June was a difficult month for me. I was busy in Real Life, distracted by home remodeling and by physical fitness. Things are settling, which will allow me to spend more time on the site. On top of that, I now have actual help around here!

• My wife, Kris, is processing the backlog of e-mail.
• My friend, Winston, who is one of the inspirations behind GRS, is doing research and handling publicity.
• Another friend, Lisa, will help copy-edit guest posts. (You may remember Lisa from “Saving with Albert” and other guest posts.)
• Meanwhile, JerichoHill continues to keep an eye on the discussion forums.

Thanks to everyone who is lending a hand. I appreciate it. And thank you for your comments, links, and tips. The readers are the heart of Get Rich Slowly. You keep the site a vibrant place for exchanging money-saving (and money-making) ideas.

Here’s a brief overview of some of June’s top stories on the blog:

• June 3rd: How to take a mini-retirement: Tips and tricks from Timothy Ferriss
• June 9th: Guarding against the invasion of Stuff
• June 11th: The new reader’s guide to Get Rich Slowly
• June 15th: Financial advice from my father (when I was nineteen)
• June 16th: Personal finance made easy: Pay yourself first
• June 20th: Cheap vacation: Be a tourist in your own hometown
• June 23rd: Subscribe to Craigslist search results to grab great deals
• June 26th: The non-conformists’ guide to personal finance (a guest post from Chris Guillebeau)

Best of the Forums
The Get Rich Slowly discussion forums were active again this month, spawning several interesting conversations:

• Living debt free…is it really possible? this is a great thread
• Going (mostly) car-less
• Unusual ways to save money
• Debt snowball vs. emergency fund
• How do you work your clothing budget?

The forums are a great place to chat with your fellow readers. Have questions about emergency funds? Ask! Want to chat about cheap vacations? This is the place to do it. (Since opening a year ago, the forums have 1800 registered users and over 21,500 posts.)

Subscribe!
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This weblog is a success because of you and your support. As always, I welcome reader contributions, either as ideas for stories, or as guest entries. If you have any comments or requests to improve this site, please feel free to pass them on.

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Related Articles at Get Rich Slowly:

• The Best of GRS: June 2007 Edition
• The GRS Garden Project: June Update
• Daily Links: 100 Pushups Edition
• Press
• Daily Links: Technical Difficulties Edition

The month of May brought the largest number of visitors to date for Money Smart Life!  Many of those visitors came from sites in the the Money Writers and Money Blog networks whom you are familiar with via my weekly mentions.

I also wanted to say thanks to 10 other personal finance sites that sent over the most visitors by recommending an article on Money Smart Life.  I’ve listed each site and a recent article you might find interesting:

US News World Report (Kimberly Palmer) – Six Ways to Save Money on Vacation

MSN Money Blog (Donna Freedman) – Why is it so Easy to Throw Things Away?

The Simple Dollar – Financial Independence as a Goal

Frugal Dad – Used Car Buying for Teenagers

My Two Dollars – 29 Free or Low Cost Ways To Save Energy & Money

Frugal for Life – Slowing Down Takes Time

Not Made of Money – Four Tips to Saving Money on Home Improvement

Money Under 30 – How I Organize My Financial Records

Moolamy – Carnival of Personal Finance – Family Edition

Frugal Law Student – Save Time & Money by Working Out

I made 12 phone calls today. 2.5 hours of talk time. Here’s what I learned:

1. All mortgage companies cost the same-ish.  If their rates were lower, their closing costs were higher.  If their rates were higher, the closing costs were lower.
2. Some mortgage companies sell your loans.  3 of the mortgage companies I called today gave me an unsolicited aside:  “We buy loans.  We don’t sell them.”  Does that mean that you should always go with a direct lender?  Nope.  It just means that the mortgage company might not be able to view or change things if the mortgage is owned by someone else.
3. You don’t need to give out all your information (address, social security) to get rates and closing costs.  You can get ballpark numbers as long as you provide the purchase price, the down payment amount, and the type of mortgage.
4. If you call a company and they won’t give you any estimated numbers without giving all your information, hang up.  Call again.  A different mortgage specialist will be glad to help you without giving all your information.
5. Closing cost fees are where you can differentiate a mortgage company from another.  Ask the mortgage people to break down their closing fees.  Fees can include:
   • Property appraisal
   • Credit report
   • Lender’s inpsection
   • Mortgage insurance application
   • Assumption
   • Mortgage broker fee
   • Tax related service fee
   • Application
   • Commitment
   • Rate lock
   • Processing
   • Underwriting
   • Wire transfer
   • Abstract or title search
   • Title examination
   • Document preparation
   • Notary
   • Attorney
   • Title insurance
   • Recording
   • City/county tax stamps
   • Transfer tax
   • Survey
   • Pest inspection
   • Condominium application
   • Prepaids for interest
   • Prepaids for hazard insurance
   • Prepaids for property taxes
   • Prepaids for mortgage insurance
   • Prepaids for flood insurance
6. The rates and payments assume you have great credit and good stability.  They want to quote you the best rate and closing costs possible so they pretty much assume you’re a model citizen.
7. Lenders don’t like it too much if you’re quitting your job and you don’t have a job secured yet.  Hopefully you have a wife or wife-to-be who looks more stable to lenders.
8. They ask you if the down payment is gift money or if you saved it on your own.  No one gave me a clear answer on why they ask that question.
9. Do your research even if your wife-to-be’s sister’s soon-to-be husband is a mortgage specialist.  You never know…
10. Every mortgage person you talk to will give you a piece of advice.  The advice that resurfaces the most is probably important.

Did I apply for a mortgage yet?  Nope.  This whole day just narrowed down my choice to 2 or 3 mortgage lenders.  Time to talk to Miss Soon-To-Be-Wife…

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What gift should you get for a college graduate?  Cash is always the easiest and probably the most coveted present for recent graduates.  The problem, as I remember it, is that cash is a hard thing to hold onto once you’re out of school and thrust int the job hunt or working world.

Here are a few ideas for graduation gifts that can help them save money or get a leg up on their future finances:

Financial Filing System
The deluge of bills, paystubs, receipts, and tax forms can turn into an ugly mess stuffed into a drawer in a graduate’s tiny new apartment.  A simple system such as the Homefile Financial Planning Organizer Kit should cover all their financial paperwork filing needs.

Free Entertainment
Going to a full time job all week every week can be a real drag after the flexible college lifestyle.  It can be tempting (and also expensive) to blow off a little steam at the end of the workday by meeting up with friends for dinner, drinks, or a movie.  A cheaper alternative for a graduate is bringing friends back to their place to eat and hang out. 

Help them out with a subscription to Blockbuster online video rentals and gift certificates to a cook it yourself pizza place like Papa Murphy’s.  Popping in a DVD and eating an oven cooked pizza on weeknights is much cheaper than heading out on the town after work.

Investment Matching Program
Offer to match all or a portion of money that they invest for the future.  My parents did this for me and I invested the maximum amount that they’d match.  They can invest whatever they can afford each month with automatic investments of small amount if they open a ShareBuilder Account. 

Another option is to open a Roth IRA that has no no minimum balance and no account fees. For example, open an Etrade IRA, they waive minimums and fees if they sign up for online delivery of statements and confirms.

Emergency Fund
Most college grads already have some level of debt when they graduate, they don’t want to add anything else onto their credit cards if the car breaks down or some other emergency arises. Help them setup an emergency fund. Signup for an ING Direct savings account, then send them an invite from within your account.  Both the graduate and you get a signup bonus using this method and you can choose to send your bonus to the graduate as well.

Financial Education
Sign them up for a magazine subscription to Kiplingers or Smart Money magazine.  Sure, they can get it for free online but when they’re on the computer they’re probably catching up with college buddies. Give them them a copy for the coffee table, bus, or bathroom reading : )

Keep them Healthy
If you know where the graduate will be living, get them a gym membership nearby.  Staying healthy will save them countless dollars over the course of their life. Plus, the gym is a great place to socialize, maybe they’ll meet their future spouse there. Two people paying rent makes housing much more affordable : )

Buy Health Insurance
There’s sometimes a gap in health insurance coverage between graduation and finding a first job with benefits.  Especially if they’re avid atheletes with a higher risk of getting injured, make sure they have some type of short term health insurance.  A huge health care bill is the last thing a new graduate wants to worry about.

Financial Advice
Let the graduate know you’re always there if they have any questions on investing, taxes, bills, etc.  You’ve already traveled the financial maze and have many of the answers they’ll be looking for.  Setup an “unofficial meeting”, set some time aside where you just talk finances.  Let them voice their concerns, ask their questions, and tap into your knowlege. 

This post was my take on Gifts to Give Grads a Headstart.

“It takes as much energy to wish as it does to plan.”
- Eleanor Roosevelt

People wish a lot, but do they plan just as much? Set small financial goals, make them attainable and stick to them. Don’t set a goal like “This year I’ll get my act together.” Set a goal such as: “This year, I’m going to put $100 of every paycheck into my savings account.” That is a realistic goal. Setting short-term realistic goals is good because it gives you confidence every time you reach them. That confidence gives you the determination to do it again the next paycheck.

Let’s do some quick math..

$100 every 2 weeks in a month is:$200
$200 a month one in a year is: $2,400
Plus $100 in interest earned: $2,500

This means that if you save up just $100 from every check you can take you and your family on a vacation every single year. The only thing left is the hard part, sticking to your goal.

- Edwin, CashTheChecks.com

As I mentioned on Monday, May brought the highest numbers of visitors this site has seen so far.  I decided to take a look at what people were most interested in over the course of the month.

Tracking your stimulus check was the most popular article, there must be a lot of people waiting to get their rebate money.

Gas prices are obviously on everyone’s mind, the topics of riding the bus to save gas money, different ways to save gas money commuting to work, and the best gas credit cards were popular with readers as well.

The series on personal finance issues for college graduates has garnered alot of interest from former college students entering the working world for the first time this summer.

People are getting ready for their summer trips and have found the saving money on vacation series useful in making their preparations.  This one is only partially complete with several more articles on the topic coming up soon.

With high gas prices, people must be looking for more in home entertainment. Saving money on online movie rentals with a free trial of Blockbuster Total Access was another popular one for the month.

Here are some of the more popular articles from The Money Writers during the month of May:

• Investing in the Stock Market Over the Past 10 Years: How Did Dollar-Cost Averaging Fare?
• how to make money without a job and why you should
• Frugal Tips I Can’t (or Won’t) Do
• Save Money on Gas Tips from Consumer Reports
• The Future of Personal Finance Tools
• Is Investing In Rental Property A Good Move?
• Why your Retirement Account is NOT an Emergency Fund

Investing for retirement is one of the staples of financial planning. Almost everyone will either choose to, or be forced to stop working at some point, and having money set aside to fund these non-working years is important. In addition to retirement, there is an increasing trend in saving and investing for college expenses. College tuition is increasing rapidly, and many parents are looking to provide some relief so their children aren’t burdened with tens of thousands of dollars of student loan debt after graduation. With the creation of Section 529 plans, more people are aggressively saving money for college, and now have the opportunity to not only receive tax breaks for doing so, but they can put this money to work with various investments. But with these options and benefits come some drawbacks and things to watch out for.

Understanding Time Frame

One of the greatest factors that determine how you should be invested has to do with time frame, or time horizon. Knowing how long your money has to grow will largely dictate what type of investments you choose. But when it comes to investing for retirement versus college, while it appears simple, there is more to consider than looking at how many years you have left.

With retirement, most people have a lot more flexibility. For one, retirement age comes at different times for different people. Some retire in their 50s, while others work into their 70s. So, just because you’re 30 years old and expect to retire at 65, that means you have roughly 35 years, but it also means there is flexibility. Who knows what will happen over this time, you may retire early, you may be forced to work longer, or you may change careers. Whatever the case, you have the flexibility to take on some risk with your investments.

Looking at college savings, there is much less flexibility and the time frame is more rigid. If you have a child, you know that from birth, you have roughly 18 years until college. On top of that, you know that once they enter college, they probably have around 4 years in which they need to withdraw funds from the account. Sure, some children might get scholarships and not need the money, others might wait a year or two before attending college, or some might go on to earn a graduate degree. But for the most part, there is a fairly specific time frame at work which can limit the amount of risk you’re willing to take.

Why This Affects Investment Decisions

With 18 years of growth, and about four years of withdrawals, most people would see no problem with investing fairly aggressively, especially in the early years. This is to be expected, because stocks generally do produce high returns, and with that much time for the money to grow, you can weather the ups and downs. Even so, when you go back to the flexibility of extending your time horizon or putting off withdrawals, you really don’t have that as a luxury when it comes to college savings. What happens when your child is ready to head off to college and your account is down, are you going to tell them they have to wait a few years before they can start college so your investments can recover? Of course not. And if you wait too long, your window for using that money without taxes and penalties may be gone. You’ll likely have to settle for selling at a loss and maybe even foot more of the tuition bill yourself.

As you can see, even though there is more certainty in regards to how much money you’ll need, what tuition will cost, and knowing exactly how long you have to invest, it doesn’t remove any of the risk. While retirement may yield many unknowns, you at least have options in which you can plan for, and structure your retirement to make everything work.

You also have to consider the withdrawal phase. Like I mentioned above, for most people, withdrawing funds from a college savings plan will take place over a relatively short amount of time. But when you look at retirement, the withdrawal phase can span 20 or 30 years. This allows you to remain invested, at least in part, in stocks even while in retirement because you have another few decades in which you are slowly withdrawing the funds. With college, again, you need to depend on that money over just four or five years on average, so the need to safeguard those funds leading up to, and once the child is in college is very important.

How to Invest Your College Savings

When it comes to investing for college, many of the same rules apply as investing for retirement. But what really changes is the amount of time you spend in each investment phase, and ramping up to a more conservative portfolio earlier. To see why, just take a look at what the past 10 years has shown us. Over the past 10 years, the S&P has a negative annualized return. 10 years may account for half, or even more of your entire time to save for college. That could have a significant impact on how much money you are able to accumulate. So, here are some guidelines:

Birth to Age 5: Just like someone that’s just starting to save for retirement, it’s a good time to be investing in stocks. At this point, a diversified portfolio in stocks would be fine. You’d probably focus on primarily holding domestic large-cap stocks while rounding it out with some international and small or mid-cap offerings.

Age 5 to 10: At this point, you’ll already want to start getting a little more conservative. You’d probably want to think about a 70% mix of stocks and and 30% in bonds. You’ll want to stay diversified across the spectrum of stocks, and probably focus on something like intermediate term bonds.

Age 10 to 15: By now, you’ve crossed the halfway point if you’ve been investing since birth, so it’s time to ratchet things down a bit further. A 50/50 mix of stocks and bonds is going to be the name of the game for the next few years. You’d want to still keep a broad diversification of stocks, but you’ll also want to add some higher quality bond holdings. Of the bond portion, you’ll probably want to keep half of it in low-risk areas like a money market or fixed account.

Age 15 to 18: As you approach the home stretch, you want to make sure that any sudden market declines won’t completely drain your account since your child will be starting college in just a couple years. Three years isn’t enough time to rely too heavily on market conditions, so you will probably want to rely on a 75% allocation of bonds, and 25% in stocks. Now, you should begin to focus a little more on safer, income producing stocks, and shift towards more high-quality bonds. Remember, since you need the money in just a few years, you’d rather have a meager 5% gain than a 5% loss each year heading into college.

Age 18+: Your child is probably ready to start college, and that means the first tuition bills are due. Now is not a time for surprises, so you should be focused on generating predictable income from your investments. At this point, your investments are more or less a savings account that will regularly be tapped into. So, most, if not all of your investments will be in very safe things like money markets or fixed accounts. It’s still fine to keep a little money in the stock market to try and keep up with or beat inflation, but you probably don’t want more than 10% at risk.

Keep in mind that these are just guidelines, and by no means absolute terms. Economic conditions, interest rates, and the number of children you have and what their goals are will largely dictate exactly how you invest. But, this is a good starting point. If you’re able to begin saving and investing right from birth, that’s great. But keep in mind that if you don’t start until your child is older, it can be like playing with fire if you try to accelerate your returns by being more aggressive. Remember, just one or two bad years of returns could wipe out a year’s worth of tuition, and you have a limited amount of time to recover.

I’ve been meeting with a lot of people lately who started saving for their child’s college in just the past few years, and they have 15 year olds while they are invested entirely in stocks. It’s certainly not very fun to see your college fund cut in half in just a year when your child has just a few years to go until needing the money. So, it pays to be a little more conservative, especially in the remaining five or so years leading up to college so there aren’t any surprises.

Investing for College Requires a Slightly Different Approach Compared to Investing for Retirement

In a clear sign the federal government is far more concerned about the financial health of mortgage finance giants Fannie Mae and Freddie Mac than its public comments indicated as late as Friday, the U.S. government Sunday night announced what some are calling a “massive aid” package to the two shareholder owned and run companies officially cementing a government relationship that till now was only implied but never admitted to.
According to a Reuters dispatch, the plan, which will require swift approval from Congress, is designed to “head off a potential meltdown in financial markets.”

Here’s what the government is offering Fannie and Freddie:

1. Access to its emergency cash–the so-called discount window
2. A huge “temporary” increase in the line of credit available
3. The U.S. Treasury will, for the first time ever, purchase equity in both companies should it be needed
4. Investigation by the Securities and Exchange Commission to stop the spread of “false information.”

Both Fannie and Freddie are vital to the housing market–they buy mortgages from banks and other lenders and either keep them or repackage them into securities that are sold to investors.

“Welcome to the socialist state”

Strong words from some critics are already greeting the government plan. Josh Rosner, the managing director at Graham Fisher in New York told Reuters, “It’s outrageous. It’s offensive. Welcome to the socialist state. In capitalism, winners are supposed to reap rewards and losers are supposed to take losses for bad risk management. These are private companies.”

But others are deeply concerned that should Fannie and Freddie fail–though they both say they are well capitalized–the shockwaves would cause a financial meltdown world-wide.

The most troubling part of the government plan,perhaps, is the possibility the Treasury might buy equity in Fannie and Freddie. Some critics charge this could end up costing taxpayers enormous sums of money.

It will be interesting to see whether Wall Street gives the plan a thumbs up or thumbs down during Monday’s trading.

Here are 2 more articles worth reading:

• Government as the Big Lender
• Treasury Acts to Save Mortgage Giants

Advertisement: Real Estate Investing Forums Discuss real estate, network, or learn about investing on our forums!

This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

FEDS BAIL OUT FANNIE AND FREDDIE; EMERGENCY MEASURES TAKEN

What now? I’ve put off writing this article for a while. Like many of you out there I’ve watched the Dow retreat in huge, wealth-destroying, multi-hundred-point chunks. Every time it looks like the end is in sight it takes another single-day 5% lurch in the wrong direction. Not a pretty sight.

A couple of weeks ago I attended the annual meeting of the National Association of Business Economists in Washington D.C.. The event featured some interesting speakers, including recent Nobel laureate Paul Krugman and Fed Chairman Ben Bernenke. After a day of hearing smart guys w/ lots of letters after their name wax poetic about credit default swaps, mortgage backed assets, and government bailouts I came away with a single conclusion: no one knows how this thing is going to turn out. There was some suggestion in using the word “bailout” the Treasury did a poor job in selling the $700billion plan to the American public – perhaps “rescue” would have been more appropriate. Krugman added some levity by suggesting some media-friendly nicknames: how about “Bailie May?” Or perhaps “Hanky Panky” after Treasury Secretary Henry Paulson.

So I came away from the three day event with a more profound understanding of my failure to understand this whole mess; but I don’t feel particularly bad about it because no one else really understands it either. Bernenke’s reassuring message: we don’t really know how we’re going to price these distressed assets that the Treasury is gonna be buying with your $700 billion, and we don’t know who we’ll by them from or how we’re going to do it. This will be a trial and error process. But we’ll work it out.

Mmmmmkay. But Bernenke delivers the message with such an aura of academic cool that the audience seemed assured that he’ll succeed in making the best of a bad situation.

So, generally speaking, I’m not feeling to great about all of this. Basically I think we’re headed into one of two possible scenarios:

• Scenario 1: We’re already in a recession but we’ll muddle through. The market is cyclical. This is a particularly brutal cycle we’re dipping into, but fundamentally no different than those we’ve slogged through before. We’ll get some discouraging GDP numbers, the Dow with flit around 9,000 for a while, but eventually the market will give back some of that money it’s taken out of your 401k plan.
• Scenario 2: The wheels are about to come off. The banking system is not just in a superficial funk fueled by poor investor-confidence; it’s really in trouble. As banks write down toxic mortgage backed assets their balance sheets will be fundamentally damaged to the extent that credit will continue to tighten, consequentially decreasing spending, chopping profits, raising unemployment, and fueling foreclosures – which in turn worsens the state of the mortgage backed assets which started the whole mess. Repeat. Deflating prices, which initially feel kinda good (who can argue with $2.50 gas?) accentuates the woes of the business community which will be unable to justify new investments at lower revenue levels, further cutting business spending and jobs, pushing down demand, and deflating prices further. Repeat. Once you’re in this spiral it’s tough to engineer an exit.

Now I think (hope) that we’re in scenario #1. That’s the best case. I don’t think we’re headed towards the meltdown case, but it is something that I worry about. As further evidence that I believe in scenario #1 I recently made two long term trades, buying exchange traded funds (ETF) that track the S&P (RSU) and the Dow (QLD). Someday we’ll look back at 2008 and realize that the dow in the 8,000’s was a buying opportunity.

A few observations:

• You know this already, but if you’re going to need your retirement money in the next few years then you can’t have it socked away in the stock market.
• If your company 401k plan automatically loads you up with company stock, then you need to periodically go in and rebalance. I never cease to be amazed at smart, educated folks who have 40% of their wealth in a single stock. This is goofy.
• Rethink “diversification”. I have stocks divided between small-cap funds, large-cap funds, value funds, growth funds, and international funds. They’re all in the same toilet now. One lesson of the current crisis is that markets are now linked like they’ve never been linked before.

And yes, this is a real estate blog, so a few thoughts here:

• Hooray for Texas: We didn’t run up during the boom so we’re not getting whacked right now, but I’m expecting flat prices for a while. My strategy for finding and investing in long-term value projects is treating me pretty well right now. Plus, that’s a hunk of money I have in properties instead of in the stock market. This is effective diversification.
• Some markets really are feeling the pain. I was in Minneapolis last weekend, and as I walked the streets of some of these neighborhoods it seemed like every third house was a foreclosure. It’s gonna take a while for the market to absorb this carnage.
• All real estate is local – that is, unless the economy is melting down. I won’t be feeling so smug about Texas property values if we got into the doomsday economic scenario that I outlined above. If the banking system goes into the tank then we’re all gonna be in the same boat.
• A buying opportunity? I’m nervous about our economy, but I’m not quite ready to bury my life savings in coffee cans in my back yard. Investors who can still get loans should think about investing now, depending on how your local market conditions look.

Additional casualties and signs of economic recession: laid off bloggers and your favorite web sites for sale!

Do you see what’s in store for you next year? Well, I’ve peeked at my crystal ball and can see the same thing you’re all seeing, an ugly 2009 as the economy continues to contract. Still no relief in sight (or maybe just a little, with Obama stepping in with a pep talk and an action plan).

Still, the tremors reverberate in the blogosphere.

More and more bloggers are reporting that they’ve been laid off, or are afraid that they will be. Some of the ones I know:

• Trent Lapinski’s Blog: Dear Barak Obama, I?m 22 I Just Got Laid Off, and I Can?t Afford College - Please Help (ugh! This was hard to read.)
• Amateur Asset Allocator: I Was Laid Off Yesterday
• Finance Your Life: Job Security: I Am Safe….Right?
• Shaun’s Real Estate Adventures: This is Why I Want Passive Income
• The Smart Passive Income Blog: Nevermind. I Just Got Laid Off

Judging by the dates on these posts, changes have been coming fast and quick! I’ve also mentioned that TechCrunch has this layoff tracker while Gawker (the online media name that bloggers look up to ) is selling off The Consumerist, and Valleywag (what!? one less Silicon Valley blog?) and trimming its staff. You can see how the online world has been taking its hits.

The trends have been reflecting reality for a while now, so when are they announcing that we’re officially in the dog house?

I’ve also talked about how we’re coping with the recession in Silicon Valley, but whatever else I’ve got to say about this can fill a book. Anyway, it’s been the subject of deep conversation between me and my close friends and family these past few weeks.

More Signs of Economic Recession Where I Live

Just to see how widespread the financial pain is, I’ve polled the people I know for their stories and concerns — here are just a few:

• A couple of people I know have been laid off in the last two weeks. These are people who work at smaller companies that are now embarking on cost cutting measures. With the VC spigot closing off, startups that aren’t solvent will be forced to cut back heavily or close down completely. Startups are living on borrowed time. These events are reminiscent of massive layoffs in Silicon Valley in 2000 during the tech bust, so it’s not new to me. I should get used to this happening every 5 to 8 years, I guess.
• Friends of mine who are consultants are experiencing delays in payments. Uh oh. They’ve done the work, but there’s some worry they’ll end up on a long list of creditors waiting to get paid.
• Too close to home! I never thought it would happen, but someone I know pretty well actually is in the process of losing their house. The story is complicated — he was a victim of a drawn out scam that got exposed by the housing downturn. And I’ve heard rumors of acquaintances going on short sales on expensive homes they purchased only a few years ago (and which I had the pleasure of visiting during house-warming parties galore way back when).
• I heard about how there are scores of luxury cars just sitting on Long Beach right now, with no takers. I got this story from a guy who’s well insulated from the crisis because he’s sitting on a huge pile of cash (he’s very conservative with his savings). Yet, he’s concerned about the effect of currency exchange on his international business.
• Some of us self-employed folks are seriously thinking of joining the many out there who’re already chasing what few jobs are around. I read that Cisco’s job listings have dropped by 93% in one week, from many thousands of openings to a trickle of a few hundred.
• I miss “happy” news. Could this be capitulation? Or close?

Break Open Your Emergency Funds

For many whose lives have been viciously upturned by the forces of the economy, it sure feels that this recession isn’t “normal”. But the reality is that this is probably what a “true” recession feels like. The waves of an economic downturn are much like dealing with the effects of an impending tornado. The tornado spares some while it devastates others. You just pray it doesn’t hit your household when it comes, although you can expect it to do a number on your landscape.

This has become a time of emergency for many. Our situation clearly emphasizes the importance of having enough insurance to cover ourselves when such a “disaster” hits — and when I mean insurance, I am referring to emergency funds and enough liquidity to tide you over during the storm. Does this mean we should have at least 1 years’ worth of expenses in cash? Maybe so, especially since nasty recessions can last that long! If you’ve got unemployment benefits covering you for 6 to 9 months plus a one year stash of cash, you could get through this nail-biting ride.

So let’s hunker down in the basement and see if we can ignore the angry winds out there for now. I’m doing it by starting the ball rolling on some portfolio rebalancing efforts (gah!) and selling off investment losers.

So let’s check what else is on the minds of our favorite financial bloggers, shall we?

• Consumerism Commentary: Take Control of Your Finances Part 5: Build A Better Budget
• Five Cent Nickel: Ted Turner on The Economy
• Free Money Finance: Is Your 401k Dying?
• Credit Karma: Are You Financially Prepared For Disaster?
• Rich Credit Debt Loan: Getting Rich By Leveraging Debt
• Lazy Man and Money: Oil’s Well That Ends Well
• Brip Blap: The Results Oriented Work Environment
• Frugal Dad: Looking For Happiness In All The Wrong Places
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Nowadays, the marketplace is rife with risk, so you may wonder whether it’s a good idea to launch a business during a downturn, especially with layoff numbers mounting daily. When is it ever the right time to start a business?

Starting a business during an economic crisis sounds absolutely crazy but let’s put aside our concerns of risk for the moment, and think about some of the advantages. If you are afraid of losing your job due to the economic meltdown, starting a new business may be the perfect antidote. No more bosses, no more pink slips, and no more backstabbing by your fellow workers !

Why Start A Business Today?

There are more than 27 million businesses in the U.S. with less than 500 employees, of which 20 million have no employees, according to the Small Business Administration as mentioned in this page.

With millions of businesses having less than 500 employees, a good chunk of the American population depend on these small businesses for their livelihood. That’s why the SBA (Small Business Administration) is offering funds to help those who have a good plan for starting a business now. They may be worth checking out; they may have some solutions for the budding entrepreneur.

Opening a business is an exhilarating and frightening experience. But think of the rewards; when everybody is hunkering down, you will be very well positioned to take advantage of the inevitable recovery. These ‘no-employee’ businesses are usually family affairs where everybody has a share of the pie, but a sizable portion is owned by independent professionals who work alone. Again, if you were contemplating opening your own business, now may be a good time to do it, especially if you’ve got the resources. Could you be rewarded for bucking the crowd (and the trends)?

Some Advantages To Starting A Business During A Downturn

Let’s consider some of the advantages of starting a business during slow economic conditions:

1. Space is cheaper. Finding an office, a warehouse or even store space is much easier and much cheaper. If I were a commercial real estate owner, I’d rather rent out my space for less than have no tenants at all.
2. Great deals available. Businesses going under have to get what they can for their furniture and electronics. Auctions may offer ridiculously low prices for items that you’ll need.
3. Cheaper employees. A well trained professional will gladly accept a cut in salary rather than face unemployment. Same with clerical workers.
4. Cheaper services. There are all kinds of service providers who have to lower their prices due to the lack of demand. Think of advertising specialists who can prepare your marketing campaign for much less than normal.
5. Less competition. While your competition is waiting out the storm, why not make yourself available, ready to offer people what they need? Even now, though they may be a little harder to find, there are always people in need of a service or product who are willing to pay (albeit possibly for less). Go and find them, don’t wait for them to find you.

Are You Ready For Entrepreneurship?

Everyone can become an entrepreneur, but not everyone can be successful at it. It’s great to envision such possibilities, but before I reel you in on this idea, let it be known that opening a business is not for everyone. The reality is this: not everybody may be qualified or prepared to start and run a business — and just like with the stock market, if you make big mistakes and are not sure about what you’re doing on your own, you can get hurt….badly. And in a downturn, financial wipeout scenarios are all the more common, and dramatic. So if you’re doing this, you MUST have a good plan, you MUST have done your homework, and in many cases, you’ll NEED access to cash.

Depending on the type of business you’re interested in launching, you could potentially face an enormous amount of risk. Plus, in today’s tight credit era, banks are reluctant to loan money, even to the well-qualified clients. So if you’re serious about your business idea, where can you turn? Well, you can approach people you know; start with your network. Or you could use some of your savings (gasp) or show your solid business plan to some of your wealthy friends (if you’ve got any). Some people I know have started their businesses with credit cards, but going down this path is not the most prudent way to go. In today’s era, it may very well be that you’ll have to bootstrap yourself using your own savings or you’ll need to consider the type of business that won’t require money upfront, such as a service-oriented venture.

Despite all the challenges, you may still find this to be your calling. If so, get creative. People still have to eat, buy clothes, and have fun. You can negotiate lower prices from your providers — they are anxious to sell their surplus. Drum up business by visiting churches (why not, the pastor may become your best salesman), schools, hospitals, clubs, and make them an offer they can’t resist. Note however, that this may not be the best way to promote your business .

Most of all, plan your business very carefully by analyzing the trends in your neck of the woods. Creating a niche has never been easier. But certainly, look before you leap and read our tips for small businesses. This article is about contrarian thinking, and contrarians are often vastly rewarded for their guts (no guts, no glory), patience and shrewdness. Whenever we contemplate a particular endeavor, we need to weigh risks vs rewards — the only sane way to really make a financial decision.

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By all accounts it seems the banking lobby will get everything they’ve been ask for from Congress over the past decade and in do so may legislate mortgage brokers out of existence.

A little history lesson is in order to understand all the political and media spin designed to sway their and public opinion away from mortgage brokers the banking industry orchestrated for the last 10 plus years.

During the 70’s and early 80’s, banks dominated originations carving out a whopping 80% of the retail loan applications. Brokers quickly picked up the slack and by the early 90’s the numbers reversed. The market, especially real estate investors, liked the idea of a personal mortgage broker who understood their goals scouring the landscape for the best products and rates.

Banks have never been know for the best customer service or pricing and the public punished them by fleeing to the broker community. During this time brokers enjoyed about 75% of all originations leaving the crumbs for the banks.

They didn’t take that lying down. The quickly got their lobbyists working on legislation that passed in 1999 to poison the market against broker by demanding brokers show their “yield spread premium” income while the banks were allowed to hide their own. The thought was the public upon seeing this often times enormous “profit” that was heretofore hidden would put brokers in a bad light with consumers and they would come running back to the banks.

It didn’t happen.

As it turns out consumer either didn’t know or didn’t care. Some critics ( myself included) would say the brokers decided one “dirty trick” deserved another and devised ways of obfuscating the YSP. After all banks were getting away with setting up an un-level playing field in the first place so they could claim they were just “evening the score”.

Undaunted in their pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all.

The Plan was one they pulled from the S&L playbook a decade earlier. Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did.

Remember the Savings and Loan crisis of the late 80’s?

Banks wanted the S&L’s out of the way back then too. When a few greedy large S&L’s decided they wanted “deregulation” so they could make commercial loans it was the banking lobby who helped them get it.

At the time it seemed like “strange bedfellows”, but it only took a few years to see the banking industry genius behind their “assistance. They knew the S&L’s were unprepared to thwart their own greed and would create a “banking and real estate crash” lawmakers and the public would rightfully lay at their doorstep.

All the banks had to do this time around was find an equally stupid idea, attach a lot of money to it, and let the brokers commit a little “banker-assisted” suicide.

Enter the subprime loan.

Bankers priced them, marketed them, and feed them to a stupid, greedy bunch who cobbled them down with out the knowledge they’d just been had.

It worked.

Lawmakers and the public are clearly laying the current real estate and banking debacle at the doorstep of mortgage brokers. Legislation will pass making mortgage brokers all but extinct.

It worked so well that the banks may have succeeded in taking down not only the brokers but the mechanism that put them in business in the first place…the GSEs…Fannie Mae and Freddie Mac.

On Friday there were cries to bailout the GSEs since they too got caught in the bankers web of greed. The infection of subprime losses it seems put both GSEs on tilt. With them out of the way, the broker have no hope of staging a comeback since it’s Fannie and Freddie’s pathway to the money markets that give brokers something to sell.

The banker planted subprime virus not only killed brokers and the GSEs, but will likely kill the real estate industry and economy for the next few years too.

But when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Mission Accomplished!

If investors thought getting a loan was hard before, just wait. You ain’t seen nothin’ yet.

Advertisement: Payday Loans Online from the leader in online cash advances since 2003.

This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Are Mortgage Brokers An Endangered Species?

If you have ever read an article on eBay, you'll have discovered the type of income people earn - it isn't strange to find out about people earning thousands of dollars per month on eBay. Next time you are surfing the eBay site, check out how many PowerSellers there are: you'll find quite a few. Now think about the fact every single one of one of them must be making at least $1,000 per month, as that's eBay's requirement for becoming a PowerSeller. Silver PowerSellers make at least $3,000 monthly, while Gold PowerSellers make more than $10,000, and the Platinum level is $25,000. The top level is Titanium PowerSeller, and to measure up you must make at least $150,000 in sales each month!

It's hard to believe that Ebay has been around for ten years. eBay started in September 1995, by a man named Pierre Omidyar, who was residing in San Jose, California. He envisioned his site - formerly known as 'AuctionWeb' - to be an internet mart, and composed the first code for it in one weekend. It was one of the first sites of its type on the planet. The name 'eBay' follows from the domain Omidyar applied to his internet site His company's name was Echo Bay, and the 'eBay AuctionWeb' was formerly just one part of Echo Bay's website at ebay.com. The first product ever traded on the site was Omidyar's defective laser pointer, which sold for $14 .

The web site rapidly became hugely popular, as vendors arrived to auction off all sorts of strange things and buyers actually purchased them. Relying on faith appeared to work out outstandingly well, and implied that the web site could just about be left alone to run itself. The internet site had been configured from the beginning to take in a small fee on every sale, and it was this revenue that Omidyar applied to finance AuctionWeb's expansion. The fees speedily totaled up to more than his salary at the time, so he resolved to quit his job and devote attention to the site full-time. It was at this point in time, in 1996, that he added the feedback capability, to let buyers and sellers rate one another and make purchasing and trading safer.

In 1997, Omidyar modified AuctionWeb's - and his company's - name to 'eBay', which is what people had been using to refer to the site for awhile. He started to spend a great deal of money on promotion, and had the eBay logo created. A milestone was reached in this year - the one-millionth item was sold (it was a miniature version of Big Bird from Sesame Street). Then, in 1998 - the peak of the dot com company boom - eBay became big business, and the investment in Internet businesses at the time allowed it to bring in senior managers and business strategists, who took in public on the stock market. It began to encourage people to trade more than only collectibles, and rapidly morphed into a huge site on which you could trade anything, big or little. Different from the other websites, though, eBay endured the final stage of the bonanza, and is still going strong nowadays.

1999 saw eBay go worldwide, unveiling sites in the UK, Australia and Germany. eBay purchased half.com, an Amazon-like internet retailer, in the year 2000 - the same year it inaugurated Buy it Now - and bought PayPal, an internet payment service, in 2002.

Pierre Omidyar has now cleared an estimated $3 billion from eBay, and still serves as Chairman of the Board.There are now literally millions of items bought and sold every day on eBay, all over the world. For every $100 spent online worldwide, it is estimated that $14 is spent on eBay - that's a lot of laser pointers.

The fact that these PowerSellers are around gives you some idea of the money possibilities on Ebay. Most of the power sellers never intended to even launch a commercial enterprise on eBay - they merely began trading a couple of items, and then continued. There are quite a lot of people whose full-time job is merchandising items on eBay, and some of them have been working at it for years now. Can you believe that? Once they've purchased the merchandise, everything else is basically pure profit for these people - they don't need to spend money on any business premises, employees, or anything else. There are multi-million dollar commercial enterprises earning less in genuine net income than eBay PowerSellers do.

Even if you do not want to resign from your line of work and really try for it, you can use all the same eBay to make a substantial supplemental income. You can package customer purchases during the week and bring them to the local post office for shipping each Saturday. There are few other things you could be doing with your free time that have anywhere close to that kind of money-making potential.

What's more, eBay could care less about who you are, where you reside, or if you are good-looking. Some PowerSellers are very old, or very young. Some live out in very rural areas where selling on eBay is one of the few options to agriculture or being very impoverished. eBay levels the playing field and removes the roadblocks to earning that the real world constantly erects. There's no job interview and no traveling back and forth involved - if you can post items on the site, you can make it happen!

Put it this way: if you know where to acquire something fairly inexpensively that you could sell, then you can sell it on eBay - and because you can always get discount rates for mass purchases at wholesale, that's not hard. Purchase a job lot of something in-demand inexpensively, sell it on eBay, and you are earning cash already, with no set-up expenses.

If you wish to try it out before you commit to really purchasing anything, then you can just sell unwanted objects that you've got sitting around in the home. Explore that closet full of items that you never use, and you'll in all likelihood find you've got a couple of hundred bucks' worth of stuff lying around in there! This is the beauty of eBay: there is always someone who wants what you're selling, whatever it might be, and because they have come searching you out, you don't even need to do anything to get them to buy it.

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Dottye is an Educational Consultant. Please visit http://homebizhelper.com and http://www.computingninternet.com/

Geezeo joins the ranks of Mint.com, NetworthIQ.com, and Wesabe.com as a social personal finance site. The USP (unique selling point) of the site is their mobile accessibility.

It works like this:

Henry’s walking down the street. He stops and wonders if he’s got enough for a Big Mac. He sends a text message to the ether and waits. Moments later a text message comes back with all of my account balances that he setup at the website. Welp. Looks like Henry will have to go another day without food.

It’s targeting students or recent graduates for their service but anyone can use it. They target them because they’re more “connected”. It’s also US-only. Sorry Canada. They have compatibility with 6000+ institutions.

Here are a couple of improvements I would make:

1. Instead of texting the word “geezeo” to get current account balances, make it a common word that I can enter without switching to “abc” mode.
2. Instead of texting the word “geezeo update” to update my balances, it should already be updated when you retrieve your current account balances (see item 1).  Why would anyone want non-updated information?  Deprecate this.
3. Send a pie chart or graph or something via MMS if possible.

There are more things but here’s the one sentence summary: “Geezeo tracks your money automatically and there’s also discussion boards as well.”

Is it useful?  Sure.  Consistent awareness of your financial situation is very important for building wealth or getting out of debt.

Will I use it?  Probably not.  Calculating my net worth at the end of the month is good enough for me.

-h

PS - Sorry about the absence.  I was doing pull-ups this entire time.

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