A Personal Finance Guide

The problem actually started years ago but most people didn’t become aware of it until Wall Street went to the federal government asking for a bail out. The amount they were looking for, $700 billion, woke everybody up. All of a sudden everybody in the United States was imminently aware that there was a financial crisis afoot. Global insurance giant AIG followed suit and requested a bailout of its own. And now the American Big Three automakers are seeking $50 billion from Washington to help bail them out.

Clearly something is wrong. And that is probably the understatement of the century if not the millennium. The problems here go back years and years into the history of Wall Street, AIG, the Big Three and every other large corporation that is poorly run. There are two schools of thought as to what should be done. The first is that regardless of what caused the problems, if you don’t provide the bailout money, the economy is in jeopardy and we could see a massive meltdown and financial failure on the order of the Great Depression of 70 years ago.

The other school of thought is that the free market economy will rule the day and the marketplace will sort these problems out. This hands-off approach, while pragmatic, may in fact not be sufficient to save the economy, and the free-market approach would not work. Financial experts seem to agree that if these large corporations and financial institutions are allowed to fail, the ramifications could be disastrous for our economy.

So whether it’s a good idea or a bad idea, these corporations and institutions have a safety net-the federal government. Regardless of mismanagement, ill-conceived strategies, or simply unprofitable operations, the federal government is stepping up to bail them out. If you operate a small business, however, who is going to bail you out? The question is rhetorical be (more…)

To my chagrin, I was watching a recorded episode of the Oprah show with Mrs. Franco the other night, which was dedicated to being frugal (I know what your thinking…why didn’t they ask Franco to be on the show…invite must have gotten lost in the mail). Other than coming up with some painfully obvious money saving tips (don’t buy new furniture and trade with a friend instead; camp in your backyard instead of going on vacation, etc…), they managed to villianize credit cards as if they had been forged in the fires of Hades and given to us by the Prince of Darkness himself. One very frugal couple was sent to help a not-so-frugal couple come up with money saving ideas (most of which were very useful), which climaxed with the ceremonious cutting of the credit cards. The not-so-frugal husband was even shown on camera saying something to the sort of “I really like this idea of getting rid of our credit cards and only using debit cards to pay as we go.”

First off, I want to make something loud and clear…don’t go into debt unless

1) you absolutely have to (laid off at work with insufficient savings, can’t afford school, etc.) or

2) it is for investment purposes with a good chance of generating a positive return in the future (this one is a slippery slope, so don’t abuse it).

Basically, people should never go into debt to fund their consumption habits. Using debt for investment purposes like buying a home, starting a business, or even buying stock (if you can stomach the short-term volatility for potential long-term gains) can be a very wise investment. That being said, most people are not running up credit card debt to go buy extra shares of Apple and are instead just buying too many iPods (I think everyone gets the point).

Secondly, let me be the first (well more like the last) one to tell everyone that credit cards (more…)