Archive for January 31, 2012

Security Guards: Income and Debt

Based on information from a leading internet salary comparative website, as of January 2012, security jobs average around $9 to $16 salary an hour, depending on the inherent hazard of the job, seniority, specialization as well as the state where the security guard is employed. Assuming a security guard has regular work that means a day’s salary is around $72 to $128 or $1,512 to $2,688 a month. It is important to note that the Federal minimum wage is set at $7.25 for security jobs. This may increase or decrease depending on the state but not by much (about $1 to $2). This means that a regularly employed security guard is still earning more than the minimum wage.

Minimum wage for a security guard is set in order to provide each worker with enough income for a sufficient standard of living. This means that for so long as a security guard lives within his or her means, getting into debt is not going to be a problem. And, a relatively comfortable lifestyle is still possible.

What constitutes “living within his or her means?” This does not mean a zero sum income and expense worksheet (income minus expenses equals zero). Rather this means spending a reasonable amount for necessities, utilities, shelter, food, clothing, medicine, etc. making sure to keep a specific amount, around 10% to 30% of the salary as savings or as an emergency fund every month.  Remember, security guard lack job security therefore it is important to save for a rainy day.

A 10% to 30% savings monthly is really not that much. That is why a security guard has to make sure to keep out of debt. This can be done by planning his or her finances properly, taking free financial freedom seminars and getting a part time job if possible. The key really is not to get into debt. However if debt is already a reality then it would be wise to communicate with the lender or creditor to come up with some sort of an arrangement. The best arrangement possible is one that allows payment on installment with little or no interest charged. This is better than avoiding and running away from the debt because on interest alone the debt may balloon to twice the amount within a year. If installment payment is not a possible option then seriously consider filing for bankruptcy, rather than be forced to pay on installment at unconscionable interest rates.

Three Spending Habits That Lead To Debt

Debt isn’t something that just happens coincidentally or accidentally as you go about your daily living. There are certain spending habits that lead to debt. Recognizing these habits now could save a lot of money and stress later. If you want to stop creating more debt and pay off the debt you have, you must eliminate these bad habits.
Governmental agencies have started to advertise a QR Code that can be scanned and give users helpful information on debt management.

1. Spending more money than you make.

The logical part of you thinks it’s impossible to spend $1,200 each month when your paycheck is only $1,000. Spending more than you make is easier than you think. So easy, you might be doing it without necessarily realizing it. Dipping into savings, borrowing from others, and using credit are the primary ways of spending more money than you bring in. You can get away with doing this for a few weeks or months, but soon or later, your hole-digging spending habits will catch up with you. Before you know it, your savings is depleted, your credit cards are maxed out, and you can’t borrow any more money.


2. Spending money you don’t have.

Spending more money than you make is enabled by spending money you don’t have or money you are yet to earn. You spend money you don’t have by using credit cards and taking out loans. When you use these instruments to pay bills and make purchases, you’re creating debt. If you can’t repay the debt each month, it will continue to grow.

You can resolve this bad habit the same way you stop spending more money than you make – by reducing your expenses and relying only on your income to pay for your wants and needs.


3. Using debt to pay off debt.

When you use credit cards to pay off other cards and loans to pay off other loans you’re not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so. Balance transfers have transaction fees and most loans have some kind of down payment or origination fee. So when you use debt to pay off debt, you end up worse off than when you began.

Using debt to “pay off” debt might be beneficial if you can transfer a balance from a high interest rate credit card to one with a lower limit. However, you have to be careful that the balance transfer fee doesn’t negate the interest savings and that your post-promotional interest rate isn’t worse than your previous rate. Transferring a balance once or twice to take advantage of a great rate is different from continually transferring balances to dodge credit card payments.

With Thanks

The IMF – Not Fit For Purpose Anymore

The IMF and the World Bank were created in a very different world than we live in today.  The emerged in the chaos of 1944 when the world was still very at much at war.    The organisations were intended to promote some sort of economic stability and to encourage free trade and economic cooperation through financial support when required.

It’s role has developed and expanded over the years – especially during the 1980s when it took a much more active role in Global finance by bailing out many countries who were in financial turmoil and facing bankruptcy.    However it was to become much more than some simple lender of last resort, it in fact became the architect of economic policy for most of the countries that needed it’s services.

To obtain the crisis loans, countries had to adopt the stringent economic requirements and policies that the IMF stipulated as terms and conditions.  The power wielded by this huge Financial behemoth in shaping the economies of the world should not be understated.

The problem has been that economic policy run by a financially focused  organisation is not always the best way to run an economy.  One of the main issues is that the policies that the IMF impose (structural adjustment policies) have a single goal – to repay the loans by decreasing spending and reducing debt.

So in the name of debt repayment – countries will have to forsake their populations, cutting spending on things like health and education, throwing out green and sustainable policies in exchange for strict austerity budgets.   As we can see with the Greeks in our current crisis, cutting spending for debt repayments leads to a rapidly shrinking economy – the people pay the price.  In the Third World countries the cost is even greater than for the Europeans, investments in health and education are already at much lower levels than the rest of the world.

The reality is that these debt repayment policies may seem logical to rich Western economies but all they do is increase the inequalities that already exist for the underdeveloped countries.  Shackled by huge debt repayments the policies increase poverty and leave various multinational companies free to exploit both the environment and the workers of these countries.

The truth is that there are opportunities for developing countries to expand their economies.  Boosting communications infrastructure is one great opportunity, there are possibilities for the internet to bring wealth and jobs to all sorts of areas.  Imagine the benefits of having a thousands on Internet based entrepreneurs could bring to areas of Asia and Africa which currently rely on foreign aid.  There are prerequisites of course, besides the big one of infrastructure –  unfortunately digital markets are sometimes difficult to access outside the Western World.  For example you won’t get far in the US without using a USA proxy to bypass Geo Restrictions – here’s an example –  But these obstacles are minor in comparison and could be easily solved through a big global organisation.

The IMF and World Bank may be what the world needed in the post conflict environment they were created in.  However many would argue that they are not fit for purpose for the world we live in today.

The Fundamental Problem of Debt

Not all debt is bad, after all look at the roof over your head – the place you live is probably the result of you have taken on some debt.  How long would we have to save before we could have bought a house outright?  I’m sure my parents would have got kinda of tired of me hanging around their house into my forties.

If you look outside you might see a car, or a truck – perhaps in the corner of the room a nice flat screen TV.  All these may have been acquired by some debt.  How many companies would be in existence today without the ability to borrow money – the firms who employ thousands owe their existence to the ability to borrow money to expand.  There’s a whole lot of stuff in my life from my laptop which I happily sit and watch BBC Iplayer through a proxy – to my lovely house and car – all would have been much more difficult to obtain without debt.

But unfortunately many of the poorest countries in the world are saddled with a different type of debt which is crippling their development and leaving their citizens in poverty.   Much of it wasn’t used to boost a countries economy, it didn’t establish infrastructure improvements or build schools or hospitals.  If this was the case the debt may have been serviced properly on the benefits accrued.  No, much of this third world debt was frittered or simply stolen by whichever tin pot ruler was in charge at the time.  The Western world threw money at countries thinking that would make things right.

There were little benefits to this debt but the repercussions of the repayments have left many countries stranded in a poverty that is impossible to escape.  There are the repayments of course and various conditions attached to the payments – further restricting  the opportunity to invest in their own country.

The basic problem is much of this debt – much of it from the 1970s was a complete failure – the projects usually achieved little or nothing.  We must let these countries have the chance to compete, the shackles of debts from Western inspired ideas should be removed to give them half a chance.


Spending Problems Affect Everybody

Spending problem is serious both on national level & on personal level. People who have crazy spending sprees not only affect their lives, but also the lives of the people directly related to them or people who are not related to them at all. Every debt that is not paid is going to add burden on society.

You spend excessive amounts of time shopping or thinking about shopping. You find yourself concerned and others worried about your personal spending patterns. You try to control yourself, but find that you are repeatedly unsuccessful. These urges to buy seem to control you, and you end up buying things you do not need and never use. You have no intention of purchasing items but find yourself buying them on impulse, later regretting these purchases and returning them soon after.

These are just some of the symptoms of a damaging spending problem. If you experience guilt, depression, a sense of lack of control, or excessive happiness after making a purchase, you need to consider that you are suffering from a spending passion. If shopping is your outlet to release anxiety, sadness, or anger, you must recognize that you are entering risky patterns. People who suffer from bipolar disorder are likely to have spending problems. For this reason people affected by bipolar disorder should be watched by a family member or a partner, otherwise their spending sprees can go reckless. If you suspect that you or your family member suffers from bipolar disorder, you should consider having a bipolar test by a mental health professional. Therapy is likely to control manic episodes, thus this can save the person from potential debt crisis. After you’ve taken care of this part consider whether your credit card accounts are over your spending limits. Notice whether you pay the full balance on your statements or if you pay just the minimum because it is all you can afford. Using credit cards instead of cash for everyday needs, such as groceries, is going to hinder your ability to rid yourself of debt.

If you hide bills or purchases from others, borrow money to pay basic bills, and find yourself accumulating more debt on revolving charge accounts than you can afford each month, train yourself to come out of these patterns and save money each month. Avoid using cash advances to pay bills and the embarrassment of cutting up a credit card and being denied purchases and credit will trouble you significantly less.

Capitalizing on a Market that has headed South

With economic uncertainly wreaking havoc on European and US markets it feels like the average consumer has few options when it comes to investing.  While surely the market will recover, few are willing to risk losing it all amid such turbulence.

Since most people with a 401K or other retirement vehicle are already heavily invested in stock and bond markets it could make sense to diversify by essentially betting against the market.  While an investment in gold or silver directly, or even via something like GLD could be a wise move, there are additional, lesser known options available to the average Joe, that could work.

One such option is FAZ, a trading inverse equity that is part of the Direxion Funds.  Since 2008 the exchange traded fund has sought out daily investment results, before fees/expenses, of 300% of the opposite of the performance of the Russell 100 Financial Services index.  Technically the fund creates what are essentially short positions via investments made in futures contracts, options on securities, indices and futures contracts, etc.  Essentially these financial instruments in combination provide the investor with both leveraged and unleveraged exposure to the index.    This is not the type of stock that is meant to be held long, but rather an excellent option at points in time where market uncertainty is driving stocks down, especially banks like Bank of America and JP Morgan.  Investors who pay close attention at the market open can even capitalize on day trading this stock, and theoretically could expect a return of 5% or 10% via intra day trading.

Not everyone has the time and market acumen to make an investment in FAZ work.  In tough times the age old adage “keep it simple” can offer some of the best relief.  The average consumer can seek out deals, cut coupons, and even reduce home expenses by making some smart choices.  For example, try remanufactured ink cartridges in your home printer and you could cut your office expenses in half!  Or seal up your windows and doors in the winter to make sure you are losing heat.  Taking enough small steps can actually have quite an impact on your disposable income.  But for anyone with a little time on their hands, and maybe a hankering to take a small risk, investing in GLD or FAZ could be worth a shot.

DISCLOSURE: The author holds a position in FAZ, but does not own GLD or Gold and Silver commodities.

Not debt relief, but a minimal capital requirement among banks is the best solution to avoid a systematic banking crisis.

Since the credit crunch which started with the decline in the US real estate market that impacted worldwide financial institutions. This chain reaction of events resulted in a global financial crisis which have impacted not only the financial sector and US real estate market but has also influenced other sectors. These events have had an impact of economic growth of all companies and have lowered their future expectations for the coming years.

Even though we are currently in a period of lower economic growth with more future uncertainty, in the past decade we have had multiple crises such as the Russian Ruble crisis of 1997 which resulted in the default of the Russian state and fall of Long Term Capital Management, which led a large shockwave across global financial markets.  But also the collapse of the Dot-com bubble around 2001 has led financial markets in distress after a few very prosperous years. The main problem in this case is that banks are strongly intertwined with companies (that borrow money) and the general population (depositors, investors and stakeholders). In simple and plain English it means that when the economy is hit, banks are also hit as the money they can make on the multiplication effect of lending money decreases as people are less eager to borrow money. So this reduces the cash flow of banks as they cannot lend as much money that generates the highest return and at the same time they are more strict in lending money as they tend to strongly investigate the creditworthiness of its lenders as a possible loss of money, due to bankruptcy can be detrimental to a bank’s tier 1 capital requirements.

If we take a trip around the world we find different examples of troubled banks causing a stronger spiraling down economy. In Asia, and to be specific in Japan, we have seen that most companies (conglomerates) are formed around a bank or group of banks which can help improve internal efficiency among companies and the bank(s) but form a risk when they all face the effects of a global downturn. In the US we have seen the case of Lehman Brothers and Bear Stearns who both fell from grace and at the same time hurting other global financial institutions as they are strongly interlinked with each other with mutual fund investments, bank holdings, debt obligation and share ownership. Even Dutch insurance companies, such as Aegon and ING, where strongly affected by the fall of Lehman Brothers. Additionally there were also cases of Dutch financial institutions that fell apart due to the global debt crisis, such as DSB bank, famously known for personal loans (in Dutch: persoonlijke lening ) and mortgages ( in Dutch called ‘hypotheken’ ), which it used to sell to the consumer market. Before its fall, DSB bank was estimated to be worth around 500 million euros.

An almost decade old paper by Mathias Drehman (2002): “Will an optimal deposit insurance always decrease the probability of systematic banking crisis” proposes the use of what we now define as a minimal capital requirement that banks need to maintain to avoid a possible systematic banking crisis. In plain English this means that banks need to keep enough money in their safe to avoid when another bank collapses a chain reaction can be somewhat avoided. Drehman (2002) explains that contagious bank runs can be avoided when the correlation of bank’s portfolio is not strongly correlated with a bank that is in financial distress (minimal capital requirement not in a bank’s safe). This minimum capital requirement we now know as Basel I and especially Basel II (the second of the Basel Accords) made by the Basel Committee on Banking Supervision.

Employment On The Rise But Salaries Still At Risk

The latest data on unemployment figures- currently on a downward trend at 8.5%- has prompted an upswing in polls for the Obama administration, and may improve his chances for re-election, according to the Financial Times.

While this change is indeed a positive one, it is worth taking a look at the factors behind this figure. The BLS website defines “employed” as a person over the age of sixteen who has a job, while “unemployed” is a person over sixteen who has done no profitable work in the past week and has actively been looking for a job within the last four weeks.

American DNS for Netflix

What this survey does not take into account are the under-employed (workers who have had their paid hours cut or cannot get enough hours in their current job), the chronically unemployed (those who have given up looking for work) and workers who have had their salary or benefits cut as a result of the troubled economy. These ‘unseen’ categories are just as significant to the millions of workers in the US today as the basic employment rate.

Workers in sectors that are generally considered “dispensable” are the worst hit by any recession; this is especially true of those in the financial and retail sectors, for example, who experience an increase in redundancies and salary reductions across the board. Qualified professionals in essential services such as healthcare do better, such as doctors, dentists, pathologists and ultrasound technicians. For example, the ultrasound technician salary has been largely unaffected in the years since 2008, with a steady increase in pay and benefits, and job openings on the rise. Unqualified individuals within that same sector, such as pharmacy technicians, may not be so lucky in terms of salary although the demand for their services remains high.

What this year will bring for those of us still in the workforce in terms of employment and pay rates remains to be seen. For the young ones just starting their qualifications or looking for jobs, a good bet is the strong healthcare industry or other essential services where the demand for workers is projected to remain high. If you are in a position to obtain a strong qualification in such a sector, so much the better; you are separating yourself from the masses of job seekers out there who would willingly step into your shoes. In today’s economy, a reliable salary and good benefits are well worth the extra effort.