debt, you must clear the matter with the creditor. Some disputes are never resolved because the creditor will not release you from the claimed debt.

Some disputes are harder to solve then others. Disputing mistakes and wrong information on your credit report depends on the records you keep. If you can prove the debt is not yours — you have a better chance of resolve the credit dispute.

Hope this helps with correcting your credit report mistakes! Below are the links to the three credit reporting agencies.

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Here at the “Finance Money” blog we are all about saving money, and increasing your income in different ways. This article is no different. How have you been saving money on your electricity bill? If you haven’t notice, electricity cost go up almost every year. That trend is not likely to change. In order to trim your electricity bill, try some or all of these cost cutting electricity bill tips. Electricity experts say, these electricity tips can save you up to $400 per year. Won’t it be nice to saving $400 bucks?

Saving Electricity and Your Money

• Increase how much money you can save by trying the below electricity bill saving tips
• You can trim your electricity bill by getting a programmable thermostat. These types of thermostats allow you to have greater control over the temperature when your
• not home. You should also change your HVAC filters as recommended by your HVAC model. If you try this electricity tip look forward to an extra $180 dollars.
• You can trim your electricity bill by lowering the temperature of your hot water tank. By just lowering the hot water tank’s temperature you can look forward to an extra $60 dollars.
• You can trim your electricity bill by buying five compact fluorescent light bulbs. If you try this electricity tip look forward to an extra $70 dollars.
• You can trim your electricity bill by putting all your appliances with a digital display on a power strip. If you try this electricity tip look forward to an extra $120 dollars.

Just in case you haven’t been keeping up with the math, that’s a grand savings of above $430 dollars your could be saving per year on your electricity bill. How are you saving money? Share how you save money not only on your electricity bills, but in other areas of your life.

To download a copy of a similar article go to Frugal Tips For Your Electricity Bills

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A running theme this year has been debt consolidation. It appears that we all have run up some kind of debt in this bad economy. To easily manage your debt, consolidating it to one location is a smart financial strategy. The key principles to consolidating your debt are:

Finding the lowest Interest Rates
Having a Schedule Repayment Plan
Will-Power

Credit cards are often the first choice people use to consolidate their debt, but it’s not always the best option. Credit cards usually have higher interest rates than home equity loans or home equity lines of credit. Lenders with higher risk, usually have higher interest rate. Credit cards lenders are no exception. Credit cards typically have high interest rates because you don’t use collateral to be approved. One the other hand, home equity loans offer better interest rates because you use your home as collateral.

To choose the right debt consolidation resources consider your personal situation. If you don’t own a home, home equity is not a resource for you. If you have a credit card with a low interest rate and you have not exceeded your credit limit this may be a great option.

Keep in mind, you are paying off your debts. Borrowing more than you need to consolidate your debt can be a huge mistake. Using a credit card with a introductory rate that will increase over time without factoring the higher rate into your repayment plan, can be a huge mistake. Work out of your debt consolidations plan on paper. Line the plans up against each other to see which plan is the best debt consolidation plan for you and your family.

See more on this topic at Debt Consolidation Principles

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Credit Lenders now know more than just your credit score — Your credit score meaning has change

Credit lenders aren’t just looking at your credit score anymore! Banks have a new way to determine your credit worthiness. There’s a new credit scoring system in place. Of course your credit score from the three credit bureaus still matter; but the new credit scoring system gives financial institutes your complete financial picture.

New Credit Scoring System – What’s Your New Credit Score?

If the value of your home has fallen, but the principal of your mortgage has not — Big credit will deduct that you have an interest only mortgage. Even with a excellent credit score you have just become a high risk.

Are you a saver? Whether the answer is yes or no your deposit behavior is being monitored. There’s a new credit score in town — Bank Depositor Behavior Score. Fair Isaac the creator of the FICO score is also the creator of the new Bank Depositor Behavior Score. The Bank Depositor Behavior Score is derived from your banking activities. Here’s the math: based on your balances, deposits and withdrawals are tallied to product your Bank Depositor Behavior Score. The BDBS is being used as an indicator of potential credit crises.

Fair Isaac Corporation

Fair Isaac Corporation was formed back in 1956. The name was derived from the two founders, Bill Fair and Earl Isaac. The stock symbol FICO came from the company’s original name Fair Isaac & Company.

Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future, 2nd Edition

How much money do you really make? Forget the numbers on your paycheck. Thanks to the new Federal Reserve Rules, credit lenders have a new tool. Based on key financial data like (lines of credit amounts,age of your mortgage, amount of your mortgage, amount owed on your mortgage, and other key figures) the Income Estimator will provide your credit lender with a true income amount, which might be different than your paycheck.

I don’t have any credit. That might have been true in the past, but today it will be hard to find someone over the age of 18 making that statement anymore. If you pay a cellphone bill, have utilities in your name, or pay rent — You now have a credit history. Recently, a big consumer reporting agency purchase RentBureau. RentBureau collected and tracked renters payment activities. Experian will now included that data into it credit report summary.

Are collection agencies after you? Remember the days when collectors would call your home all day and all night? Well, the phone calls might not stop, but your credit score will drop. And it will happen fast. The key new development is that credit bureau now have the technology to be updated on a daily bases.

What’s your net worth? You would think that question would only be asked of the wealthy — NOT ANYMORE! Your assets will soon play a big role in your financial story. Equifax has developed a new tool for credit lenders. The new tool will provide an estimate of your liquid wealth, which can be used to determine your credit worthiness.

What are liquid assets – Liquid assets can be cash or assets easily converted into cash like (CDs, stocks, etc.)

Don’t get scared! That is, if you aren’t in financial crises already. Remember, much of this information was already known by one financial institute or another. The key is now they are using it.

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A 401K is your retirement fund, or should be. So, is a 401K withdraw a good idea?

Other than Social Security, a 401K plan for many people is their only source for funding their retirement. However, recently studies show that over 2.2% of employees have been withdrawing hardship 401K funds within the last year.

For the record, borrowing money from your 401K is not a good idea. 401K Fact: if you leave your job the money that you borrow from your 401K is due asap. Plus, you’re not earn interest on that money you borrowed.

If you are under age 59 1/2, and you that a hardship withdraw from your 401K you are subject to a 10% penalty.

Other Hardship Withdraw 401K Cons:

• 10% Penalty
• Taxes (Federal, State, and sometimes Local)
• Lost of Interest
• Less Retirement Funds

IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out

Therefore a 401K hardship withdraw should be your last resource.

What to do for money other than a 401K Hardship withdraw:

• Tap into your home equity
• Stop contributing to the 401K
• Get a loan from the bank

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