OK – Let’s give the Recession a break this time around and talk about something else for a bit. The Holy Grail of Life – the Secret to being successful.

It must be more than a coincidence – I looked closely at some immigrant families that  have migrated to the US,  and I saw that almost all of them have characteristics that fall into several of the following : Successful, Highly Educated, Thrifty, Rich, Happy…you get the drift. So I thought to myself, what are these folks doing that makes them so successful? They must have some magic mantra chant. My research led me to the following facts which seem to have a major influence upon their success:

1. Relationships are for keeps - If you want your partner to be perfect, then you’d better be perfect too. Since being perfect is impossible, it follows that neither you nor your partner is ever going to be perfect. So, once you enter a relationship, don’t take the easy exit. No relationship is going to be perfect, so learn to live with imperfections.

Financial Impact – No messy divorces, no alimony, peace of mind.

2. Stretch your legs only as far as the edge of the blanket you own - in other words, learn to live within your means. Of course, use credit if you must, but use it wisely. A friend of mine confessed that he was able to save about 45% of his monthly take home salary (ok, no mortgage), but isn’t that great? This rule would also mean – no maxed out credit cards, no new flashy car till the old one breaks down, no Bahamas cruises….and so on.

Financial implications – More money in the bank, more savings, emergency fund, secure future.

3. If you want something, be ready to give something up too - In other words, Sacrifice is the name of the game. You want an emergency fund in the bank? Then cut the cable TV out and watch TV online instead.  You want to visit your family back home abroad each year? Then skip that expensive 1080p Plasma TV. You want that nice family home in 10 years? Then replace the BMW buying plan with the Camry buying plan instead.

Financial Impact – Excellent long term returns.

4. Make your kids successful, sacrifice for them - We all want our kids to be successful. To ensure this, make sure you sacrifice your personal time. Are the kids exams nearing? Then, cut down on the outings to the mall and the TV times. Kids grades slipping? Punish the entire household by cutting TV time, Gifts, Movies and Outings. Ensure that the kids get the message that studies are critical – to everyone in the family. Who are the kids hanging out with after school? Make it your business to know.

Financial Impact – Comfortable old age. Rich kids pick out fancy nursing home for you in your old age.

5. Learn the value of money and teach it to the family as well, be frugal, not a Scrooge - Practice thrift and teach it to your kids too, but don’t go overboard. Buy the right stuff in the right place. Use coupons but avoid a coupon obsession. Cut the Plasma TV, but buy a good TV for the family room.  Buy that purse you liked, but stay within budget but buying it on sale instead. Get the kids the Wii, but only as a Birthday gift. Switch off the lights when you leave the room, but even more critical, ensure that the kids do it too. Give the nephew that birthday money, but as a Savings Bond, not cash to spend.

Financial Impact – More money in the bank, financially educated family, Excellent long term returns.

Welcome to Part 4 of the Recession Series. While not exactly essential, I strongly suggest that you peruse Part 1, Part 2 and Part 3 before you read any further into this article.

I wanted to title this post “How the hell can a bank go Bust – when it was  worth billions such a short time ago?“, but that title sounded far too long, so I shortened it a bit. As you’ve guessed, in this post, we are going to try and understand how a large bank (such as WaMu, Bank of America or Lehman) can go bankrupt. We will start by understanding how a Bank works in it’s simplest form and then move into the complex scenarios, again in simplified form.

The business of Banking, in essence, is straightforward. Let’s assume for the sake of example that you are the CEO of GU Bank (which proudly stands for Growing Up Bank). GU Bank takes money from people as Deposits, on which it pays them a low interest rate, say 3%. Then, GU Bank finds someone who needs money and lends the depositors’ money to them at a sufficiently higher interest rate, say 7%. The Bank earns for itself the 4% difference generated between these two transaction percentages as profit. Once this is complete, the Bank repeat this process over and over – that’s it. Simple, isn’t it?

There are some limitations to the above Banking methodology. We’ll talk a bit about them below:

1. You cannot lend what you don’t have – In other words, if the total deposits in your vaults is 1 million – that the maximum amount that you can lend out (minus government restrictions, CRR etc etc).
2. Your Bank and you are competing against the other Banks out there - some of who have more deposits than you and can outpace you easily. In other words, you need much more than what you have, if you want to grow against the tough competition.

So, from the 70’s, Banks that wanted to grow came up with two innovative ideas to generate money: Dipping into their own money chests and, Getting investor money – both of which we discuss below.

1. Over time, Banks had saved off a part of their profits for rainy days. With the competition in the market becoming more and more intense, Banks began to dip into this rainy-day fund to start getting money to increase their lending power.
2. Banks moved into Wall Street as institutions and started selling pieces of themselves as shares. Based on their reputation and marked standing, they were able to garner investor money by selling part of their ownership through Stocks. This provided even more money for lending.

Soon, things at GU Bank reached a point where the deposits in your vaults totaled 2 million. However, by dipping into your emergency funds and selling pieces of yourself in the Stock Market, you are able to raise capital that equals another 40 million. Hence, GU Bank now has 42 million available to lend. Compare this to your competitors who are still lending only what they have in Deposits – you soon realize that GU Bank is now firmly in the Big League.

The only thing that stops you is this (silly) Government law which stipulates that that maximum amount you can lend is 15 times the cash you have. Since you have 2 million in the vault, you can lend up to 30 million only. And you wonder – How old-fashioned – whoever heard of  loans being backed by deposits in this age?

However, what you have NOT realized (or blinded yourself to – same thing) is that a lot of the money you are lending out as Loans is now YOUR OWN and if the Lender fails to pay back the loan – YOU will be directly hit. Compare this with the traditional Banking business where you are lending out Depositor’s money, not your own.

But hold on a second – while you’ve grown your Lending Funds out of nowhere, your competitors have realized your trick and they’ve done it too. In other words, the entire Banking industry out there has now realized how to blur the line of distinction between a Bank and an Investment House,  everyone is dipping into their savings and selling pieces of themselves in the Stock Market and pretty much everyone out there has tons of moolah to lend and is looking for Borrowers. There’s a craze in the market to lend and every Bank out there is trying to get you to borrow more and more money from them.

Here are some samples of what Banks did with all this crazy money in the 00’s:

1. Industry leading salaries and record benefits to employees
2. Multi-million dollar bonuses to executives
3. Stock Buybacks – Buying back company stock from the open market
4. Sports Sponsorships
5. Private Jets for company executives

The list is long and crazy…

But even this was not enough, In 2007, Henry Paulson, the US Treasury Secretary and former CEO of Goldman Sachs pushed the US Lawmakers to lift the 1 deposit = 15X loans restriction as well. In other words, you were now free to lend everything you had.

Based on our example, Growing Up Bank has deposits of only 2 Million. It raised another 40 million but was able to lend out only 30 Million. Thanks to this new amendment, the Bank is now able to lend out the entire 42 Million.

Wow – you and Growing Up Bank are now at the top of the Big League. You’re having parties on your private yatch for your private guests, your wife is busy with buying those crocodile-skin designer bags, your Kids go to a private top-of-the-line school with their Nanny – in other words, you’ve got it all.

So what’s next? Next comes the Big Downturn, which we will talk about in the next post.

It all began when I visited our local grocery store here in Pittsburgh, PA with my four year old daughter (whom I fondly refer to as my four year old monster – but that’s a topic for another day). All I intended to buy was a loaf of Italian bread and some fruit. The list extended partly because my wife kept calling me to tell me about stuff that she’d remembered and partly because I remembered some other things as well.

So what did I end up buying, you ask? Here’s what I emerged with when I stepped out:

1 Italian bread sliced
5 bananas
1 Gallon of Milk (Whole)
1/2 Gallon of Milk (2%)
1/2 Gallon of Apple Cider
1 pound of salad from the Salad Bar
1 package of “Herbs for Fish”
1 bottle of Extra Virgin Olive Oil
1 package of carrots
1 pack of frozen peas
1 pack of Popcorn Chicken
1 pack of Portobello mushrooms (sliced)
1 pound of chicken

Additionally, I also had a personal pizza and a bottle of diet soda at their little kitchen outlet.

Needless to say, I exceeded my planned budget by about 250%. Of the entire list, what items did I really need? That’s easy, just the bread, bananas, peas and the milk.

Have you ever had buyer’s remorse when you returned from the supermarket or the grocery store? I have, on several occasions and I’m working out a strategy to deal with this sort of situation. I’ve got a lot of tips from various blogs on the Net as well. Here are the basic points to follow:

1. Keep a pad or a whiteboard on your freezer where you write down things you need/run out of – as you remember them. For example, when our toothpaste is about to run out, I write down “toothpaste” on it.
2. Set up a shopping schedule – so you don’t shop for groceries when you have “free time” – you shop when you hit your schedule time. For example, we try and shop every week and half (and never on weekends).
3. Shop on weekdays if possible. Shopping on weekdays equals lesser time to shop equals lesser money spent. It also means lesser crowds.
4. Ensure that you shop at the right place for the right items. For example, the local Wal-mart is great for branded, packaged goods such as Yogurt, Toothpaste and lightbulbs while the local grocery is best for veggies and greens.
5. Before you hit the store, grab a cup of coffee from home. That will avoid you hitting the in-store coffee shop. As you hit the store, remember that you are visiting to buy what you need – not what you “want to buy”. You are already armed with your shopping list and you stick to it.
6. As you go through the store, avoid talking to employees or tasting the free samples. Both of these equal more temptation to buy stuff you don’t need.
7. Take a basket, rather than a cart. The constantly increasing weight on your arm will warn you that you are splurging and stop you sooner.
8. At the checkout line, avoid the “easy to grab” stuff near the register – it’s designed to get you to buy stuff that maximizes store profits. If you want gum or soda pop, it should have been on your shopping list anyway.
9. When you pay, use a reward points or cash back card to maximize returns.
10. At the register, always remember to use your store-rewards card if they have one. For example, at our local grocery store, you get 1 cent off on gas each time you spend $5. Use these rewards to your advantage.

Do you have any other tips you would like to share? let me know.

It sounds quite surprising but it’s true – you can really save up to $200 a month by just fine tuning your breakfast meal – notice I said “fine-tuning”, not “skipping”.

If your morning routine is like mine, then you are having two cups of coffee every morning and a bite to eat. For me, the two coffees are at 7:30 am and 10:00 am every weekday when I go to the office. Right next to my office building is the local Starbucks and I should warn you that if they awarded bonus points for frequent customers, I’d be close to 500,000 points by now. The cost of all this extravagance is a cool $7.00 per day – because I really like their cappuccinos and mochas (and partly because I was lazy).

In addition to the coffee, I also like to eat a quick bagel with cream cheese or sometimes a Bagel with egg and cheese – usually the latter – at the local Bagel shoppe. The cost of this is between $2.25 to $3.20 per day. Therefore, my monthly breakfast cost was between $185 to $204 – or about $195 on average. In other words, every morning, I’ve been blowing about $10.00 per day or a cool $200 per month at minimum.

A few months ago, I decided to tighten up a bit (well, a lot actually) and this was one area I looked carefully a optimizing. So here’s what I do now:

1. When I leave the house in the morning at 6:45 am, my wife makes me a coffee and I carry it with me in a sealed coffee cup so that I can keep sipping it on the way to work. Cost of the coffee was $3, but it will last us for at least a month, so with milk and sugar, the daily cost would be about 25 cents at most.
2. Ditto for the breakfast – Bagels and cream cheese come much cheaper when you buy them in bulk and freeze them instead of buying them from the Bagel shop on a daily basis. Cost of a bagel with cream cheese would then be $1.00 while an egg and cheese bagel sandwich would be about $1.30 (estimated).
3. My second coffee of the day, which used to be a White Mocha, has now been changed to a small cup of Arabica from the office cafeteria. Cost of the cup is 94 cents in all.

Thus, with the above measures, my daily breakfast cost is between $2.19 to $2.49 which is a total of about $50 per month. Therefore, my monthly savings are $195 – $50 = $145. If you consider that most months have more than 20 working days or that I regularly use coupons to buy the bagels and cream cheese, then the savings would actually climb to more than $150 per month.

In addition to the above financial benefits, I’ve derived the following other benefits:

1. I’m using lesser cream cheese and cut my white mocha out – so my fat and cholesterol intake has reduced.
2. My homemade coffee is lighter and whiter so I’m basically cutting down on my caffeine intake too
3. I shut down my Starbucks credit card, thus reducing the temptation to drink even more coffee and spend even more money
4. I’m saving the time it takes me to walk down to the store and back, thus letting me work a little bit more and get more done at work.

Though I’ve made a great start, I haven’t really got all the way there yet. There are still some more things I could do to save even more:

1. Carry a little thermos so I can take more coffee from home and cut out that second cup from the office cafeteria (and save more too)
2. Kick the caffeine addiction altogether – good for my body and great for my wallet
3. Replace the Bagel addition with something healthier like cereal – more nutritious too.

Have you seriously considered tuning a meal to save money and eat healthier? Let me have your ideas.

Kids!! What would I not give to be carefree and have boundless energy?

If you’ve caught yourself saying this many times, welcome to the group. Kids are the ones that keep you lively. Just when you think you’ve got them figured out, they do something you’d never thought of (like growing up!)

If you have a kid like mine, you need to find ways to keep your kid/kids occupied, without breaking the bank (or your monthly budget). Here are my top five ideas for keeping your kids occupied and happy, spending high quality time with them, but spending very little money:

1. Visit the local library with kiddo: This is my personal favorite. Going to the library is an outing, it’s a great way for parents and kids to cozy up with a book and best of all – it’s free. If your kid is old enough to read, pick up a book for yourself as well as for them and sit down for a good old reading session. If your kid is not old enough to read yet, read to them from a book. This is a great way to emphasize to them the importance of reading as well as give them a great starting point to being a well-rounded personality.

2. Friends, Relatives & Grandparents: If you are well-acquainted with neighbors or friends that have children of similar age as your child, invite them over for a play session, or take your kids to their place for an outing of fun. Keep the session to about two hours or lesser and emphasize that your kids must be on their best behavior at all times. This is also a great way to teach kids to socialize outside school. If you have parents that live nearby, that’s even better because Grandma and Grandpa love to see their grandchildren (don’t forget to call first, though!!) and their children (face it, how long has it been since you spent time with your parents too?)

3. Chuck-E-Cheese’s: A perfect place to visit post dinner especially on Friday and Saturday nights. Place emphasis on the “post dinner” part though. I frequently use those “buy 25 tokens, get 25 free” coupons and my daughter loves it. The occasional coupon makes Chuck-E a great treat for her. We carry a bottle of water and don’t eat or drink anything in the store but have loads of fun all the same.

4. The Local Grocery Store: I’m serious. If you look closely, you will find that grocery stores are engaged in a competition these days. They are trying out various things to attract and retain customers. Some stores offer 5 cents off on gas when you spend $50 with them, others offer reward points and so on. Our local grocery chain is engaged in a fierce customer-loyalty battle with Walmart. They offer this great free wi-fi cafe and a little kids play area in their leading store. The idea is that you drop your kid off to play, they watch over him/her while you take the grocery cart and shop – and spend a lot of time which equals a lot of money too. What I do is to drop my daughter off, finish off my shopping real quick, grab a cuppa in the cafe and then sit down with a laptop. While I’m having fun blogging, my daughter’s having fun in the play area. While this option is great, I’m not a great fan since I’m not really spending a lot of time with my daughter this way. We do this about once a month, though.

5. The Mall: I know what you’re thinking, how on earth could this be a low-cost option? It’s easy – just visit the mall right after lunch. All you need to do is to take kiddo to the kids-play area in the mall. Grab a coffee along the way and let your child stretch their legs a bit. My daughter loves this very much. Whenever my wife wants to visit the mall, this is what my daughter and I do. We visit the mall right after lunch, I baby-sit my daughter in the mall’s play area for kids and my wife shops. My daughter has met a lot of kids there and it’s nice when she plays make-believe games with them.

Do you have other ideas that allow you to have fun with your kids while spending zero or very little money? Please share them by commenting on this article – I would love to hear back from readers.