By this title, I am in danger of sounding arrogant. I recognize that many people are out of work through no fault of their own, and in fact that there are some folks whose homes are in foreclosure because of external issues. I also know that these folks are few and far between. In February 2009 I saw a news report about a couple in New Jersey who both lost their jobs, however they were able to continue their mortgage payments because they had saved a year’s worth of income.
I believe that though many people feel some things are beyond their control, it is not. There is a difference between those folks and those that do not care about things like economic downturn. The folks who continue to succeed are those that take time to educate themselves with financial knowledge, and who look for opportunities when others cannot or will not.
Like many of you, I dislike the late night scamfomercials that tell you that if you buy the instant millionaire book, software, CD, etc. that you will soon be living the good life on the North Shore of Oahu. I would rather provide some ideas, then let you figure out the rest.
What are the characteristics of the current economic downturn of 2009? Many people took out risky loans to pay for houses they otherwise should not have been able to afford, thus producing a record number of home foreclosures. Banks are wary of making loans to anyone who has less than a stellar credit rating. There is also a bit of an awakening by folks who are beginning to understand the concept of “wants vs. needs”. Fuel prices are low now due to the economic slowdown, but they will go up in the future. Company stocks are of lower value.
Does the above paragraph make you feel gloomy? I subscribe to the Franklin virtue of Tranquility – “Be not disturbed at trifles, or at accidents common or unavoidable.” Hopefully the current economy gets you excited. Here is why.
Like me, if you have a 401K you probably lost 30-50% of the value from October 1997 through February of 2009. If you are also like me, you continue to contribute to a 401K. I recommend that if possible, contribute the highest legal amount for 2009 - $16,500. If you are older than 50, you can contribute an additional $5,500. Considering how low stock prices (and thus fund prices) are, when the market comes back to the October 2007 level, you will have purchased a heck of a lot more shares and have an increase in you 401K value. If you read the tea leaves and pulled your money on October 2007 into cask (or Walmart stock), now is the time to come back in. I am not yet 50, but I also make sure I use the money from a home-based business to finance my Roth IRA and my wife’s IRA, each with $5,000 limit ($6000 if you are 50 or older). If you cannot afford the max, then at least contribute something. Both the 401K and the IRA are tax deferred meaning that those contributions are deducted from your income before taxes when filing your tax returns. I also put riskier, but long term investments into my Roth IRA. It uses after tax money, but if I get higher yields, the earnings are all tax free when I start receiving income from it when I retire. Use the Franklin virtues of Frugality and Industry as guiding principles here.
The nice thing about a Roth and Traditional IRA is that you can contribute for the previous year all the way up to April 15th. In other words, I will probably make my $5000 contribution to both a 2008 IRA and Roth IRA sometime in late March 2009. I can expect a lot less loss than if I had made the contribution in early 2008. Of course the best way to contribute is monthly and just not worry and continue to think long term.
Since we are all in a savings mode here (sorry Starbucks), but do not want to tie you money up for long periods, think about putting your money into Certificates of Deposit. Because banks are trying to raise some money through the CD market, 3 or 6-month CDs, are yielding the same or even higher interest rates than 1-year or even 5-year CDs.
Think about refinancing. Your current mortgage lender may want to work a refinance deal with you instead of losing you to another band – especially if you are a good customer. The savings could be an additional one to three hundred dollars per month especially if you can negotiate low closing costs. If you have extra capitol, this is the time to look for resort real estate that will bring you long term rental gains.
I alluded to the fact that I have a home business. My business is in Internet marketing and web design. I have found that many smaller businesses have turned to using the web for more bank for their ad buck – and any good business person knows that the time to invest in advertising is in a down market. Dip you r feet in the web design business. It isn’t difficult using the right software, and you can also make residual income from internet affiliate programs (see http://affiliateprograms.franklinomics.com). If you have no experience in this, think about starting a simple community website with local events, and supplement the articles and events calendar with a few Google and Affiliate ads. You could make at least enough money to cover your hosting costs and out the extra into your IRA or pay of credit card bills. Also look for host providers who provide free scripts and blog software to enhance your website. I recommend BlueHost, HostMonster, ThinkHost, and LunarPages. The Franklin virtues of Resolution and Industry will best serve you here.
However you define your success, do not forget the most important thing – to use a portion of your wealth to help those that are truly needy. Whether is by time (volunteering) or by money, the Franklin virtues of Humility is key in helping others through a difficult time.
