Paul Ferraresi

Here are a few simple strategies to build your wealth:

• SPEND LESS THAN YOU EARN. You can’t make your money grow if you spend it all.
• LIST YOUR FINANCIAL PRIORITIES. Put your retirement at the top of the list.
• ESTABLISH AN EMERGENCY FUND. Low-risk, accessible cash will lessen the temptation to dip into retirement savings in an emergency.
• MAKE SAVINGS A HABIT. Even a little can add up, thanks to the power of compounding.
• PAY YOURSELF FIRST. Stock away at least 20% of your pay. Have the money automatically deposited so you’ll never miss it.
• CUT EXPENSES. It’s one of the fastest and best ways to make money. Clip coupons, buy second-hand on eBay, eat out less often. Funnel this “found money” into your investments.
• CREATE INCOME. Take a second job, rent out a room or downsize and invest the profits.
• INVEST REGULARLY. Use time and timing to get into the marketplace. If you don’t know how to invest, find out how! Go through training, read books, ask an expert and then apply your knowledge. Remember: Don’t work for money. Let money work for you.
• CREATE LONG-TERM WEALTH. Money in a savings account is safe, but inflation will erode its value. Stocks provide long-term growth.
• DIVERSIFY. The best way to balance your risk is with a portfolio that spreads your money out over a variety of financial instruments.
• REVIEW. Revisit your spending plan, savings and goals monthly to be sure you are on track.
• AVOID BAD DEBT. Don’t borrow for things such as vacations, clothing or furniture. Borrowing to remodel a home, on the other hand, may be good debt that can provide long-term financial benefits.
• BEWARE OF HIGH-INTEREST LOANS. Look at the total cost of repaying the principal and interest, not just the low monthly payment.
• GET OUT OF BAD DEBT. Otherwise, finance fees eat up principal that could be earning interest.
• HANDLE CREDIT CARDS WISELY. Keep only one or two cards. Transfer high-interest balances to zero-interest cards.
• PLAN TO RETIRE LATER. If you’re doing what you love, work is fun! You can work longer, work part-time or become a consultant.
• DELAY TAKING SOCIAL SECURITY. Benefits will be higher when you start.

A great new web site by FraudAvengers (www.fraudavengers.org) has recently started. It is a non-profit group with the goal to educate the public on how crooks use online payment options and technologies to commit fraud.

It is a Texas-based group with the slogan, “Pros preventing cons.”

The site has blog articles to inform individuals and businesses on how to reduce their risk of fraud.

Check it out and sign up. I think it will be very helpful.

The credit card act of 2009 (CARD) mandates that lenders explain how long it will take and how much it will cost to pay off your balance if you make the minimum monthly payment. In addition, the law requires companies to show how much you will save if you pay off your card in three years (36 months). The problem is the three-year payoff date will always be 36 months away. It is a moving target. You see, when you pay this month’s amount for a 36-month payoff, assuming you do not make any more charges, then interest is added. So, in month #2, they calculate the payoff over the next 36 months on the new balances (that would be month 37), and so forth.

Here is an example that we use…assume someone has a $3900 balance at 15.32% APR. It would take 150 months to pay off the debt if you paid the 36-month amount listed on the statement each month.

How do you stay within a 36-month payoff? This month, determine the amount stated to pay off the balance in 36 months; for example, $121. Do not add any new charges and keep paying the exact $121 each month. It will be paid off in 36 months. This way, 36 months does not become 150.

In the June 13th, 2011 issue of Barron’s, a great article was printed…”The Threat of Screwflation”. Let me paraphrase the article.

As the article explains, back in the 1970’s, with stagnant growth and rising inflation, the term used to describe the economy was “stagflation”. The replacement term is now “screwflation”. This word describes inflation with the screwing of the middle class. This condition, like stagflation, threatens the very health and valuation of the stock market.

• U.S. economy has doubled (real terms) in past 30 years
• Corporate profits are reaching a new peak
• Real wages have made little progress
• Food, energy and other costs are consuming middle class incomes
• Lost decade of stock prices
• Four years of declining home prices
• Drop in middle class purchasing power
• Unemployment has hurt all but the wealthiest Americans

There are 3 megatrends going on:

• Integration and globalization of the world’s economies
• Broad advances in technology
• Temporary hiring as a permanent feature in the workforce

All three of these megatrends are major causes of “screwflation”.

A major shift has come about due to a drop in real estate, especially in the recovery of jobs. Work involving real estate made up 40% of all job growth in the 2001-2006 period. This percentage has plummeted recently. Please note, there are no policies from the present administration to improve this drop. Rather, the Obama administration is doing the complete opposite to reverse the trend and wants to eliminate mortgage deductions to raise more taxes (so they can spend more, NOT pay down the debt). This will hurt real estate jobs even more.

For middle class Americans, the increase in commodity prices hurts the low and middle income families more since it makes up a larger percentage of the necessities of life for them. Then, add in rising health care, education and other costs. Well, it is a poor foundation for growth.

The article suggests some policies that could help.

• Extend the payroll tax cut
• Reduce income taxes for the middle class
• Provide federal funds for infrastructure spending (not to shore up union pension plans)
• Create incentives for business to make new capital investments
• Allow tax-free repatriation of U.S. corporate earnings abroad if used for creation of U.S. jobs
• Launch an energy plan that has domestic resources
• Use Federal housing financing to slow foreclosures

It is a great article and I suggest you read it in full.

“Sorrow looks back. Worry looks around. Faith looks up.”

There are three basic options, and none of them are very tasteful. Neither is the medicine we take for sickness for the withdrawal symptoms to stop smoking, drugs, or overeating.

(1) U.S. begins to print massive amounts of money. It will trigger hyperinflation, create a Zimbabwe-type outcome, and set back capitalism 150 years (ah, the old cottage industry.) It will further show the difference between the “haves” and the “have nots.”

(2) Do what Japan did after their 1990 financial and stock crisis. The outcome was 20 years of hardship, an economy that did not move, and a flat stock market. Most people will go into denial and hope that the debt problem goes away. That is what the government in the U.S. did by bailing out bad banks and companies. They are delaying the eventual outcome. Doing so like Japan will create periods of deflation and minimal growth.

(3) This option most people have not even considered….set up a workout similar to what was done in the Asian contagion financial crisis of ’97-’98. The strategy entailed the IMF creating a bailout package for us. It would require drastic reforms for us, (which most Americans will not like;) massive deficit reductions by governments, businesses, and individuals; and letting banks and businesses fail while interest rates would increase substantially.

None of these are fun options….but Americans were on a “high” creating a false standard of living that was created with debt. The policy makers in Washington created a “con” by convincing everyone that people were “entitled” to get free things from the government (really from their neighbors who were paying taxes.)

Did this “borrow now, pay later” attitude just develop overnight? No!

I remember it started when I was a young child (living in New England some 50 years ago.) An ad on TV was encouraging people up north to take a vacation during the winter to sunny, warm Florida. “Fly now….pay later.” See, up until then you saved your money, paid cash in advance for the trip, and then enjoyed the delayed gratification.

Some of you will remember the old “Christmas Clubs” where you saved money all year, took the money out at Thanksgiving, and paid “cash” for all your gifts. Instead, people now charge it and pay for it over the next two years at 39% credit card rates. So, the gift really costs you 80% more.

Hmmmm!! You are angry at the U.S. Government for borrowing to create a false sense of happiness today. The thinking is….later on I’ll pay it back….How? I do not know! Oh, I’ll just think about it later (Good ol’ Scarlett O’Hara.) This sounds like the attitude in Washington.

Isn’t it funny most Americans have done the same thing as Washington and are continuing to do the same thing? Gee, Paul, are you suggesting that we all go back to the old days and save up our money before spending it, or, do those goofy Christmas clubs?? You decide, but we were never on the edge of bankruptcy as a nation as we are now! You cannot tell our representatives in Washington to change if you do not change first.