The price of gold appears to hold a somewhat inverse relationship to the economy.  When times are good and the economy is rolling, the price of Gold goes down.  When times are bad and the economy is tanking, the price of Gold goes up.  Take the last few years for instance.  As the world’s economy has tanked, the price of gold has inversely risen significantly.  Why?  Because, whenever the economy tanks, the value of the dollar goes with it.  Now, stop to think what would happen if the dollar became worthless.  You couldn’t buy anything with that paper.  You’d be better off lighting a fire with it.  But Gold?  Gold is and always will be an in demand commodity.  No matter the value of the dollar, you can always trade gold!  So, as the economy tanks, more and more people begin buying gold.  They think of it as a sure-fire solid way to hold the value of their money as everybody else loses theirs.  If the economy tanks completely and the dollar becomes a fire starter, they’ll have something to buy stuff with.

So, worst case scenario, you’ve set yourself up and have something to trade.  But, much like the coins many of the gold hoarders buy, there’s a reverse side to this.  What if the economy recovers?  Those of you who are buying gold at $1100 and $1200 an ounce?  What happens when the economy comes back and the price of gold drops back down to something like $800 or $900?  Not so solid of an investment anymore, is it?

Now, let’s think on a grander scale.  There are an incredible number of people who are buying gold right now.  Celebrities everywhere are endorsing gold.  Regular joes like you and I are buying it up hoping to avoid the collapse of our economy.  And many of them will dump a large percentage of their investment portfolio into gold.  Maybe even their life savings.  If they lose 30% of their savings/portfolio, what do you think will happen?  The gold bubble will burst.  The price of gold will drop even further as people rush to sell off their holdings.  They’ll lose even more.

Is that the way it will go down?  Is Gold just another big bubble like the dot-coms and real estate?  I happen to think it might be.  I don’t think it will have nearly the effect that either of the previous bubble bursts had, but it could be a pretty rough few years while we recover.  What do you think?

Is Gold the Next Bubble? is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

And obviously, there is a very nice spike for a while.  Incentives do make a bit of a difference.  And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives.  But the spike was just that.  A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house.  What it didn’t do was return home sales to anything like previous numbers.  In fact, it didn’t even get the numbers back to 50% of what they were in 2000!  And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home.  You shouldn’t be dis-allowed from purchasing a home.  But, you still have to pay for it!  Owning a home is not a right.  The ability to purchase one if you can afford it is.  Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in.  And that crashs’ ripples are still being felt throughout the country and the world.  Creating incentives to buying a home just extends that streak.  People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down.  But, when that money comes around, what are they going to do with it?  Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again.  Sure, it won’t be anywhere near as bad as the current one, but it’ll be there.  If only we could teach people to be responsible consumers.  To not buy what they cannot afford, and to only spend what they earn or less.  If we could do that, then they wouldn’t need those incentives to buy a home.  They might actually be able to afford it without them.

New Home Sales Down is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

How would you or I know that we were in a recession?  Well, most likely, we’d learn by being told.  Of course, it’s possible that we’d have some idea based on some indicators in the economy.  Many of which exist right now in the economy.  But is it made worse by knowing that it’s there?  Is there some part of us that, knowing we’re in a recession, buckle down harder and become more frugal than if we hadn’t been told?  Is that sensible?

One thing that has/will come from this “recession” is that many people will have become much more frugal than they were before.  Many of the people who made it through the Great Depression are credited as being the most frugal people ever.  When you’ve gone through extremely lean times like they did, you learn to squeeze every bit of value out of everything.  Even today, I’ve met people from older generations who rinse and reuse their ziploc bags.  Who wash and dry their paper towels.  And those same people are likely not really sweating the current state of the economy.

My wife and I have been following (albeit loosely) the teachings of Dave Ramsey’s Total Money Makeover for almost two years now.  Our financial standing is amazing compared to when we began.  We also live in a part of the country (North Dakota) that doesn’t really feel the violent mood swings of the economy.  We feel some of the ripples, but the real waves are in places like Los Angeles, New York, and even the closer Minneapolis.  And, while we are thinking about the effect the economy could have on us, we aren’t sweating it.  It’s a wonderful feeling to have.

Now, for some positive thinking.  A brighter perception of our economy.  I have no doubt that our economy is a bit in the dumps.  I have no doubt that the dip we’re in is going to last well into 2009.  But, I think we’re on the bottom peak of it.  Somewhere in the first quarter of 2009, many companies will begin to release their earnings for the holiday season and most of the analysts will be surprised by the numbers.  Despite the perceived recession (real or not), we’ll have spent the same as we did last year and a bit more.  Slowly, our economy will regain it’s footing and begin operating more efficiently.

So spread a little hope this holiday season.  It’s been worse, and it’ll get better.  But don’t forget to learn a lesson from it all.  A little bit of frugality never hurt anyone.

Recession Perception is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

And really, can you put a value on your freedom?  And are you really free?

You get up at 5 a.m. every morning to hop through the shower, commute to some office somewhere, and sit at a desk for 8 hours so some company can make a few more bucks.  Oh, and they might pay you for it.  Are you really free?  Can you do what you please?  Why not?

We all accept the yoke of the “job” because we want things.  And we need things.  The things we need are relatively minor in most cases.  It’s the things that we want that really drive us to go to work each day.  Part of our goal as Personal Finance students (that’s what we all are) is to realize what wants we really care about acheiving.  An example; As usual, black friday rolled around with lots of great deals.  Several such deals revolved around various sizes of LCD and Plasma HDTV sets.  I really, really want one.  Badly want one.  As a result, I’ve struggled with the issue all week.  Should I go get one? Shouldn’t I?  In the end, I decided against it.  Firstly, it wasn’t in our budget.  I shouldn’t have to go farther than that, but I did.  Secondly, I’ve gotten much better about recognizing and separating wants from needs.  I do want a new fancy tv.  But I don’t need it.  And until I do, it’s going to the bottom of the want list.

Recently, there has been lots of talk about our economy and how bad it is getting.  Along with that has been talk about the thousands upon thousands of layoffs that have been announced.  Luckily, I’m not one of them.  Yet.  I really don’t foresee me joining them.  For that I am thankful.  Or at least I was until I read the Fire Fly Manifesto.  Ok, the thought of losing my job is enough to put my blood pressure into previously unseen heights and give me a stress ulcer.  But that manifesto makes it sound like it’s all gonna be ok.

It’s an incredibly motivating piece.  And I truly came away from it wondering if it wouldn’t be better if I did join the corps of the unemployed.  And then I broke out in sweats.  But I did think about it.  And there is a part of me that wishes I had the freedom of the unemployed to do with my time as I choose.

If you have recently lost your job (especially you) or if you feel that your job is threatened, you need to read this paper.  It’s short and sweet and free.  The author is pushing his site and his upcoming book, but only lightly and the Fire Fly Manifesto really stands on it’s own.  Even if you don’t feel threatened, you should read it.

What is Freedom Worth is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

So, now what?  Regardless of who wins, if you put yourself in a position for it to not make a huge difference to you, you won’t have to worry.

Following a few principles we call the Beating Broke rules, we can set ourselves up financially such that changes to the tax code and other programs like Social Security and Medicade have a very minimal impact on us.

Begin by paying off all of your debt.  Most debt is bad debt anyways.  Pay it off and you can afford to pay a little extra in taxes if you have to.  Nobody likes taxes, but the law is the law and there is very little that you can do about that.  Having fewer bills to pay frees up some money to compensate without having to take the money from another place like food or rent.  While we’re at it.  Stop aquiring more debt.  Get debt free and stay that way.

Start Saving.  Begin with an emergency fund and go from there.  Once you have an emergency fund set up, start saving for retirement, college, and that new car and house.  If you can pay cash for all those things, you don’t need to care whether social security or welfare or medicare or any other social program they put in place will still be available to you when you need it.  Financial independence from those programs frees you to worry less about those policies and worry more about where you’re going to vacation this year.

With those two steps, you can make yourself nearly financially independent from the policies of our political leaders.  They won’t help you much with their policies on foreign war, foreign relations, immigration, or many of the other policies.  You’ve still got to decide on a candidate for those things.  But if you can relieve yourself of worrying about their fiscal policies, you can focus more intently on their other policies.

Start now.  The next election is in only 4 years.

Financial Steps for After the Election is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

1. We will spend less than we earn. Saving a little out of every dollar we bring home is the
foundation of independence. Without it, we can’t build equity in our home, we can’t invest for the future, and we can’t be ready for challenging times. We promise to pay ourselves first, always.
2. We will use our home as a savings account. Besides shelter and comfort for our family,
the role of a house in our financial life is to build equity. We will have a healthy down payment when we buy. We’ll choose the mortgage that lets us pay down the principal fastest. And then we’ll leave that equity safe where it is instead of spending it on things that don’t last.
3. We will take care of our money. It’s not enough to have money in a bank. We will put it where it will grow. We’ll keep track of it. And we’ll check every account we have every year to protect ourselves against fraud or escheatment.
4. We will defend our credit worthiness. Good credit is going to be precious in the years to come. We will pay our bills on time. We’ll borrow only when we need to and in amounts we can comfortably pay back. And then we’ll do just that.
5. We will ignore unsolicited credit card marketing. We decide when we need a credit
card, not some marketer. And mostly, we probably don’t need another one at all. We won’t even open those solicitations. We’ll shred them.
6. We will know the cost of borrowing. The interest lenders charge us is real money, too.
When we buy a mortgage or finance a purchase, we’ll figure out what that interest is really going to cost in dollars, add it to the purchase price, and ask ourselves if it’s still worth it.
7. We will invest for the long term. Futures are built out of patience and prudence, not luck. We will not put off being a saver because we think there’s a lottery win in our future, in Vegas or on Wall Street.
8. We will take care of the things we have. We work hard for our money, and it’s disrespectful to waste it – or the planet – by treating our possessions as disposable.
9. We will remember what matters. We are not the things we own. If we have to spend and
spend on bigger, more impressive things to keep up with our friends, then they are not our friends at all.
10. We will be heard. Our representatives in government and the corporations we deal with need to know that we are paying attention. If we’re silent, we’re accepting the status quo, and the business practices that got our country into this situation will continue. We are not going to accept that.

Some very sound advice and a declaration that I can get behind.  Take the time to read it through and consider trying to hold yourself to it.

ING Direct has been surprising me a little lately.  Instead of doing what many of the other national banks are doing and tucking their heads in the sand, they’ve openly come out with encouragement to continue to save and build personal wealth.  I like that and that is partially why I won’t be moving my money elsewhere for a higher rate.

We The Savers; Savings Declaration from ING Direct is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.