‘TIS THE SEASON TO KILL YOUR CREDIT CARDS

GIVE THE GIFT THAT KEEPS ON EARNING.
GIVE YOURSELF THE FIRST TEN PERCENT OF YOUR PAYCHECK.

First things first. The Author likes the Holiday Season. Chanukah, Christmas Eve, Christmas, the Winter Solstice, Kwanzaa, New Years Eve and New Year’s Day. And Festivus, a Celebration for the Rest of Us.[i]

He likes Christmas songs (in moderation) and Christmas television specials. Every year he reads Dickens “Christmas Carol” and watches the definitive “Christmas Carol” film, the 1953 British classic with Alistair Sim in the role of Ebenezer Scrooge. In many ways, the “Christmas Carol” is the most universal of human stories. If there can be redemption for Scrooge, that “squeezing, wrenching, grasping, scraping, clutching, covetous old sinner”, there is always reason for optimism. And a sliver of hope for Jack Abramoff and Ralph Reed.

But the Author is troubled by the consumer spending excesses of the season. In fact, he is troubled by the general consumer spending excesses of Americans. And he is deeply concerned about the lack of savings, especially the anemic level of retirement savings. This profligate conduct portends major economic disruption in the future.

Over the Christmas holiday, the Author intends to read a couple of economics books that address the huge American trade imbalance, the staggering American deficits, and international business trends. These books will serve up the material for a few posts in 2006 and make us better investors in the coming year.

‘TIS THE SEASON TO BE BROKE[ii]

Former Secretary of Labor Robert Reich wrote a commentary with the above title. Reich starts the article with these statements:

“'Tis the season for retailers to be jolly if American consumers empty their wallets over the next three weeks. But how can we empty our wallets if our wallets are already empty?”

Not all consumers’ wallets are empty, but the last 20-30 years have seen a general shift in American family financial conditions from financial security to a more tenuous financial status. Reich lists four factors that have helped middle class wage earners address generally stagnant wages and maintain their standard of living:

1. Wives joining the workforce.
2. Americans working longer hours. Reich states that US workers now work more hours than the prototypically industrious Japanese.
3. Cashing out home equity.
4. Credit card debt increases.

The Author believes these observations are generally accurate. What then must be done if you are faced with little money at the end of the month?

There are only two ways to address a spending and savings imbalance. Spend less and/or save more. Save more and/or spend less. This proposal may send shivers through the boardrooms of Target, Macy’s and WalMart. But so what? No one owes retailers a revenue stream. It is not unpatriotic to keep one’s hard earned wages. So freaking’ what if retail stocks drop because the American consumer turns thriftier. The market will adjust and investors will invest the capital somewhere else where it will get a better return.

Three things. Just three things:

Pay yourself first. Save the first 10 percent of your wages and other earnings. If you have high-interest credit card debt, pay yourself by using this 10% (plus what you have budgeted to pay on these debts) to pay off the credit cards. Once that debt is gone, you can put that 10% in your savings account. And then a money market. And then in a brokerage account.
Spend less.
Pay cash and pay your credit card off every month.

These three steps are the first steps to financial prosperity and they are very big steps. If you are already doing these things, great. But even the most financially sophisticated folks sometimes forget the basics.

Do these things and you will have a Happy New Year.

WE ONLY IMPORT THE FINEST MISTLETOE IN THE DESERT OF THE REAL!

[i] http://en.wikipedia.org/wiki/Festivus. “Festivus for the rest of us” is a holiday that appeared on a Seinfeld episode. It falls on December 23rd. If features the Festivus Pole, a plain aluminum pole, valued for its high strength-to-weight ratio. Then comes the “Airing of Grievances” where you rip on your family, friends and other Festivus Feast attendees. It concludes with the “Feats of Strength”, which typically ends when the male host is wrestled down and pinned to the floor.
[ii] www.commondreams.org