The Story of the Bubble that Burst

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollar as there were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, A and C now each own 1 dollar while B owned a piece of land that is worth 1 dollar.

3) C thought that since there is only one piece of land in the country and land is non produceable asset, its value must definitely go up. So, he borrowed 1 dollar from A and together with his own 1 dollar, he bought the land from B for 2 dollar.

A has a loan to C of 1 dollar, so his net asset is 1 dollar.

B sold his land and got 2 dollar, so his net asset is 2 dollar.

C owned the piece of land worth 2 dollar but with his 1 dollar debt to A, his net asset is 1 dollar.

The net asset of the country = 4 dollar.

4) A saw that the land he once owned has risen in value. He regretted selling it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollar from B and and acquired the land back from C for 3 dollar. The payment is by 2 dollar cash (which he borrowed) and cancellation of the 1 dollar loan to C.

As a result, A now owned a piece of land that is worth 3 dollar. But since he owed B 2 dollar, his net asset is 1 dollar.

B loaned 2 dollar to A. So his net asset is 2 dollar.

C now has the 2 coins. His net asset is also 2 dollar.

The net asset of the country = 5 dollar. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollar. The payment is by borrowing 2 dollar from C and cancellation of his 2 dollar loan to A.

As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollar.

B owned a piece of land that is worth 4 dollar but since he has a debt of 2 dollar with C, his net Asset is 2 dollar.

C loaned 2 dollar to B, so his net asset is 2 dollar.

The net asset of the country = 6 dollar. Even though, the country has only one piece of land and 2 Dollar in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blowed. An evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollar in circulation, I think after all the land that B owns is worth at most 1 dollar only." A also thought the same.

(8) Nobody wanted to buy land anymore. In the end, A owns the 2 dollar coins, his net asset is 2 dollar. B owed C 2 dollar and the land he owned which he thought worth 4 dollar is now 1 dollar. His net asset become -1 dollar.

C has a loan of 2 dollar to B. But it is a bad debt. Although his net asset is still 2 dollar, his Heart is palpitating.

The net asset of the country = 3 dollar again.

Who has stolen the 3 dollar from the country ?

Of course, before the bubble burst B thought his land worth 4 dollar. Actually, right before the collapse, the net asset of the country was 6 dollar in paper. his net asset is still 2 dollar, his heart is palpitating.

 

The net asset of the country = 3 dollar again.

(9) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollar bad debt to B but in return he acquired the land which is worth 1 dollar now.

A owns the 2 coins, his net asset is 2 dollar. B is bankrupt, his net asset is 0 dollar. (B lost everything) C got no choice but end up with a land worth only 1 dollar (C lost one dollar) The net asset of the country = 3 dollar.

There is however a redistribution of wealth.

A is the winner, B is the loser, C is lucky that he is spared.

A few points worth noting -

(1) When a bu bb le is building up, the debt of individual in a country to one another is also building up.

(2) This story of the island is a close system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.

(3) An overdamped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.

(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the loser. The asset could shrink or in worst case, they go bankrupt.

(5) If there is another citizen D either holding a dollar or another piece of land but refrain to take part in the game. At the end of the day, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw..

(6) When the bubble was in the growing phase, everybody made money..

(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.

(8) Instead of land, the above applies to stocks as well.

(9) The actual worth of land or stocks depend largely on psychology.

Public Sector Banks impose virtual ban on personal loans

The number of defaults has been on increase due to which banks are not willing to sanction personal loans to the customers. Some of the public sector banks have even imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), while in private banks there has been a considerable slowdown in the pace of these loans.

So if you have any plans of taking personal loans to meet any expenses then it is better to go for any other option.

While some public sector banks have imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), there has been a significant slowdown in these loans in private banks.

"It is true that the personal loan market is tight and there is more caution among the banks. As some banks would be Basel-II compliant by the end of this month, there is more focus on risk mitigation," Mr Amitabha Guha, Managing Director, State Bank of Hyderabad (SBH), told Business Line.

According to sources many banks, including State Bank of Hyderabad, Andhra Bank, Vijaya Bank and Bank of India, have taken back the power from the branch manager of sanctioning loans and the zonal offices have been given the discretion or the centralized retail asset processing centers have been authorized with this power. "Clean loans are a strict 'no' in our bank now though you cannot get any thing on record. The increasing defaults and recovery difficulties are behind this," a senior official of Andhra Bank said.

However no coverlet ban has been imposed officially, the bankers are devising their own ways of discouraging the customers.

Mr Nagendra, who works for a private firm have sought for a personal loan from Central Bank of India branch, confirms this that the banks are not willing to sanction personal loans.

"I have been asked to produce salary certificates and bank statement for last three years besides property documents in my name for a clean loan of Rs 50,000," he said.

Even the major private banks like ICICI Bank and HDFC Bank have tightened up their procedures by revamping the score system.

"Compared to last year, there has been a 30-35 per cent increase in the rejection of personal loan applications in the last six months due to tough due diligence," an ICICI Bank official said.

"The fact that banks are ready to lose a lucrative interest income ranging up to 22 per cent shows things are not well," an official in SBH Retail Assets Central Processing Centre here said.

Fitch Ratings expects defaults in unsecured personal loans in India to increase

Personal loans are usually fixed rate loans, and are unsecured in nature. They do not carry any guarantee, collateral or guarantor. Given their unsecured nature, personal loans are not pleasant to the same recovery efforts that are seen in other asset classes.

Fitch Ratings said personal loan financing in India is very competitive business and this might have pushed many institutions to initiate loans in riskier segments.

According to Fitch Ratings defaults in unsecured personal loan sector in India will continue to increase. In its recently published report titled 'Indian Unsecured Personal Loan Transactions', Fitch has stated that the loan performance has continued to worsen in India since July 2007. In support to this, the rating agency had noted that delinquencies in the personal loan sector have been higher than those seen in other asset classes.

"Since then, loan and recent events have seen some lenders criticized for their recovery strategies, which in some cases may have led to other borrowers willfully becoming delinquent," Fitch said.

In response to the advertising of the engagement of recovery agents, the Reserve Bank issued draft guidelines to all scheduled commercial banks in its medium-term review of the annual policy for 2007-08 in November 2007.

In its report the rating agency stated that the immediate impact of rising delinquencies in unsecured consumer loans is on declining collection efficiencies in personal loan transactions mainly because banks are resorting to a softer recovery approach in the form of legal notices and increased phone calls.

In the long run, the regulator seems to make banks more accountable for their third-party recovery agents.

Banks going for strict norms for personal loans to keep borrowers at bay

When you enquire from the banks whether they are going slow on personal loans you will get answer as No. But there are some subjective evidences which points towards it. The banks have intentionally stopped promoting it as a product and laying more stress on home loan and educational loan melas.

Then what is the reason for this becoming an unpopular product? There are a number of reasons for not being too aggressive about this product now. Bankers, not wanting to get his name disclosed said, "The default rates are on the rise; we have to make higher provisioning to cover the risk weights; and this is making the product more costly leading to higher default. The monitoring mechanism is not easy. Borrowers prefer to default on personal loans since there is no collateral that can be seized. It is a vicious cycle."

Banks directly are not rejecting the loan applicants but have fixed more stringent norms to keep such borrowers at bay. Selective private banks in the South when asked they said they have had revised the parameters to make it a 'well-structured' product. One of such new norm says - not to lend loans to people who have held a job for less than 3 years.

Earlier banks used to give personal loans if you had been employed in a place for at least one year time period but now these straightaway rule are going to set as rolling stones for those who hop for jobs every year.

An official maintain that "We found every 10th such account giving us problems. This clause disqualifies those that hop jobs more frequently".

Banks are stressing more on investing in stock market due to which they have started refusing personal loans, for purchase of unapproved site and to those that do not have a monthly salary.

Even the loan amount approved has also come down. The approvals do not exceed five times the gross annual income as compared to seven times the gross income sanctioned earlier.

Though, some banks are stepping ahead of sanctioning loans for conducting a daughter's marriage or some other personal function at home.

The official referring to the marriage advance said, "Personal loan is relationship banking. And such advances have not gone bad". It seems you have to play the sentiment card to get a personal loan now!

Government to control inflation is attempting to lower personal loan growth

The government on Friday in a reply to question said in order to control inflation it is deliberately attempting to slow down the growth in personal loans.

Minister of State for Finance P K Bansal told Lok Sabha in a written reply in 2006-07 there was a growth of 23 percent in personal loans which was lower than the overall credit expansion. Adding to this he said government is following a policy to encourage growth while disallowing inflationary pressure.

In reply to another query, he said present there is no scheme before the government to lower the rate of interest to four per cent per annum on crop loans availed by farmers.

He informed that the government is giving interest financial support of two per cent per annum to public sector banks, regional rural banks and cooperative banks on their lending.

With regard to shortage of coins Bansal, in reply to a separate question, said shortages of coins have been reported from various parts of the country around second half of 2006-07, after which the casting of coins and their distribution through RBI has been accelerated and steps are being taken to meet the demand.

The demand for 50 paise and 25 paise coins is less as compared to coins of Re 1, Rs 2 and Rs five denominations, he added.

To another query, he told the RBI has got complaints about few instances where it has been noticed the attempts were made by some persons to use plastic cards other than credit/debit cards at ATMs to effect withdrawal of cash, particularly in Chennai.

Enjoy foreign trip, pay in EMIs

To go on a foreign tour for vacation is no longer a dream. This vacation enjoy with your family in Bangkok and pay in EMIs, this mantra being chanted by travel agencies to attract customers who wish to go to Bangkok and Malaysia but unable to afford the trip.

The agencies, in alliance with banks, are offering loan facilities for customers to pay for membership in holiday clubs.

Sony Mehta, the owner of Skyline Travels, pointed out that they are providing loan through a tie-up with ICICI Bank.

"We have tied up with ICICI Bank for personal loans. Our customers can pay EMIs according to their convenience. The trend of taking loans for vacations is slowly catching on as several people want to visit places such as Singapore, Mauritius and Bangkok but cannot get the money up front," Mehta said.

He added this has also made possible for the middle class, "easier even for the middle class to enjoy foreign tours, which was not a possibility some time ago".

"They can take a loan for a trip and, in some cases, need to pay EMIs of only Rs 3,200 for three years. This is an easy system," Mehta added.

The travel agent reported that this season the craze to travel abroad on vacations has increased. "We already have 10 clients who are going to Bangkok on bank loans," Mehta added.

Neeraj Singh, the proprietor of Club Mahendra Holidays, said they have introduced a 25-year membership option. Membership fee ranges from Rs 1.31 lakh to Rs 6.65 lakh.

"We have 3,700 resorts all over the country and a member can holiday in any one of our resorts located at places such as Manali, Goa and Bangkok. We have facilities such as kitchens at these resorts," said Singh. Apart from this members can also get a week of free holiday every year.

Regarding the loan repayments Singh said, members can pay EMIs of Rs 3,201. "This summer, demand has been pouring in for memberships and we have approximately 300 to 400 members in Jharkhand. More are joining," Singh added. Anuj Kapoor, a government official, has also planned spending his summer holiday at Bangkok.

"It was through our friend that we learnt about the loan facility for holidays. My family was quite happy to hear about such an option," Kapoor added.

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Tear Down the Borders



Remove borders on your AdSense ads. Web visitors eyes wander around the screen; borders stop them from wandering.



Removing borders from your AdSense ads can lead to a significant boost in CTR.



Use Matching Fonts



Match the font of your site content to the fonts of your AdSense ads.



Use Matching Colors



Match the colors of your AdSense ads to the colors of your site content. Make the ads look like content and more visitors will look at them.



One exception to the color matching rule is sites that are designed to appeal to scammers and spammers. Those sites sometimes perform better with highly contrasting colors.



Use Blue Links



Another exception to the color matching rule is to set the links in your AdSense ads to blue. Blue links tend to have a higher CTR than other link colors, because people have become used to clicking blue links.



Use Large Ads



Larger ads outperform smaller ads. Wider ads also outperform more narrow ads.



The Large Rectangle (336x280) is the best performing ad unit.



Use Lots of Ads



Google allows you to use three ad units and one link unit on each page.



Use them all. The more ads you have, the higher your Page CTR will be.



Place Ads Above the Fold



"The fold" is industry jargon for "the part of the page that the user sees without scrolling down". This will vary depending upon the resolution of the users screen and the size of their browser window.



Place as many ads as possible above the fold. Ads placed below the fold are seldom seen and seldom clicked.



Place Ads on the Left



Web users are accustomed to seeing menus on the left side of the web page. Move your menu to the right and place your AdSense ads on the left.



Use the Heat Map



Use the Google AdSense Heat Map to determine where to place ads. The darker spots are areas where users spend more time looking. Place your ads in the darker areas.



Integrate Ads with Content



Visitors will be reading your content. Keeps your ads as close to your content as possible to ensure that the visitors also look at your ads.



Use Custom Channels



Use AdSense's Custom Channels to test the performance of different ad sizes, placements, colors and fonts.



Don't use Low-Paying Competing Ads



Don't clutter your page with competing ads that don't pay. If a user clicks on an ad that pays you $.01, they are not clicking on an ad that pays you $.30.



Use URL Channels



Use AdSense URL Channels to determine which pages are making you the highest CTR, CPM, and earnings. Focus your efforts on building pages like those.



Use an AdSense Reporting Package



Google only supports 200 channels. If you have more than 200 pages, use AdSense reporting software to give you more insight into your AdSense earnings.



Don't Compete for Other Peoples High Paying Keywords



If a keyword is on a list of high-paying keywords, that means that thousands of spammers are already competing for that keyword.



Don't be a follower. There is no money in being one of the crowd.



Do Compete for Your Own High Paying Keywords



Monitor your AdSense URL channels to determine which keywords are making you the most money. Compete for those keywords. Build more pages optimized for similar keywords. Get inbound links for those keywords. Spend your time and efforrt on the keywords which are making you money.



Increase Traffic



In the long run, the best way to increase your AdSense revenue is to increase traffic to your web site.

I'm trying a new thing.. I took this article from a free article resource:

Grow Your Adsense Piggy Bank: $30 to $300 A Month

Maybe you've had your own "Aha" moment with Google Adsense.

I had mine earlier this year when I realized I could make more than just pocket change by featuring those now familiar ad blocks on my websites. I had worked hard building my content oriented niche sites and had expected to make decent affiliate income—which never materialized.

You see, most people online (including you and me), are looking for information. I call them "lookey-loos." They want to gather information before making a purchasing decision. This is normal behavior. However, if you are looking to earn or make online money via a web site affiliate program, you'll quickly realize that it takes a lot more than slapping banner ads and links on your site.

Although, I've made a modest amount of affiliate income, it didn't seem enough to make it worth my while, in spite of what the affiliate marketing ebook gurus said. That's the point where I decided to put Adsense on my sites. Got nothing to lose, right?

At first I was like "Cool. A few pennies a day in the piggy bank." I didn't have to do anything extra for it, so it was kind of an easy way to make some "spare change." I didn't care how much I made each day. Anything was better than looking at a big fat zero.

Then something changed. The money accumulating in my Adsense account began to grow. Hmmm. Maybe there's something more to this Google Adsense thing than I realized. Adsense seemed like a pretty decent opportunity to make money online.

This is when I got serious about the potential to make money with Google Adsense. I know I'm just one of thousands of website publishers that has recently discovered that this is one of several ways to make extra money.

So here many of us sit, anxiously checking our stats to see how much money we've made today. What is our CTR (click through rate)? How much are we getting paid per click? And so forth.

While we all hear the tales about those making thousands per day or month with Adsense, most of us web publishers, here in the trenches, are not blessed with having a gazillion visitors that produce big fat checks. We are trying to steadily grow our modest Adsense income fairly and honestly.

But what is the secret to doing that?

**WARNING: If you're interested in information on how to make lots of money quick and easy using black hat techniques or using SPAM website generators, you can stop reading now**

I believe that slow and steady wins the race—and, you'll get to keep your Adsense account for the long run. Let me give you some perspective. Google is worth $120 billion. Google stock is now valued at over $400 per share. A good portion of their profit comes from pay-per-click advertising (Adwords). Yet, online advertising is still a relatively small percentage of total (U.S.) advertising dollars spent. However, things are rapidly changing. Online advertising will see steady growth for many years to come.

The potential windfall for online web publishers is enormous. A web publisher making $30 a month today, could be making $300-$500 per day in a few short years. Those who go for the quick, unethical profits now, but lose their Adsense accounts because of it, may be kicking themselves in the future. To me, it's just not worth it.

Anyway, for those of you who think that you'll never make it to that coveted $100 per month mark so that you can join the Google monthly check club, take heart. There's still plenty of time for you to get there. However, you must get serious. You won't make the big money if you're treating your websites like a hobby.

Ok. So, here's some quick tips on what you can do to grow your Adsense profits (I'm currently making over $300 per month with Adsense by following this very strategy):

***BUILD QUALITY CONTENT SITES***

Content is King.

You will not see good CTR without quality content. Put yourself in the visitor's shoes. What's the first thing you'll want to do when you visit a crap website? Yeah, that's right. Leave. Some web publishers believe that quality content doesn't matter. That people will be less likely to click if they get good information at a site. This is not my experience. Some also believe that a crappy content site will cause visitors to click on Adsense ads to "escape" a bad site. I think this is B.S. When's the last time you clicked on an ad to escape someone's site? It's too easy to hit the "back" button or close the browser.

Your job as an online web publisher is to give people quality information. The ads are an added benefit to your visitors. If they want more information on a product or service related to your subject matter, then they are more likely to click on an ad. They will trust your site more. And, yes, my sites consistently have really good CTR. That means "high interest."

***BUILD MORE THAN ONE WEBSITE***

While a few lucky web publishers have hit the golden jackpot ($10,000 a month and up) with only one site, most of them had built up a very popular site over several years and already had tons of steady traffic (in the thousands). When they put Adsense on their sites, they saw instant big money, and they continue to reap the rewards.

You and I, down here in the trenches with fairly new sites, cannot realistically expect to achieve these lofty heights overnight. It's gonna take a lot of work to get where they are, if we ever do. Even if we don't, we can still make a nice enough income to achieve our desired financial goals. So quit obsessing over what so and so is making and focus on your own web publishing business.

Now the truth is, the more quality websites you build, the more money you'll make with Adsense. This goes for blogs too. If one site drops in clicks, then another site often picks up the slack. This is my experience. And these sites don't have to be big money makers on their own, or get lots of traffic. It's a numbers game. The more sites you build, the more opportunities you'll have to reap Adsense profits. How many sites you build is up to you, but it's not uncommon for successful web publishers to have between two and 10 sites, some have many more!

Yes, this takes a lot of work. You have to research a niche topic, keywords, popularity potential, design a decent looking site, write or hire someone to write quality content, get your site listed in the search engines, keep monitoring your site, etc. So, you'll be working some long hours in front of your computer. But think of it as building your online empire—one site at a time.

***USE HIGHEST PERFORMING AD BLOCK***

While you can test various Adsense ad block sizes and colors on your website, others have already done the research as to the top performing ad block. It's the 300x250 rectangle. This block should be blended into your web page so that it doesn't look so conspicuously like an ad. People hate ads. They don't like to be sold to. However, if your ad blocks don't scream "advertisement" to them, they're more likely to click. This has been proven.

The best positioning for ad blocks is at the top of the page (center position seems to get more clicks). Also, blue link color gets more clicks than any other link colors. But of course, you're free to experiment with ad blocks on your own site.

***TWEAK AND UPDATE YOUR WEBSITES***

No website is perfect. You can always make improvements. Change or add new (relevant) information. If your website is ranking low, try adding new information. Search engines love websites that have fresh information. You don't have to add something new every week, but you can tweak and update your sites periodically. I've had sites move into excellent search engine positions just by doing a little tweaking.

BEWARE of auto-generated feeds and content. Google is cracking down on sites that have too much automation. The search engines seem to love organic content that looks and reads like the web publisher put some personal effort into it.

***WORK ON GETTING MORE TRAFFIC***

I know. This is the 100-pound gorilla for all of us. By now you know it's not easy getting web site traffic. Whole ebook empires have been built around this very subject. All I can tell you is that there are some proven techniques, but they take work and time. One of the best ways, and the method I use consistently to get great results is writing articles like this one, and submitting them to article directories and lists. It's also a nice way to get new sites indexed relatively quickly.

You MUST keep working on getting more traffic to your websites. Traffic=Clicks=$$$

I know it can be frustrating when your site traffic is in the single digit per day category. Look at it this way, there's nowhere else to go but UP.

***KEEP LEARNING***

An important KEY to increasing your Google Adsense profits is to learn as much as you can about the business of making money online with your website. Knowledge is power. There are plenty of generous people online offering free advice on how you can improve your Adsense income.

I wouldn't be where I am now without taking full advantage of free and paid resources. Remember, you're not alone. There are lots of folks going through the same thing that you are. If you are open to learning, you CAN move forward towards reaching your income goals with Google Adsense.

***SET GOALS***

If you made $30 this month, set a goal to make $40 or $50 next month. If you made $80 this month, set a goal to make $100 next month. Having a monthly goal is a great way to stay motivated while you work on your website business. Trust me, I know. My first month with Adsense I earned a whopping $32.46. It took several months for me to make it into the monthly check club. However, with steady work, and determination to increase my Adsense income, that check has grown bigger every month.

***HAVE RESPECT FOR ADWORDS ADVERTISERS***

Adwords advertisers respect web publishers who understand that the reason they allow their ads to show up on your website pages is so that you can help bring them quality prospects. Adwords advertisers are looking for a decent return on investment (ROI) for their Adwords dollars. They don't have to run their ads on the content network. Google makes it easy for them to turn that option off—and many do.

So, keep in mind that it's in YOUR best interest to keep the Adwords advertiser's best interest in mind when you build your websites. Advertisers want to see profits just like we do. They want some of those clicks to produce sales. If they don't make enough sales, they will quit using Adwords. That leads to less money for web publishers.

There are some greedy, opportunistic web publishers out there who only care about filling their pockets with quick cash. They don't care about how much money their SPAM pages cost advertisers when they send unqualified, or barely interested visitors, clicking onto the advertiser's site. Poor quality website traffic may make some web publishers a tidy sum, but they risk being downgraded eventually by Adwords advertisers and Google itself. Google is giving their Adwords advertisers more tools to track clicks and sales conversions.

Trust me, you want to be on the good list of web publishers that can be trusted by Adwords advertisers to consistently bring them qualified visitors. That's what they are paying for. And, quit crying over low paying clicks. Google and their advertisers don't owe you a living. If you want to make more Adsense money, then you'll have to work smarter and harder.

***BE PATIENT BUT PERSISTENT***

While Google Adsense is a great way to earn or make online money, it's definitely not a get-rich-quick scheme. It'll take months, maybe even a couple of years before you realize those big check dreams. Meanwhile, keep doing a little bit here and there to build a solid online business.

Actually, what we really do is provide a needed service to people—we provide quality information to help them find what they're looking for quickly and easily. We help the "looky-loos" save time and money. We are information providers extraordinaire!

What a great way to make a living.

Understand the way adsense works:

In a very simple way, I will explain how google adsense works:

Lets say someone wants to advertise his car rental service. This advertiser goes to googles adword site, and after a short process, he publishes his ad. During this process, the advertiser excepts to pay a certain amount of money, for a certain amount of *page impressions, or a *certain amount of advertisement clicks.

Lets say an advertiser is paying google 10$ for every 1000 page impressions.

Now, you have a web site, and you would like to earn some easy money.
So you go to the google adsense homepage, and create an account.
once you've created your account, all you have to do is decide which formats of ads you would like to put on your website.

Ok, after you have set up your account and after you put the ads on your site, you start earning money.

You remember that advertiser who is advertising his car rental service? well, since your site is about Cars & Motors, google will decide to apply the advertisers "car rental service" in your ads. Why? Maybe because the person who is surfing your site would like to rent one of the cars you have mentioned on you site. Who knows.

I just don't get it. How on earth do I benefit from this?! All I want is to make some quick and easy money!

Ok Ok, I'll get to that right now.

- The advertiser pays google, for placing his ads in appropriate web sites.
- Google pays you, for allowing them to post ads on your site.

The amount of money you earn:

remember that their are two ways the advertiser pays google? Or via page impressions, or via advertisement click.

Google does not tell the exact amount of money you earn from each page impression, or from each advertisement click. However a click in worth more than an impression. And again.. Why? Because its not a big deal if someone enters your site. But entering a site, then spotting an ad, and then clicking on it- takes more of an effort than just entering your page.

I hope this was easy enough to understand.

*Page impression- Every time someone enters your site.
*advertisement click- Every time someone clicks on an advert on your site.


For more information such as:
- How to make more money threw your ads.
- How to increase the amount of people who enter your site.
- and much more,
please continue to visit this Blog.

Google Adsense, start earning money. (part 2)

Important: If you have not read part one, please do so Here.

Ok, so once you have understood how to get people to visit your Blog, you want to start making money threw it.

Google Adsense is the right thing for you.


For learning how the Google AdSense program works, visit Here.


The way to get the most out of Google AdSense.

Buy now, I assume you've clicked on the Google AdSense link above, and created an account. After learning the basics, you want to how to generate more profits to your account. Or in other words- You want to learn how to make more money.

Important Rules:

- Make sure your ads are blended into your site:

Match the color of the ads, to the color of your background. You can find good and bad examples Here. The Good example is on the right hand side, and the bad examples are all the other ads.

- The AdSense format:

Check which ad formats are best for you site. For ad formats go to Google's AdSense Formats Page. Most people find the Leaderboard (728 x 90) and the Wide Skyscraper (160x600) ads, as the ones which attract the most people.

- Link Units!

One of the new ways for getting lots of clicks is the link unit ad. Again, you can find an example Here. You need to decide which type of link units work best for you. Usually, good blended link units get the most clicks, since they seem as if their just part of your site.

Those were just a few important tips about the Google AdSense program. But believe me, if you follow those rules, you want regret it.

 

Introducing video units. Good or Bad?

Good.

It's simple. The more interactive the ads become, the more chances of people noticing them, which means an increase of the amount of clicks you'll get.

So what's it all about?

Introducing video units:
"AdSense isn't just for ads anymore; it's also a place to get video content for your site -- and earn extra revenue at the same time.

We're excited about the launch of video units -- a new way to enrich your site with quality, relevant video content in an embedded, customizable player. Simply embed a snippet of code and have relevant YouTube partner content streamed to your site. You can choose categories of video to target to your site, select content from individual YouTube partners, or have video automatically targeted to your site content. Companion and text overlay ads are relevant and non-intrusive. To further blend the YouTube player into your site, you can also customize the color scheme and layout as well as choose from three different player sizes.

If you're looking to build "stickiness" with your visitors, show quality YouTube partner video on your site, and earn extra revenue along the way, and want to know more, then review our common questions about video units."

How do I earn with video units:

"When you place a video unit on your website, you'll earn revenue from two types of ad formats: companion ads, which sit above your video content within the player and can be either text or image-based, and text overlay ads, which appear in the bottom 20% of the video content area. Ads on video units can be paid on either a cost-per-click or cost-per-thousand impression basis."

What kinds of ads will appear in the video unit?

"Video units may display two types of ads:

* Text overlay ads, which are displayed in the bottom 20% of the video as it plays
* Companion ads, which appear above the video content within the player

The ads displayed can be either contextually targeted or site-targeted, and may be paid on either a cost-per-click or cost-per-thousand impressions basis."

How do I add a video unit to my page?

"Once you have linked your YouTube account and AdSense account, it's easy to add a video unit to your page. Just follow these steps to customize and implement your player.

1. Sign in to your account at http://www.google.com/adsense.
2. Select the AdSense Setup tab, then choose video units as the product.
3. You'll be directed to the YouTube website to customize your video unit. If you're not already logged in to YouTube, you will need to do so.
4. Enter a name and description for this player that will help you remember it in the future.
5. Customize the colors and layout of the player to fit your site.
6. Choose the type of content you'd like to display in this player: automated content that's automatically targeted to your site, or content from specific categories or providers.
7. Click the Generate code button.
8. Copy the code in the box and paste into the HTML source of your page where you'd like to display the video.

Once you've saved and published your page to the web, you'll see targeted videos start to show up right away."


What kind of video content can I choose?

"There are three ways to choose video content:

* Selecting individual content providers, YouTube partners who have chosen to distribute their videos to publisher websites along with targeted ads
* Selecting content categories, topics and themes of video content you'd like to show on your site
* Automatic targeting, in which the video content you display will be automatically targeted to the content of your site. You can assist the targeting by providing relevant keywords."

How often is content in my video units updated?

"Video content is updated frequently and automatically to help ensure there's always something new and interesting for your users to watch."


How will my users interact with the video unit?

"Each video player features standard YouTube video controls, allowing users to play and stop the video at any time. While the video plays, they can click on either overlay or companion ads, and the advertiser's site will open in a new window or tab.

All video units are user-initiated, so they won't be intrusive to your site's visitors. Users also have the option to minimize the overlay ad if they'd prefer."

High Paying Ads. Extremely Important.

Ok Folks, a totally new subject. High Paying Ads.

One of the most obvious things about different ads is- they are different. (Well Daaa..)

Well yes, maybe it's really obvious, but there are still things you need to know:

Lets imagine together, that a new Hi-Tech company wants to sell a new product they invented. Lets call that company "Techy".

Now, Techy wants to let every one know about their new product, so they produce nice commercials, and they place huge posters on the streets.

Oh! What a coincidence! They also use Google Adwords!

Ok so how is this stupid 'Techy' company story relevant to me? I just want to make some money from my site! (or Blog..)

Well if you want to make money through your Google adsense ads, you better listen hard. (Really hard.)

This Techy company, makes Millions of dollars every month. (Because their product is really good..). Now, remember that Techy is advertising their product through Google Adwords? Good.

Lets continue imagining.
Your Blog/Site, reviews "new High-Tech products", and you also have Google Ads.

If you haven't noticed yet- Google is very very smart, and their technology is amazing. Google knows how to put suitable content in your site's ads. That's how and why their adsense program is so successful.

And back to our story..
As we both now know, your site reviews High-Tech products, and Techy is a High-Tech company, who wants to let the whole world know about their new amazing product.

Since Techy company has Millions of dollars, they wouldn't mind spending a few bucks for Google to advertise their product. Actually, because Techy are so rich, they are willing to pay Google lots of money for each click or impression, of their product.


This is where you and your site come in-
Google will place Techy's ads on your site, and you will earn huge sums of money for each click, or site impression which shows the Techy ad.

You can earn up to 54$, or more, for each click! Look at this short list, of what different company's are paying Google-
$54.33 mesothelioma lawyers
$47.79 what is mesothelioma
$47.72 peritoneal mesothelioma
$47.25 consolidate loans
...

For more KeyWords, just search Google for 'Adsense KeyWords'. You are welcome to use the search box on this Blog.

By now, you must be falling a sleep on your computer's screen. So wait, just one more second.

If you really want to make money from your Google ads, make sure you do not attract 'New Tooth Brush' or 'Check out this NEW Toilet Seat' ads.. I doubt they pay much..

Have a nice day, and make sure you have the right KeyWords.

Google gives out secret trick to Improve CTR!!

One of the best tricks to improve your CTR (click threw rate), is to constantly make changes to your ads.

I don't know how many of you even know about the option you have in your Adsense account, to select multiple color palettes, for 1 Adsense ad.

What does this option do, how does it work, and why should I use it?

It's very simple. Instead of you manually changing the way your ad looks every now and then, you can set it to be automatic, so it changes constantly with out you needing to do a thing.

You'll have to ask Google exactly how it works.. But what I know is that it simply modifies the code which is generated, to have the option of changing the color palette.

Why should you use it?! That's a good one..
Ok Ok.. I'll explain..

Assuming your site has visitors who come back to your site, or even if you don't, and most of your visitors are first timers and will never come back again, it is good to have a variety of ads. Different ad colors attract different people, and it is good to mix and change constantly.
People who come back to a site they have visited before, will suddenly notice a slight change in your site, and then they will look for the change, and see the different ad. Which means they got attracted to the ad (which is good).

Now, since I know you'd love to have a screen shot tutorial of this terribly complicated process, I have created one.. I made it extremely easy to follow so you'll all be happy.

Charles Schwab’s Thoughts on the Current Market Environment

Here's Charles Schwab's thoughts on the current market environment:

So what do I say when people ask what they should be doing now with their savings and investments?

I say don't do anything rash . . . stick with your investing plan. That approach has paid off in the past and I'm confident it will again in the future.

But that may seem easy to say and harder to do for many of you and I know there is no piece of advice that applies to everyone. Each of us has our own time frame and our own comfort level with risk.

I also say, don't ride the roller coaster alone. There are people you can trust to help you find your way through this. Reach out to your most trusted advisors to get reassurance about your personal situation. Every one of us approaches these periods differently. This is the time to talk about your particular concerns with someone you trust. Ask questions. Share your opinions and concerns, and get their advice.

The bottom line is that it's not hopeless—there are things you can do. And as a nation, we will get through this and come out healthy and strong at the other end.

I like Chuck.

 

Three Ways to Approach the “Birthday Dinner”

I just read a fantastically entertaining Slate article about what becomes of the birthday party between college and marriage: it "transmogrifies" into the dreaded group birthday dinner (an event so agonizing that it led the author to curse his birthday buddy in the title of the column, rendering it relatively unfit for quoting here).

Besides the annoyance of the long tables which often prevent one from even talking to the birthday girl or gal in question, and in addition to the uncomfortableness of forced conversation with his or her college/high school/work friends that you don't know, there is also, of course, the wretchedly exhorbitant tab. Which is an even bigger problem if, "as is often the case at birthday dinners, several different tax brackets were represented at the table."

Here's an excerpt from the author's tale:

Given the built-in gratuity for a party of our size, our waiter clearly realized there was nothing to lose by making the hard sell. He was getting 18 percent of whatever he could push on us, so he might as well give it a healthy shove. For an appetizer, he vigorously recommended the frutti di mare platter—an item accompanied on the menu by the dreaded "market price" designation. Working each flyleaf of the table separately, he managed to sell us three of these massive, adjustable-rate heaps of shrimp and lobster tail. One would have sufficed.

Can you imagine? I would be dying already, and before the actual orders are even taken! Usually in these birthday dinner situations, the tab is split evenly among everybody except the Birthday Person. The math is too complex - and unseemly - to attempt to split it otherwise. According to the author there are three strategies for dealing with the Birthday Dinner order.

Approach Number One:
Boldy secede from the tab. You can offer some justification such as "I'm not drinking tonight" or "I'm just going to have the salad," but however you slice it this strategy requires "unabashed cheapskatedness" the likes of which are rarely seen.

Approach Number Two:
Order as inexpensively as possible, "in an attempt to foster a norm of fiscal conservatism at the table" - or at least to lower the average cost per person. Of course this strategy is not typically successful unless you have a somewhat forceful personality. You could, for instance, berrate your fellow diners directly when they order their 3rd $12 cocktail or the "lobster for two" for one.

Approach Number Three:
Order offensively. This is the author's favorite: "If I'm going to be subsidizing the sybaritic corporate lawyer at the end of the table (who, I happen to know, wouldn't think of ordering a beer unless it was brewed by a Trappist monk), you'd better believe he's going to be paying for a tract of my baked Alaska."

I have to admit I have purposely used approach number three myself more than once. I've been at group dinners where I wanted to stop at 2 drinks, but when others started ordering a third I defiantly did as well. No way was I going to subsidize their orders, but I was somehow OK with purchasing more as long as I consumed it.

What is your strategy when dealing with group dinners?

 

Oh, People Need an Incentive to Keep Paying Their Mortgages

From the front page ($) of today's Wall Street Journal:

LOS BANOS, Calif. — In this California city, one of the hardest hit in the national housing crash, there's good news: Homes are starting to sell again.

Investors and first-time home buyers are snapping up foreclosed houses here, with the number of local sales up almost fivefold from this time last year. While the volume of existing-home sales across the U.S. fell 10.7% in August from the previous year, according to the National Association of Realtors, there are signs that the most damaged of markets are starting to heal themselves. Across hard-hit California, sales volumes rose 65% in September compared with a year ago, said MDA DataQuick, a San Diego-based real-estate information service.

Now the part of the article that ticks me off (emphasis mine):

The bad news is that the latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California's Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages.

Some stop paying, pocketing the money while they wait for their lenders to kick them out. A few lose their homes only to stay on as renters, paying hundreds of dollars less a month. Every fifth house in this onetime real-estate boomtown is in some state of the foreclosure process.

What about the incentive of keeping a good name and taking care of your responsibilities even when the times get tough? If the homeowner can afford the payment on the house and it hasn't changed, then what difference does it make if the homeowner is upside down on the mortgage? The only time the amount of the mortgage should come into play is if the homeowner has to move.

I say bring back debtor's prison—then maybe people will have an INCENTIVE to keep current.

 

The S&P 500 Index May Be Superior to the Dow But Its Performance Is Not

Check out this comment from my previous post on the Dow Jones Industrial Average:

I definitely agree that the Dow (DJIA) is built on poor math. However, historical charts of the Dow vs the S&P 500 are almost identical. So I don't think it's really that big a deal.

Well, that comment got me to thinking, "Hmm…I wonder how the Dow has performed against the S&P 500 Index over the last twenty or so years?"

I originally tried to go back to the 1950s but I decided to start with 1988 because that was the first year I had monthly total returns for both the DJIA and the S&P 500 Index. I started my experiment on December 31, 1987 and ended it at yesterday's close (October 27, 2008), using the monthly total returns for each index. I also used a beginning base of 100 to make it easier to compare their performances.

Here's what the chart looks like:

I started with a base of 100 for each index on December 31, 1987. The Dow closed yesterday at 706.75 while the S&P 500 closed at 549.45, an average annual rate of return of 9.85% and 8.53%, respectively. That's quite a difference!

From looking at the chart, it looks like the Dow really started outperforming the S&P around the time the tech bubble popped, which would make sense since the S&P had greater exposure to both tech and telecommunications.

Okay, now don't go thinking I think the Dow is better than the S&P 500 just because it has performed better. I was just curious to see how the two performed side-by-side. I'll try do some more comparisons in the future.

 

Do Landlords of Low-Income Housing Make a Profit?

I have been a subscriber to the Houston Chronicle for the last several months. It seems like nearly every day there is a front page article about how the low-income housing apartment complexes aren't being properly maintained. Apparantly, these complexes will get sited for some violation and the landlord will just ignore it.

Some of the stories are just horrendous. I remember reading about a cement staircase collapsing on two boys as they were playing. Then earlier this week a 23-month old boy drowned in a pool because he was able to slip through the iron fence that had missing bars (I won't go into why the boy wasn't being watched more carefully). One lady in that story allowed the reporter to go into her apartment. She reported seeing mold, ceiling damage, exposed wiring, and roaches. Pretty bad living conditions if you ask me.

So, here's my question for those of you who may know:

Is it possible to be a GOOD landlord of a low-income housing complex and still make a profit? Is it possible to keep things from falling into disrepair and still make enough money to pay the bills? Are landlords just greedy or are they fighting a losing battle with tennants who don't respect the property?

I ask this because I would consider investing in a low-income housing complex IF I could do it right and still make a profit. I couldn't afford for it be a charity project and I wouldn't want to do anything if I couldn't do it right.

 

Looking Back: Regulations and Financial Crises

I think the article Regulation and the Mortgage Crisis is worth mentioning. According to the author, it aims "to provide perspective" on the "finger-pointing about responsibility for the absence of effective regulation that would have stopped or moderated the crisis." It's a really interesting read.

There are two sectors where more extensive regulation might have made a difference [in preventing the current crisis]. These are the investment banks and the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Both sectors were major players in the events leading up to the crisis.

In 2004 the SEC adopted a rule that pretty much allowed the investment banks to regulate themselves. While a number of other factors were involved in this decision, the commission's belief at that time was that self-regulation would be more effective than SEC regulation. This policy was consistent with the free market ideology of the Republican administration.

In 2003, efforts to bring the GSEs under tighter regulatory control were defeated in Congress. This was primarily the work of Democrats, who feared that tighter regulation would crimp the ability of the GSEs to meet affordable housing goals.

The author refers to the decisions of Rebuplicans and Democrats which ultimately helped set the stage for this crisis "a tie" as far as political blame is concerned. He also hastens to add that "an only slightly less severe" crisis would have occurred anyway for reasons below.

Deregulation - defined as the removal of existing regulations - was not a factor in this crisis. The article explains that the only significant financial deregulation legislated in the past three decades applied to commercial banks. "Restrictions on where they could branch, and on their involvement in investment banking, were both removed. Most economists, including me, believe that these actions made the banks stronger than they would have been otherwise."

The author then goes into an interesting historical explanation which explains that regulation itself is a weak defense to financial crises because regulations always tend to look backwards. For example, regulations on the Savings and Loans in the 1970's were very strict - but the regulatory system was geared to preventing S&Ls from taking on too much default risk because, historically, that had always been the major problem. The exposure of S&Ls to interest rate risk was not controlled, which led to the huge financial crisis that many of us remember in the 1980's.

S&Ls were encouraged to make long term fixed rate mortgages and loans with short term deposits. When interest rates spiked in the 80s the cost of deposits jumped, but revenue from loans stayed the same. Enter S&L crisis.

The policy changes that were introduced following the S&L crisis were largely designed to prevent another crisis of that type. Among other things, associations were authorized (and encouraged) to write adjustable-rate mortgages (ARMs) on which rates would adjust with the market. This would make S&Ls as well as banks less vulnerable to swings in market rates. Enter current crisis.

In short, regulations always have unintended (and usually unforseen) consequences which can sometimes cause problems just as bad ans the crisis they are designed to prevent. I'm sure Congress will shortly enact all sorts of regulations that will prevent a similar crisis to the one we've got now from ever happening again. I just hope whatever other consequences they inadvertently cause down the line aren't too destructive…

 

My Favorite Warren Buffett Sayings

I was reading through Mary Buffett & David Clark's The Tao of Warren Buffett* this morning while waiting to get my oil changed. It's a great little book that takes different sayings and thoughts from Warren Buffett and explains them. Anyway, here are a few of my favorites from the book:

No. 6

"It is impossible to unsign a contract, so do all your thinking before you sign."

I love it! It reminds me of point number five from my post, Lessons From Hell.

No. 17

"You should look at stocks as small pieces of a business."

As the book points out, when you buy a share of stock, you are actually buying a fractional interest in the business. Follow Buffett's example before you buy a stock: multiply the share price by the number of shares outstanding and then ask yourself if that price would be a good deal or not if you were buying the entire business. If the answer is no then don't buy the stocks. Good advice.

No. 35

"I look for businesses in which I think I can predict what they're going to look like in ten to fifteen years' time. Take Wrigley's chewing gum. I don't think th eInternet is going to change how people chew gum."

I have nothing to add to that!

No. 38

"Read Ben Graham* and Phil Fisher
*, read annual reports, but don't do equations with Greek letters in them."

Buffett's approach to investing is a combination of Ben Graham's approach and Phil Fisher's approach. Ben believed in buying at a low price and Phil said to buy great companies. Buffett likes both.

No. 40

"If principles become dated, they're no longer principles."

The author's explain that Buffett figured out that Ben Graham's approach of buying cheap companies regardless of their underlying economics, no longer worked because there were too many people doing it. So, Buffett had to alter his approach and began buying great companies that had a competitive advantage.

No. 65

"Wall Street makes its money on activity. You make your money on inactivity."

I remember listening to a broker on the phone with her client, telling them that they need to sell a particular stock because it was up 25%. That was her only reason for wanting this client to sell. Oh, and yes, she made a commission on the transaction.

No. 79

"When you combine ignorance and borrowed money, the consequences can get interesting."

Hmmm… Sounds kind of like this credit crisis, doesn't it?

And last…

No. 84

"I buy stocks when the lemmings are headed the other way."

Yes, it takes guts to buy stocks that everyone else is selling but it makes much more sense than buying the same stocks that everyone else is buying. Just be sure you know what you're buying.

 

Some Interesting Findings From a myFi Survey

Jonathan Clements, former columnist for the Wall Street Journal and now the Director of Financial Guidance at myFi.com, sent me a copy of the press release for a recent survey that was conducted for his firm.

Here are some of the findings:

If the current financial crisis were a baseball game, the typical American thinks we're at the end of the fifth inning, according to a recent survey of 5,000 people conducted for myFism, short for "my financial life," a new financial service from Citi. myFi is part of Citigroup Global Markets Inc. (member SIPC).

In the study, Americans seem to blame the crisis partly on excessive consumer spending—and many are looking to cut back:

• 63% say they'll spend less on holiday gifts this year.
• 61% plan to reduce spending on major purchases over the next 12 months.
• 56% are looking to spend less on travel and vacations.
• 61% say they will eat out less.

Who's to blame for the credit crisis?

This, too, is interesting:

Who's responsible for the current mess? There's plenty of blame to go around. Among those surveyed, 72% blame the financial crisis on excessive spending by American consumers, 64% blame Wall Street, 62% blame excessive borrowing by homeowners and 59% blame the federal government.

This must have been one of those "choose all that apply" types of questions. I am surprised that nearly 60% of those surveyed blame the government!

Finally, the last thing I want to point out is that only 32% of those surveyed thought now was a good time to buy stocks. This is surprising to me because stocks are down so much this year. How much further would they have to drop in order to be considered a good buy? I have a sneaky suspicion that in the minds of most people, the more stocks drop the less of a bargain they become—even though the opposite is true.

You can read the rest of the press release here. If you have any questions, leave a comment and I'll see if I can get Jonathan to answer them for you.

 

investissements

http://www.drivehq.com/file/df.aspx/shareID812131/fileID141824936/investissements.pps

 

Investing in Indian Equities

http://www.drivehq.com/file/df.aspx/shareID812131/fileID141657473/Investing_in_Indian_Equities.pps

 

Where To Put Your Money Right Now

This is for anyone who has under 250k dollars in stocks and bonds and also has debt.

If you listen to me, I GUARANTEE YOU that you will earn a greater return than 90pct of the richest, supposedly smartest money managers ON THE PLANET. All those Wall Street fat cats, they can’t earn as much on their money for you as I can help you earn.

Sound too good to be true ? Read this and decide for yourself.

First thing to understand is that Wall Street wants you to believe that if you give them money, every month, forever, to buy stocks, that you will most likely will earn 7 or 8pct per year. When compounded, your money will double every 9 or 10 years. Sounds great, right ? One problem with it. You know what you would call someone on Wall Street who made you 7 or 8 pct a year, every year without ever losing money in a year ? Non Existent. Those managers don’t exist.

You can however do what they can’t and even better if you do the following:

1. Write down a list of every penny you owe to anyone and the interest rate that you pay on that amount. Your mortgage, your car payment, your student loan, the Rent A Center TV and Dell Computer Loan, your loan shark, your uncle or grandparents and most of all your credit cards

2. I’m willing to bet that you have absolutely no idea what your true, effective interest rate is on any of the above. Between penalties for using the wrong type of stamp, being 37 seconds late, and moving interest rates that are triggered by every crazy thing, its hard for anyone to know. However, a glance at Citibank Platinum Select Mastercard details as an example, would tell you that if you are late on your payment, your rate is:

“All default APRs equal the greater of (1) the Prime Rate plus up to 23.99% or (2) up to 28.99%. PLUS LATE FEES of 10pct OR MORE ON BALANCES UNDER $250 !!!! (There may be something in the fine print that asks you to bend over too, but my eyes couldnt focus on print that was that small….) “

All of Wall Street would give you the choice of either testicle to be making returns that high. A quick glance at IndexCreditCards.com tell us that not only are the average rates for any card, higher than the biggest promises from the best Wall Streeters, but they have been trending higher.

So in a nutshell, while the interest rate on your credit cards is going up, the return on your investments has been going down. You know what they call someone who keeps on giving money to their stockbroker, mutual fund or 401k, but doesn’t pay off their credit card balance in full every month, BROKE AND STUPID !

The first thing you do with your money is if you have money market funds, you take the money out and pay down your credit card debt. If that doesn’t pay it off. This is what you do next:

You make a list of every stock, bond, fund, whatever you own, and mark what your cost is, the current market price, the current dividend yield on your cost basis, if any and whether it is in a 401k, fund or brokerage account. For any stock or bond at a brokerage account that is yielding less than what you are paying in interest rates on your credit cards, and for which the current price is less than what you paid for it. YOU SELL IT. When you call your broker to get the prices, you do not let them give you a bunch of BS about why you shouldn’t. YOU SELL IT.

You dont hold it to see if you can make money with it. If you love it, you immediately fall out of love with it. ITS A FRICKING STOCK, not a family member, and you sell it. You take that money and you pay down your credit card debt.

Then you start with the stocks/bonds you have made money on. Beginning with the stock/bonds you have made the least amount of money on, if it isn’t yielding you more than the interest rate plus late fees that you pay, you start selling, and selling and selling. Sell as much as you need to until you can pay off your credit card balance.

Once you have sold enough to pay off your credit card balance, you RIP UP YOUR CREDIT CARDS and replace it with a debit card. The only way Credit Cards cost you less than 9pct, or possibly as much as 40pct or more is if you pay it off monthly. Debit cards make that happen automatically. You cant afford to pay 9pct, 40pct or more. Both are far more than you can expect to make in the stock market, or any market. If you have gotten here to this point, and you just tore up your credit cards, YOU HAVE JUST EARNED A GREATER RETURN ON YOUR MONEY IN THAT PERIOD OF TIME THAN ANYONE ON WALL STREET COULD EVER EARN YEAR IN AND YEAR OUT.

If you still arent to the point of paying off your credit card, its time to borrow against your 401k. Switch all your money from whatever funds to insured, guaranteed funds like money markets. Then find out the rate of interest you pay, how long you have to pay it off (usually 5 years), and then borrow the money to pay off your credit cards. I have never seen a 401k that charges more than credit cards in interest. Credit cards accrue interest and penalites a lot faster than you can earn and accrue interest and returns in your 401k. So borrow the money, pay off the credit card, and start paying back your 401k with what your credit card payments were. You will have your 401k loan paid off a lot faster than you could ever pay off your credit cards.

Once your credit card is paid off, then you go to your debt list and pick out the next highest interest rate and start the process all over again until all your debt except your mortgage is paid off.

If after paying off all your non mortgage debt, you still have money left, then you need to sit down with someone who knows your tax situation. Since mortgage loans are usually deductible, ask them to help you figure out what your effective interest rate is on your mortgage and what your outsanding balance is. If you are fortunate and your net effective rate is less than 7 or even 8pct, and you can make the monthly payments, then you probably don’t need to do anything with your mortgage.

If you have a mortgage that is variable in any way , shape or form, you are probably paying more after tax in effective interest rate than you can earn on your money anywhere that is legal. With this information in hand, you and your accountant or whoever you turn to for help (and please make it someone who really knows what their doing, not someone who got a refund using some tax software) can set up a meeting with your banker, or whoever happens to own your mortgage if you can find that person, and start discussions on how to buy down, pay down , buy out, or pay off your mortgage. They may say no, but if you can get them to renegotiate, and these days thats a very real possibility, you should be able to get a greater return from this process than you can get from the money being in stocks, bonds, or any thing else for that matter. This is particularly applicable if you have a subprime , ARM, or any type of variable rate mortgage.

If you have read this far you have hopefully picked up on the basic principle of debt vs investments. The people who lend you money can guarantee you that they are going to charge you a ridiculous percentage, and throw on top of it, any and every fee they can, thereby increasing the effective interest rate you pay. They can do it every year forever.

On the other side, no one in the universe can guarantee you that they can earn you more than what Consumer lenders like credit card companies charge you in interest. No one. If they could, the lenders wouldnt lend the money to you, they would give the money to those people to invest, right ?

If it takes selling every stock, bond and whatever you have to pay off your debts, do it. If it means borrowing against your 401k and paying back yourself instead of the credit card or finance company, do it. It is a far better return than you will ever make putting that money elsewhere.

If none of this applied to you. You kept your debt at levels that you could afford and at rates that were fixed and low, congrats. Hopefully this just reinforced what you already knew.

If on the other hand, this set you on the right path, and you still have money in stocks and bonds, you are fortunate. You probably need to make sure that what you own is very, very safe and not at risk. My recommendation is 6 month CDs, you can probably go to your bank and convince them to pay you 4 or more percent. If you havent heard, there is a bank liquidity crisis. Banks want your money. They have been ripping you off with credit cards all these years, go take some of their money…

One last point. It would not be out of the realm of possibilities to see a collapse of credit card debt like we saw in mortgage debt. Default rates are going to go up. That means credit card company income is going to go down. You know what banks do when their income goes down ? They try to figure out more ways to charge you more money to make it up. Which of course pushs up default rates. Its a viscious circle and you pay the price.

Get out now while you can.

 

Mark Cuban: Where to Put Your Money Right Now

Yesterday's Houston Chronicle basically reprinted this October 15th blog post by Mark Cuban: Where to Put Your Money Right Now.

His main point is that it makes no sense to pay interest on debt that is greater than the return on your investments. I agree. However, I'm not sure I like the idea of selling current investments to pay off debt UNLESS that debt is exceedingly high and you have no other means to pay it off.

Unfortunately, I don't know a whole lot of people who have tons of debt on one side of their balance sheet and lots of investments on the other side. Usually high credit card debt is a symptom on poor money management skills and someone with poor money skills doesn't usually have investments. All this means is that IF a person doesn't have the funds available to pay off their debt then they're going to have to make some decisions and come up with a different plan. But, he is absolutely correct in his pleading for American's to get out of credit card debt! I'll second that!