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If you
read my first articles at BUYandHOLD, you know I come from
a fishing family. Some of you may cringe at this fact, but
when we catch fish, we eat them. If they aren't large enough,
we throw them back. And, we catch our limits and no more.
In other words, my family is a throwback to hunter/gatherers,
but we abide by modern laws. Hence, I'm filled with analogies
that originate from the fishing culture.
So, when
I talk about "lures," I mean those artificial objects attached
to the end of fishing lines meant to attract and catch fish.
If the fish likes the lure and if that fish is hungry, you
might have a meal on your hands. This is why the $600 "stimulus"
package seems like a lure to me. It may seem like something
fishy to the Senate as well. As I write this article, the
Senate remains undecided on how to word their bill in response
to President Bush's plan.
To date,
this is how the stimulus package would work: If you paid taxes
for 2007, and if you make less than $75,000 as a single person
or $150,000 as a couple that filed jointly, you may see money
in May or June. A single person would receive $600, and a
couple would receive $1,200. Plus, if you have children, you
may see more money than this, as each child could bring $300
to the table. If you make more than $75,000 as a single person
or $150,000 as a couple, then your return will decrease in
size incrementally and by percentages until you realize you
made too much money to benefit from this package.
Now, for
the other side of the equation?why is this lure being suggested?
One reason includes the idea that our country is headed for
a recession. Basically, a recession represents a significant
decline in general economic activity over an extended period
of time. For instance, a large number of people lose homes,
declare bankruptcy, default on credit cards, and quit spending
because there's no money left to spend. That affects the entire
economy, even those who have kept homes, paid off credit card
debt, and saved money.
Several
different resources have counteracted the problems listed
in the previous paragraph. You may have seen ads or opinion
articles and more that talk about foreclosure bailouts. Solutions
to avoid foreclosure are being discussed by the government
as well. Bankruptcy already was made difficult to accomplish
in 2005 by the Bankruptcy
Abuse Prevention and Consumer Protection Act [PDF].
Credit cards are another issue altogether, as some cards are
raising rates and others have placed restrictions on cards.
As for no money left to spend, that's what happens when individuals
and families overspend and don't save.
If I sound
callous, it's because I've been there, done that. I lost a
home, I declared bankruptcy, and I ran up my credit cards
when I was in my late thirties. So, I know that age has nothing
to do with financial wisdom. I also know that it takes about
eight years or more to clear a financial record to the point
where a home can be purchased, a credit report is restored
to good health, and enough cash is in reserve for emergencies.
Think
about that time frame - it takes about a decade to clear a
lousy financial record. If you're in a situation where you're
ready to lose a home, you're considering bankruptcy because
you truly need to be free and clear of your debts due to job
loss or other circumstances, and you're purchasing groceries
on your credit card, then somewhere around the year 2018 you'll
be able to start over again. But, the outcome will be different
only if you make an effort to change your fate during the
next go-round.
In the
meantime, the Senate is considering whether $600 per adult
and $300 per child will help to stimulate the U.S. economy.
If all Americans who receive this money spent it on domestically
produced goods and services, then this effort will create
U.S. jobs. For instance, a person on minimum wage receives
about $600 for two weeks' worth of work. Of course, that "someone"
would need to return some of that money to the government
through taxes. And, this scenario would play out only if Americans
spent money on domestic goods and services and not on imported
goods or outsourced services.
You may
also need to return some of that money in taxes for 2008,
depending upon how the Senate words their bill if it agrees
to the stimulus package. Beyond this, knowing what you know
now, I would suggest the following ideas for your windfall
should you receive it:
- Make
a partial mortgage payment or use the money to refinance
your mortgage. If your significant other and your kids chip
in, you might make two mortgage payments.
- Pay
off credit card debt. Once again, enlist your family members
for their help in this matter.
- Put
money aside. If you don't need help with mortgage payments
or credit card debt, then save that cash for unforeseen
circumstance that may alter your life as you know it now.
With that
said, you might think twice about putting your money into
a money market fund, as the Fed rate cuts have lowered interest
rates in that arena. Instead, look at the stock market, and
think about the adage, "buy low, sell high." This may be the
prime time for a long-term buy and hold strategy. Do some
research on your own or enlist the help of a financial planner.
But, make those moves now before the lure hits the water (if
it does). Otherwise, you might be tempted to spend your money
on something "Made in China."
In the
meantime, I hope you realize that this lure is just that -
an artificial object meant to attract everyone's attention.
Think about what you'll do with the money if it's actually
thrown upon the waters?after all, you're smarter than the
average fish, right?
Until
Next Week,
Linda Goin
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