The Upside Of Recessions
Historically, recessions result in increased personal savings rates. We tend to cut back on our expenditures because we are unsure what will happen to our finances in the short term. This has happened time and again. When the recession of 1973 to 1975 was at its worst, savings rates peaked around 14.6%!
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According to the Bureau of Economic Analysis history is repeating itself once again. The personal savings rate for Americans in January of 2008 was just 2.4%, but by January of 2009 it had jumped up to 5%. And as of August of this year the saving rate of Americans has climbed even higher to about 5.8%.
We are making saving money a priority. The personal savings rate has been significantly higher than 2.5% since May of 2008. While our savings rate has not hit the highs reached in the 1970’s we are certainly building up our cash reserves. By now some of us may have even built up a nice chunk of change.
Make YOU the Priority
I know my role is to tell you how to save money, but I also want to inform you as to how to spend your money more wisely. Don’t spend more than you have to!
If you’ve paid off all your credit cards, made contributions to your retirement accounts and socked away some money in your savings accounts, then and only then may you read the rest of this article.
So how do you spend $1,000 wisely? Invest in yourself! You can take courses on investing for under $1,000. Improve your knowledge of the markets so you can invest smarter or expand your understanding of finance to help ensure you meet all your financial goals.
You can also take classes that will increase your skill set and boost your career. Take a computer or management class that enhances your chances of getting a promotion. Many colleges and universities have online programs to make it easier for working adults to incorporate school into their lives.
Knowledge Is Power
Ok so if you’re not interested in taking classes that doesn’t mean your children or grandchildren won’t benefit from them! If you have any extra cash at all it is much wiser to put it into a college savings plan like a 529 plan instead of a new boat or big screen television.
529 plans are great because they can take a huge bite out of future college expenses for you or a loved one. Contributing just $1,000 into a 529 plan for a newborn will grow the account to $4,000 if they average 7% annual returns when he or she is ready to head off to college.
Every state has at least one 529 plan available. Most of them are not affected by what school your child or grandchild chooses to go to. You can live in California, invest in a 529 plan from the state of Vermont and still send your child to college in North Carolina.
There are many benefits to putting your cash into a 529 plan as opposed to other education saving accounts. Many states offer tax breaks to the donor’s. And while there is no federal income tax deduction for 529 plan contributions, your withdrawals can be taken out tax free if you follow the plans rules.
There are no income limitations or age restrictions either. You can start a 529 plan for a newborn or a 35 year old. And what I think is the best benefit is that you, the donor, always retain control of the account. You call the shots and you get to decide when withdrawals can be taken and for what purpose. Most plans even allow you to reclaim the funds for yourself anytime you wish.
Some plans are better than others. Find out what plans are available in your state by visiting the page below. http://www.savingforcollege.com/college_savings_201/
Make Your Money Energy Efficient
Homeowners with a bit more cash can lower their energy and fuel costs by investing in new energy-efficient windows. According to costhelper.com homeowners should expect to pay between $300 and $700 per window, but it could go as high as $1,000 per window. A one story, three bedroom home with ten windows typically costs between $3,000 and $10,000.
Replacing old, drafty windows will not only update your home, it will also lower your energy bills somewhere between 15%-25%. Plus there is a federal tax credit of 30% (max credit of $1500) being offered if you get them installed by the end of 2010.
If $10,000 is too steep for you, don’t worry there are many other ways to reduce the energy costs of your home. How about replacing an old, inefficient appliance with an energy star rated one? Front loading clothes washers use 30%-60% less water than a top loading machine and 50%-70% less energy.
You can easily find a front loading washer and dryer set for $1,000 or less.
Find out which products are considered energy efficient and are a part of the federal tax break by visiting energystar.gov. You can also find out what other home improvement qualify.
It’s Just Business
I have always wanted to say that phrase. “It’s just business.” I never had the opportunity until I started my own business. I cannot stress how much starting my own business changed my life for the better. To be my own boss, amazing. To choose my own hours, amazing. The fact that the harder I work the more I make is amazing. The list of benefits goes on and on. I started my business with only a few thousand dollars too. You don’t need much, mainly just the guts to do it! You can hire someone to build a website for you for around $1,000 or take classes to learn how to do it yourself for around the same price.
If you already have your own business put the extra money into improving your search engine optimization (SEO) efforts. You can improve your page rank, increase the amount of traffic your website gets and create a bigger name and reputation for your business with the help of a SEO marketer.
Another route you can go is to put money into advertising efforts. You can fund a direct mail campaign for a few thousand dollars. The amount of unsolicited mail I’ve gotten has dwindled significantly. Now may be a good time to do a new campaign since the competition is less fierce. Contact a direct mail house who can do everything, from designing the pieces in the mailing to getting you lists of potential new customers to mail to.
I also want to mention the upside of investing your extra cash. I am not necessarily the expert on investing. My friend Kevin Raymond who writes Freedom By Friday is the market specialist. He knows what stocks are currently outperforming market expectations and sectors to stay away. Truth be told, everything you do with your money is an investment decision–some just have the potential to bring you much larger returns. Investing as little as $1,000 will yield you four times that amount in 20 years assuming a 7% rate of return. Historically the stock market’s average annual return for periods of 25 years or longer has been around 9-10%.
There is no one size fits all when it comes to spending your money wisely. It all depends on your situation and future financial goals. My intention is to help you spend your money smarter!
Is This Cheating?
People are convinced my friend Marc Charles is doing something illegal. Here are just a few examples of why they think that:
While you and I go around paying for dinners, cruises, and hotel stays… He gets them for free!
Or when we want money we either have to earn it or apply for a loan… While he shows others how to get free money that they never have to pay back!
Some might call this cheating. Marc calls it, “Ethically Gaming the System”.
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Until Next Week…
Keeping Money In Your Pocket,