Last night, the House passed its economic stimulus bill, sans Republican support. Quite honestly, I am disappointed. Mainly because the few really good ideas in the stimulus bill have been completely watered down by a bunch spending that does little more than perpetuate that status quo of throwing money at the problem. Of course, the economic stimulus bill battle isn’t over yet: The Senate is working on its (more expensive) version, and there will have to be a reconciliation version to bring the two versions together.

Not that anything is really going to make a big difference. At this point, what’s another $800 billion or $900 billion? Or even $1 trillion? We’ve already spent more than $7 trillion on economic stimulus — most of it going to “rescue” banks and other large institutions.

So, what’s in this stimulus bill?

Simply put, a great deal of spending that is likely to turn out to be ineffective. Here are some of the highlights of the economic stimulus bill — and what I think of them:

• Taxes: Homebuyer Credit. There will be tax benefits. First of all, that $7,500 first time homebuyer credit that was supposed to be repaid, no longer has to be repaid. That’s nice. They should retroact it to 2007 (so I get the credit for my home) and expand it to include any homebuyer and anyone who refinances.
• Taxes: Cuts. The other big tax thing — included as a sop to the Republicans who didn’t vote for the bill — was a tax cut. I think the tax cuts are a horrible idea. First of all, these tax cuts are not big enough to make any real difference. Is $500 or $1,000 going to prevent anyone’s foreclosure? No. And, because this tax cut is spread out over two years, and in the paycheck, it amounts to around $20 or $40 per month. Is that going to change your household budget dramatically? These tax cuts do nothing to advance the stated goals of preventing foreclosure and increasing consumer spending. Secondly, taxes will have to be raised again — just as we the people get used to this nice tax cut. Seriously, on a political level, down the road this is suicide.
• Infrastructure Projects. I like these. I like the idea of a smart grid (our infrastructure is woefully out of date), improving mass transit options, developing renewable energy (since this will be more cost efficient than fossil fuels in the long run) and bringing our technology up to date through expanding broadband services. These things will provide new jobs and allow more people access to the global economy. Unfortunately, these measures are only a small portion of the economic stimulus bill.
• Schools. I think education is important, and the money spent on secondary and higher education should (if properly directed) be money well spent.
• Bank rescue. It’s not really in the economic stimulus bill overtly, but you know more money is going to be thrown at banks through TARP and other channels. Timothy Geithner has promised to make banks rescue a priority, and I’m sure the continues costs of economic stimulus will be seen in emergency loans and what-not. After all, we didn’t spend more than $7 trillion so far through massive stimulus packages. Most of the economic stimulus will be spent a little here, and a little there, effective masking the true expenditures from the American public.

Honestly, and I’ve been saying it for months now, if our government is going to spend our money (and it will) and if we’re going to pay it back (with interest), they should just give the money directly to us. If economic stimulus had originally been $500 billion for infrastructure and other projects plus a nice fat payout for each household (not person — household) in America, many of the stated goals of our leaders would have been met. And it would have cost a helluva lot less. Foreclosures prevented. Credit card defaults prevented. Consumer spending through the roof. A possible foundation for a less extreme economy built on saving (although that might be a little too much to ask for). An individual economic stimulus would have put money back into banks and benefited the American people directly. It’s our money. Give to us and let us spend it as we please. Even Jon Stewart sees the merit in this:

But it is not to be. Everyone talks about the merits of tax cuts v. government spending on big projects, but the bottom line is that for the economy we have, and for the goals our leaders have stated, neither is very effective option.

Here is some more information on the economic stimulus bill:

• The Wall Street Journal breaks down who gets what from the economic stimulus bill.
• Frugal Dad laments the exorbitant cost of the economic stimulus bill.
• Free From Broke insists that government handouts like this discourage innovation.
• Personal Dividends explains why, in his opinion, the economic stimulus package is a disaster.

Really, about all you can do at this point for your personal finances is put together a budget, live in a frugal manner, and choose careful investments to beat inflation (because printing this much money is going to cause craaaaaazy inflation).

What do you think of the economic stimulus bill?

One of the more interesting developments from last week was that president-elect Barack Obama appointed a “chief performance officer” to monitor government spending. It sounds like the government is about to get a gatekeeper of sorts when it comes to spending our hard-earned taxpayer dollars. And this isn’t a bad thing — provided the office has the ability to limit wasteful spending and help direct money to where it will do the most good. Our government has needed a gatekeeper for a looooong time.

This, of course, has application in personal finances as well. Some of us have need of a gatekeeper for our personal finances. In business, a gatekeeper is defined as a decision-making unit that limits purchasing by controlling access to funds. The concept can work in personal finances. One example of a sort-of gatekeeper arrangement between life partners might be an agreement to consult together before making purchases that cost more than $100 (or $50 or $500 or whatever you think is reasonable for your situation). Or, you can use a financial planner or some other agent to help control access to your money in order to limit your spending. In some cases, a gatekeeper acts in the more official, court-appointed role of conservator.

No matter how it is set up, though, the function is the same. It is to encourage you to think about how you are spending your money, and determine whether it is something you need — or are willing — to pay for. A gatekeeper forces you to really consider your purchases. In same cases, if you feel helpless to curb your spending — or even if you just need a little help to prevent splurging, a gatekeeper can be of tremendous benefit. My husband and I have an agreement not to spend more than $100 without consulting each other. It has worked well in our personal finances.

What are your thoughts? Do you have some sort of gatekeeper system for your personal finances?

Image source: Arpingstone on WikiMedia Commons

The news is in: Black Friday sales were up 3% this year. Obviously, there is still a lot of spending going on. It doesn’t have to be that way. But savers may need some moral support as resolutions to save money and get out of debt fall to the wayside in the throes holiday shopping enthusiasm.  ING Direct has a solution.

You can find mutual support for your savings habit at the new We, The Savers website. This site is designed as a social networking tool. According to a press release I received from ING Direct:

The website features savings calculators, social networking and online polls. The website also encourages Americans to give the “gift of savings,” which, unlike the newest gadget, actually appreciates in value over time. The “gift of savings” can also help recipients reach their personal New Year’s resolutions.

This is actually a very handy website. You can figure out how to maximize your savings, as well as connect with other who can help keep you on track. Instead of spending this holiday season, sign a declaration of savings. It’ll be better for your personal finance situation than spending yourself into debt.

Last week, I mentioned that consumer spending on luxury goods is down. What I didn’t really think about at the time is how organic foods might be a luxury item.

The thought that luxury spending might extend to such things as organic food occurred to me yesterday when I got an email from the local organic market explaining that the store was closing later this month. Since I live in a small town in the middle of nowhere, this is a blow to me. We don’t have chain organic stores. Sometimes the other grocery stores have a few items, but there are a number of things that I like that I can’t get anywhere else.

At any rate, the reason the store is closing is that, after three years of steady growth, customers have dropped off. In these economic times, the more expensive organic food has become a luxury. And my local market saw a sharp decline in sales, culminating in a need to take the loss this tax year and get out.

So, next week we’ll be heading to the organic foods market for the last time. Unfortunately, the fact that we’ll be finding some great deals doesn’t do much to make us feel better.

Americans are finally slowing down in the consumer spending department. The Wall Street Journal reported that luxury sales dropped 20% in October. But that’s not all; other types of consumer goods aren’t being bought at staggering rates, either. There really is a recession diet out there. Here are some of the other categories of consumer spending see a drop:

• Furniture
• Electronics
• Appliances
• Clothing (men and women)
• Footwear

It appears that the economic slowdown is really affecting spending right now. For the most part, we’ve mostly cut back on eating out and we’ve decided to spend less on gifts for each other this year. And our impulse spending has been minimized.

We are looking for ways to cut back, since one never knows what’s going to happen, and we want a cushion — just in case. Between the nature of my freelance writing job, and the fact that my husband’s salary is paid through funding at the school (university budgets are being cut all over), we could see an income drop.

It’s always better to be prepared.

Are you cutting back on spending? Are you preparing for possible economic difficulties?

I am a big advocate of saving money. And I don’t mean just by spending less through coupon clipping and general frugality. I mean actually saving money — setting aside for some future date and/or emergency. Over at Passion Saving, Rob Bennett offers 10 very interesting  and somewhat unconventional tips for saving money. Here are my 5 favorite unconventional tips for building your savings:

1. Add income tax to purchases. Before buying something, think about how much extra you would be paying to fund a specific purchase.  Bennett points this out: “The sales tag on the leather jacket you want says that it costs $1,000. You know to add in the sales tax to determine the full price, which is perhaps 5% higher, or $1,050. But even that is not the true full price. You can’t buy the leather jacket by earning $1,050. You need to have $1,050 in take-home pay to buy it, and that means that on a pre-income-tax basis, you need to earn a good bit more, perhaps $1,250.” Wow. I never thought of it like that. The leather jacket or the big screen TV or whatever frivolous yet expensive purchase doesn’t seem as cool.
2. Multiply by 25 to see how much you need to save to support a purchase. Bennett points out that if you manage to grow your annual investments at 4%, you can multiply your annual costs by 25 to see how much you need to save to cover the expense: “If you spend $40 per year on magazines, you need to save $1,000 to forever free yourself from needing to work to pay for magazines.”
3. Make changes for a particular change that will enhance your life. I like this idea because so often we just focus on saving money because it’s the thing we’re supposed to do. Bennett recommends that you think of a specific goal for saving — a goal that will contribute to how much you will enjoy life. Getting ahead and saving for some unspecified and general “retirement” isn’t enough. Break it down into something like saving for a family vacation or a roomier family car brings your plans into more immediate effect and adds impact to the goal. Here is what Bennett says: “To make saving matter, direct your mental energies to the small things that saving can do for you at all stages of life instead of the big dramatic thing (financing an old-age retirement) that it will do for you only once near the end of your active years.
4. Think of spent money as hours worked. My husband and I already do this. If we want something, we consider how long each of us would work to pay for it. Is the time worth it? If so, we make the purchase. If it appears that our two or three hours spent having to work isn’t worth it after all, then we take a pass. This works especially well for me, since I am freelancer working from home and can usually adjust my workload. So I see immediate effects from this type of thinking.
5. Pay yourself last. Huh? That’s what I thought at first. Then I read the reasoning behind this statement. It is a culmination of a new thinking about saving money. The idea is that it can be enjoyable to spend money that you have (you have to live within your means), and that you do not need to make saving a chore. Here is what Bennett says about paying yourself last: “You should not be aiming to mindlessly cut spending anymore than you should be aiming to mindlessly spend. The goal should be to spend when spending offers the best value proposition and to save when saving does. To do that, you need to evaluate the value proposition offered by each act of spending and save only in those cases when saving offers more bang for the buck. You need to pay yourself last (but often).”

What do you think of these unconventional ways to save money?

In these increasingly tough financial times, it is no surprise that people are starting to think about the household budget and what can be done to save a little more money. Or at least get the spending under control.

I’ve got a guest post up over at Budgets are Sexy. It’s all about how the first rule of budgeting is to get your priorities straight. Head on over and give it a read.

I’ve got a guest post up over at Wide Open Wallet. It’s on how to prioritize your spending. This is a very important skill, both in terms of budgeting and in terms of getting out of debt. When you have your spending priorities in order, you are much less likely to have money problems.

Head on over and take a read.

We’ve been slowly working on getting a yard for our new house. We’re putting in a fence right now. We’ve decided to buy the rest of the fence panels, just before our trip to New York. We know that if we wait until next year to buy the panels (the posts are already in), we will be likely to pay $2,800 to $3,000 instead of $1,800. That’s a big difference.

Inflation is also affecting our travel plans. Every year we go see my husband’s family near Albany, NY for two weeks. One of the highlights of the trip is a jaunt down to NYC. But this year things are going to be a little bit different. My husband’s dad is coming down to see a Yankees game with us. This means that we’re going to have to get reserved seats on the train, instead of riding coach. But that’s not the only increase in prices we’re seeing:

• The hotel we stayed at last year is charging $75 more per night.
• Train ticket increases + reserved seating will cost $222 more.
• We are paying for good seats at the game, since my husband’s dad has never seen a Yankees game, and this is the last year in the current stadium: $300 more.
• The shuttle that takes us to and from the airport — we live 85 miles away — also costs more, thanks to gas prices: $100 more. (Although it still costs less than driving ourselves and paying for parking at the airport.)

This trip is probably going to cost around $700 more this year than it did last year. Which is why we’re going to have to curtail our activities. In fact, since my husband’s priorities are more for going lots of places, we’re not even staying in the city. We’re renting a car for a few days instead. (Due to several “other people” running stop signs and the like, the car situation is rather dire.) So we can go watch two or three movies in the Albany area. And we better eat out at least once.

Bottom line: Family finances involve trade offs. I want an actual yard rather than a dirt. My husband would rather make several so-so mini trips than one big awesome trip. So NYC gets severely maimed in terms of our itinerary. The good news is that we can go back next year. But if something has to get cut, it’ll be the Yankees game, and not my trip to the Metropolitan Museum.

Responsible personal finances means you have to make hard choices and set priorities. We can’t afford (without debt) to do everything we want to do, so we have to cut out some of our wants.

What sorts of things do you choose to forgo in the name of responsible personal finances?

image source: Miranda Marquit

After a brief spurt of spending in May (thanks, no doubt, to economic stimulus checks), it appears that consumers are starting to cut back again With gas prices what they are, many are spending less at the store and going back to the old “recession diet.” Indeed, it appears that purchases that would have been considered “basic” not too long ago are now considered “unnecessary.”

The Street reports on information about consumers and their spending habits:

Overall, 55% of consumers said they have started to cut back on living expenses. Not surprisingly, those in lower income brackets are being hit hardest. About 70% of those earning less than $40,000 per year said they have reduced basic expenses to offset higher gas prices, which are now averaging $4.11 per gallon across the country.

Living frugally is being forced on many of us. We are being forced to prioritize and make tough choices. But here’s the real question: Will we learn to live frugally all the time? Or will we go back to our free spending ways when the current crisis is over?

image source: sxc.hu