Sunday, February 22, 2009

What went wrong and preparing for the worst case

I heard some really positive feedback on the video at Crisis of Credit so I thought I'd post the link again. It's a little overly simplified, but it provides a decent overview of what went wrong. It's a pretty clear picture that shows everyone was party to the collapse (Greenspan, investors, banks, mortgage companies, brokers, real estate agents, consumers, etc). It's an 11 min video so please watch it a home or when your off the clock :)

TRAFFIC UPDATE: Thanks to all the new readers!!! I'm averaging almost a 1,000 unique visits a week and many more readers via the RSS subscriber. Consider signing up with your email via the RSS feed on the right or just bookmark and comeback daily for your local money/market updates.

Also, look for details on a new contest coming this week to help drive traffic and keep you warm.....(that's called a tease in the biz).

The Wall Street Journal put out a to do list if you think you're job may be in jeopardy. It's a worthwhile read.......I take issue with a couple of the ideas.

1) Double that emergency fund. One way to do this is by making minimum payments on your credit cards. That runs counter to the usual advice, but for those worried about losing a job, these aren't usual times. Take the remaining money you would use to pay off the whole bill and stash it in a money-market or high-interest savings account, suggests June Walbert, a financial planner with USAA, which mainly serves military members and their families.

* This is insane - pay your minimum so your balances explode so you can store more money in a bank earning 3%? No -- cut expenses sharply and shoot to pay off any debt while you can.

2) Consider downsizing your living quarters. For example, after business began to slow at Saxon Anderson's teeth-whitening kiosk at a Los Angeles area mall, the 26-year-old downgraded from a nice single apartment to a house with five roommates.

* This is consider sacrilegious in America where we feel that every person deserves their own 3,400 sq ft. The trend of multigenerational households will return.

3) Since it's easier to get credit while you're employed, look into opening another credit card or a home-equity line of credit as a precaution in case money becomes hard to access if you are unemployed. But use this credit only as a last resort.

* Again why solve your money issues with debt? Sell your junk on ebay, take a part-time job, etc. Debt is the easy way out, but it dulls the pain for a very short period.

4) File for unemployment benefits immediately, says Linda Robertson, a senior financial planner with Financial Finesse. A severance package from your employer could delay your eligibility, but "so many of the unemployment offices are overwhelmed right now and are behind," she says.

5) Call your landlord or lender if your layoff results in immediate financial instability. Ask about deferred-payment plans for rent or find out if your lender offers programs to restructure any loans, says Ms. Robertson. If you're financially stable, you may still want to alert your landlord or lender to your employment situation in case you have trouble making future payments.

6) Look into all your health-insurance options. The government made some modifications to the federal COBRA law, which allows people to extend their previous coverage, but know that this isn't always the most affordable plan. Young and healthy? A high-deductible plan might still be more affordable.

7) Develop a bare-bones budget -- and stick to it -- so your severance or emergency funds will last as long as possible.

* This is hard for some people because they view so many luxuries as essentials. Cell phone, TV, Internet = luxuries. There was another article over the weekend that said many people are ditching high cost cell phone plans for pay as you go plans.

8) Prioritize your debts.

*Obviously secured debts (mortgage/cars) are critical, but debts are debts. Their all due eventually.

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