Everybody Wang-Chung tonight

"My favorite color is magenta." -- Valley Girl, best '80s movie of all time

So good news -- I got offered a freelance writing gig! This is amahzing (per Rachel Zoe), and lit.rully couldn't come at a better time. Lately J and I have given new meaning to the words "frugal living." Quite embarrassing, some of the lengths we've gone to recently, but he made me promise to never mention nor blog about our little escapades, and so they shall go unnamed. Sometimes we don't know whether to laugh or cry in the throes of our absurdity. Thankfully we can still laugh.

I don't want to reveal who I'll be freelancing for yet, but it's a news site for stock market investors, which means I'll be writing financial news articles, profiling publicly-traded companies, the broader stock market, etc. It basically sounds exactly like what I was writing on at my last job, except this time I'll be able to do all my writing in my fluffy pink bathrobe at home. Score.

My contact there is a good friend, and he also made it sound like they might have a need for a freelance editor soon. Double score. It's nothing close to what I was making at the job I left, but it's more than what most publications pay nowadays for "latest headline" articles and, well, money is money, right?

So, pros to taking the job:

• Don't have to deal with annoying co-workers in an office. Oh there were a few gems I worked with at my last job, but most irritated the hell out of me...and the rest of my office. Back then I savored in the days when I could telecommute and not deal with the petty office drama.

• I can take the work as I want it and not for eight fixed hours per day (which I wouldn't do anyway, as financial news writing is not a priority right now).

• Will keep my portfolio updated with current clips.

• Did I mention the fuzzy pink bathrobe? Yeah, it's even more appealing when it's pouring/snowing outside and I get to watch everyone else trudge to the apartment shuttle on their way to work. Muwahaha.
  

Cons:

• I love following the stock market, and I love investing in stocks. Sometimes, though, writing about finance can get a little stale (especially if mutual funds are involved). At my last job I was given lots of artistic license to be as creative as I wanted in my writing, but I'm not sure if they'll like that at this new gig. Then again, we need money. Bad. I think I can throw my qualms out the window for some pocket change. At least it's still writing and I get a byline, and not, say, ghostwriting/marketing/PR, which is what my last position quickly turned into.

You heard it here first. Now go celebrate and Wang-Chung for me.

Learn the Lingo: Balance Sheets

It's not breaking news that most stocks have gone to hell in a Marc Jacobs handbag. With General Motors now trading for under $2 per share, and Citigroup trading under $1, sometimes it feels like this is The End, beautiful friend. (Thanks, Jim Morrison.) Eventually though, whether it be next year or 5 years from now, stocks will rebound and there will come a time when you may *gasp* actually consider investing your money in the markets.

And when that time comes (fingers crossed), you'll be happy you know all the lingo surrounding stocks and trading, right? If you're ever going to invest in the market, you'll need to know the basics. Trust me, you don't want to be stuck at a cocktail party, nodding along cluelessly as those around you discuss balance sheets and debt-to-income ratios. It's not a pretty sight.

That vacation house in Acapulco will always be a pipe dream if you aren't willing to put in the work to get there. Fortunately for you, the work is piece of chocolate ice-cream cake (zero calories, of course).

Not understanding the nitty-gritty in finance (such as what a stock is) would be like trying to do open heart surgery without knowing which heart valve connects to what. Imagine your pot of money as your patient, and you are the doctor. Do you want your patient to live longer and grow, or do you want it to disintegrate and fall apart? I don't know about your neck of the woods, but in mine, it's just considered poor form for a doctor to operate without understanding the fundamentals. This analogy should extend into your fiscal life. Ok, so maybe the stock market, money market funds, CDs, etc. aren't as complicated as open heart surgery, but a gal needs to keep her wits about her when money is involved, which means learning working knowledge of the basics, or terms.

And the term du jour is balance sheet, or a statement of what a company, let's say Google, is worth on the date it's printed. Balance sheets are typically divvied up to you, the shareholder, about four times per year, or every quarter.

Still with me? If you see anything about a "Google's Q1 2008 profits," for example, that means the profits were reported in the first quarter of 2008 balance sheet. Q1, Q2, Q3 and Q4 all relate to which quarter is being reported, and is usually followed with corresponding year. So if you hear about predictions for Google's Q3 09, that would be their third quarter of 2009. Pretty snazzy.

What's on a balance sheet, you ask? Simple. There are three key elements to a balance sheet you should worry about. These include:

Assets, which is another way of saying the financial value of a company. Assets can include anything that could be converted to cash, such as property the company owns, office equipment, etc. On balance sheets, though, assets are usually the sum of liabilities (more on that in a sec -- stay with me!), stock and "retained earnings" (aka earnings that are reinvested in the core business or used to pay off company debt).

Liabilities, or debt the company has.

The Net Worth of a company, which is just the assets minus the liabilities. It gives you a clearer picture of how much said company is really worth.

Whew, that wasn't too hard, right? I know it all sounds dreadfully dull, but you can't increase your savings and buy that Birkin bag without knowing the facts!

Now that you're a whiz when it comes to all things asset- and liability-related, balance sheets are usually split into two parts:

• The first part lists what the company's current assets and liabilites are.
• The second part shows how these assets and liabilites were paid for. The totals for each of these parts have to be equal.

One warning, though. Before you start thinking that all you need is a company's balance sheet before you decide to invest in them or not, you also need to look at the company's income statement, which discusses revenue and expenses. But that's a whole other post unto itself.

The balance sheet is simply one of the many statements that gives you, the shareholder, a better understanding of what you're getting into with a company. For example, if you're considering buying stock in a company with a massive amount of liability (or debt) on their balance sheet, you probably don't want to place your chips on the table with them just yet. After all, every brunette on a budget needs to know when to hold 'em -- and the balance sheet is a great first step in telling you how to play your cards, or savings, accordingly.

And with that, chickadees, I'm off to the warmer pastures of Las Vegas for a long weekend of free drinks, blackjack tables, and possible K-Fed sightings. Arrivederci!

Economy rocks it like it's 1997

Stocks went into freefall mode again today (this is becoming so cliche), dropping to levels last seen in 1997 -- the same year we were awkwardly coming out of our "ugly duckling" phase freshman year of high school, obsessed with unattainably hot guys and thought "Daria" was the coolest show, like, ever.

The Dow fell 3.4% to close at a staggering 7,114.94. For those unfamiliar with this hodgepodge of numbers, last year the Dow was at a healthy 8,000+. At 7,500 last week, the last vestiges of still-employed investment bankers were retching into their cubicle trashcans. At 7,114, well, let's just say it ain't pretty -- and word on the streets is there's still room for it to get worse.

Enter the Treasury Department. Today the Treasury announced it will launch a new, revamped bank bailout program that would include the option of allowing the government to increase its ownership in financial institutions. Translation: The government wants more of a say in how banks are run, because they are (obviously) doing a crappy job thus far. As you can see by today's steep stock market slide, this news did little to bolster investor confidence.

But there's a difference between the government running a bank, and the government having a say in how it runs itself. The first would be nationalization (which was a hot stock market rumor last week, but turned out to be false when the Obama administration said there would be no bank nationalization and that "private banking is the way to go").

The Treasury said today that beginning on Wednesday, the 20 largest U.S. banks will be required to undergo a new “stress test," which will determine whether each institution has enough capital to survive any further economic spirals.

More details surrounding the stress test will be released on Wednesday by the Treasury, though it did divulge today that if any banks fail the test, the government will require it to raise capital from private sources. If any bank is incapable of raising the money, the bank will be required to swap out the government’s existing, non-voting preferred shares and replace them with new preferred shares that are convertible to common stock with voting rights. Um, what? Basically, as I said earlier, this will give the Obama administration a say -- and not complete governing power -- in the business of each bank, if it comes down to that.

Suze Orman, financial messiah?

Do you like Suze Orman? She's pleasant enough to watch and soothing to listen to, especially when we're stressed about money and need extra encouragement. You know, those "count to 10 and breath" moments when we glance at our bank account balances and our hearts sputter in our chests. Suze's calm, you-can-do-it prose often centers us again...but is the "bottle-blond former waitress and self-described '55-year-old virgin'" just a farce?

"Why the masses continue to invest their faith in Suze Orman in the wake of a financial meltdown she never saw coming is a more timely question," suggests James Scurlock, columnist for TheBigMoney.com (a favorite site of mine).

According to Scurlock, Suze has no patience for statistics and often sounds off stats that sound good, but have no real basis behind them. These include her love of "dollar cost averaging," (buying the same stock over and over again as it falls), which is a favorite investment method of hers, and that the stock market returns 11% per year ("I have a million dollars in the stock market, because if I lose a million dollars, I don't personally care," she once told the New York Times.)

One fallacy in particular -- that the reason we are in debt is due to our own psychological causes -- infuriates Scurlock, as a myriad of real studies have shown that personal bankruptcies are caused primarily by catastrophic events like divorce, job loss, and, above all he says, medical bills and that most of us are struggling with a gap between our income growth and the soaring cost of necessities like housing.

Who is struggling these days, according to Suze? "

People who grew up without much money and later earn a comfortable living sometimes spend too much to make up for what they didn't get as children. ... People who feel entitled to the good life, or are unconsciously copying a mother or father who lived beyond her or his means. ... If you feel the need to impress people with what you have rather than with who you are, you are at high risk for credit card abuse.

"This from a woman who spends $500,000 a year chartering private jets and who sells 'Cruise With Suze' packages on an Italian luxury liner. (She has also hawked for GM, claiming that leasing a luxury car — you know, the kind that people drive to impress others — is a terrific financial decision," says the article.

Suze, it seems, has been lying to us:

What we're supposed to love about Suze Orman is not her knowledge and certainly not her prescience, but her ability to turn circumstances to her advantage, the resilience of a waitress-turned-bank-vice-president who squandered a great gig only to make a fortune off of you and me by having the courage to be rich. Despite her obvious flaws, we admire Suze so much that millions of us will fork over more of our dwindling dollars for her new [$50] FICO kit because she now assures us that a high FICO score is the key to our financial future. True, her previous book promised us that we would never be a financial victim again. Not only that, but we would receive the life we deserved, which sounds suspiciously like one of those insidious credit card offers, but whatever.

"When was the last time an evangelist predicted anything correctly or the phone psychic told you something that you didn't already know? So what if we cannot retire because Suze has been telling us to buy stocks and trust the fat cats? Suze possesses the courage to be rich. The rest of us are suffering from a collective emotional roadblock," posits the story.

Ouch. There are many bitter truths to Scurlock's argument, especially because of this: What do any of us have to show for the years we've been following Suze? Aside from the fact that she has no real know-how in the finance world, she has created a mega-brand around her name and niche, and has used your disadvantages to her advantage. Suze has made millions of dollars feeding off our insecurities and is laughing all the way to the bank. All of a sudden, we feel violated. [TheBigMoney]

How to open an IRA account (and other goodies)

Now that you know almost everything there is to know about IRAs (well, almost), there's one little problem standing in the way of your post-retirement dreams of lounging in a Parisian cafe, partaking in brie, baguettes and Bordeaux: How do you sign up for an IRA?

Simple! If you thought IRAs were a piece of cake to understand in my last post, the process of signing up for one is even more straightforward -- think cake with all the calories taken out of it. All it takes to sign up is a little time, your social security number, employment information (again, you can only contribute earned income to an IRA), bank account info and money to deposit (obvi).

Unlike 401(k) accounts that employers generally set up for their employees, an IRA is usually something you need to do on your own. I can already hear you panicking, eyes glossing over at the thought of tables and tables of complicated numbers you couldn't possible begin to understand. Scratch that visual right now. I take it most of you have filled out student loan forms? Well, filling out an IRA form is even easier -- much like filling out a credit card or job application. No hand-holding needed!

The hardest part of opening an IRA account is choosing which brokerage firm you'll want to sign up with. These include many big names that I know you've heard of: TD Ameritrade, Sharebuilder, Vanguard, Fidelity Investments, E*Trade Financial and T. Rowe Price are all prominent in the IRA world. I can't advise which place is the best to go with (as I'm not a financial adviser), but when researching each firm, make you sure you watch out for how much trading commissions are and if there are any annual fees. Many places have no fees (rock on!), but may have higher trading commission costs (i.e., fees charged for every trade made with your money). Also, be cognizant of what the minimum IRA contributions are for each, as you'll want to be able to make them on a monthly basis. Do your homework when choosing who will be the lucky firm to house your money.

Once you've found who you want to sign up with, you can download forms off their website, fill out the info (very straightfoward questions are asked, trust me), either include a check or direct deposit from your bank account, and plop in the mail. Or, if you prefer doing it digital, many places allow you fill out all forms online. And that, chickadees, is how you sign up for an IRA.

Again, just putting your money into an IRA doesn't mean it's accumulating much of anything. Think of it as a glorified savings account. Yes, you've taken the necessary steps to put money aside every month for the good of your golden years, and yes, the tax benefits are nice, but you have to invest the money once it's in the account. Use it as a vehicle to reap big rewards for your future. You have the ability to tell your brokerage firm how you want them to invest your monthly cash. Are you more of a mutual fund maven? Stock sistah? Or an index .... well, you get the idea. Generally, if you don't know much about the stock market or don't have the time to learn and do research, mutual funds and index funds are a fabulous option as they pad your portfolio with diversification.

Don't worry if you decide you want to change the kind of IRA you are enrolled in. Once you sign your name on the line, it's not written in blood. If you sign up for a traditional IRA, for example, and realize you'd rather be in a Roth (or vice versa), it is possible to make the switch, just be aware that it may have a large impact on your taxes when it's time to withdraw the money from your account. (Because, as I've mentioned before, one of the main differences between the two IRA accounts comes down to when and how you are taxed on your contributions.)

And, if you've found a dazzling new job opportunity and the only thing standing between your current job in hell and climbing the corporate ladder to paradise is confusion over what to do with your IRA account, don't fret. You can transfer your IRA funds to different IRA accounts (such as from Roth to Roth), but the transfer has to happen between plans, meaning you (as the retirement account holder) don't get to touch any of the money ... yet. Think of it as something to look forward to when your hair begins to gray!

Download a free copy of Suze Orman's new book

Another year, another Suze Orman book ... or so it seems.

People tend to love her or hate her (I think she's pretty fabulous), but regardless of your sentiment for the fair-haired vixen of finance, Orman is currently offering free downloads of her new book, Suze Orman's 2009 Action Plan, at Oprah.com.

I watched Orman promoting the book on Oprah's show recently and was intrigued by the concept behind it. She sets it up as a true action plan, in that she lists various financial scenarios any of us could find ourselves in (i.e., should I pay off credit or save for an emergency fund, how should I pay for my rising mortgage, etc.) and responds to each scenario with realistic solutions. If your New Year's resolution was money-related, consider this book a manual for sticking to your goals and getting your fiscal life back in order. Especially since 2009 will be so economically pivotal in the wake of the subprime mess, credit crunch and stock market collapse of 2008.

"This is the year that will make you or break you," Orman told Oprah on the show, explaining that her new book "sets up a foundation to deal with everything that happened last year."

The complimentary downloads expire January 15th, so don't wait. And with it being free and all, now you can't argue that you don't have the money to buy a book about managing money!

What is a Ponzi scheme?

By now, the news of the carefully brewed Ponzi scheme concocted by Bernard Madoff (the old bear) is so 2008. But, in case you haven't followed this stock market soap operetta play out, Bernard Madoff -- who many refer to as a decades-old force on Wall Street -- was charged in December for running a $50 billion Ponzi scheme, the biggest fraud case ever. How? Let's break it down in an abridged form of the 3-act Shakespearean tragedy that it is:

Act I: Enter one Bernard Madoff, 70, a prominent mover and shaker in the stock market world. Madoff is a former chairman of the Nasdaq Stock Market, founded Madoff Investment Securities LLC in 1960, and ran a hedge fund on the side. He was the chairman of Madoff Securities until Dec. 11, 2008, when the merde hit the fan (more on that in the next act). When you think of a life of excess, Bernie comes to mind. Vacation homes around the globe, private yachts and lavish day-to-day living were Madoff's modus operandi. How very 1980s of him. I can just picture he and his wife partying it up on Carnival Cruiselines in the thick of 1986, he donning a white Miami Vice suit and she in an ill-fitting Bea Arthur-esque dress replete with shoulder pads, both dancing to whatever Lionel Ritchie Top 40 hit was in at the time. But just how did he amass such significant wealth? Onward, to Act II!!

Act II: The day before he was arrested by the FBI, Bernie told his senior executives -- which included his two sons -- that his hedge fund was "all just one big lie" and that it was "basically a giant Ponzi scheme." His sons immediately went to police and the next day, Madoff was arrested and charged with a single count of securities fraud. Prosecutors say he faces up to 20 years in prison and a fine of up to $5 million. The SEC (government watchdogs of all things stock market-related) filed other civil charges against Madoff.

Act III: Although Madoff is currently holed up in his $7 million Manhattan penthouse after posting bail, his life will be missing that je ne sais quoi it once had. I'm not sure how drastically different Bernie's relationship must now be with his two sons (who I've affectionately dubbed "the narcs"), but there's no doubt -- even if he eludes jail time -- that things will be different going forward. The SEC said it appeared that virtually all of the assets of his hedge fund business ($50 billion) were missing. Yup.

The next logical question is "What the heck is a Ponzi scheme?" (Not be confused with anything related to "Fonzi" a la Happy Days.) Hey, it's okay not to know -- what's not okay is to pretend to know what people are talking about, nodding cluelessly in agreement with those around you as they discuss current events.

The term Ponzi scheme comes from one Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s, according to the SEC.

Translation: A Ponzi scheme is essentially an illegal pyramid scheme. Charles Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons, the SEC says. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Um, right. Well people bought in to the pyramid, hoping to make bank by giving Ponzi their money. At one point, Ponzi took in $1 million during one 3-hour period, and this was in the '20s, people!

The SEC says that a few early investors were paid off to make the scheme look legitimate, but an investigation found that Ponzi had only bought about $30 worth of the international mail coupons.

Illegal Ponzi schemes are everywhere, from small outfits to frauds that are historic in proportion (case in point: Bernard Madoff's ... situation). Eventually the schemes collapse, which is where Madoff is currently at.

So just where did that $50 billion go? It may be a while until we get a legitimate breakdown, but in the meantime, an angry ex-office manager named Julia Fenwick who worked in the Madoff Securities London office, divulged to the Daily Mail just how much Bernie would drop on various decadent delights:

• Madoff collected vintage watches ($2,900 to $72,000). He also bought wedding bands to match the color and design of each watch ($525 to $1950). During his two or three visits a year to the London office, Madoff would often take advantage of his office's proximity to Savile Row by asking his tailor, Kilgour, to see him in the boardroom (average of $6,000 per suit).

• According to Fenwick, he purchased a black and gray Brazilian-built private jet last year for $29 million. "There were sofas and beds behind curtains at the back of the plane," she said. "He'd installed a cappuccino machine [$1,650] and under all the seats were pockets full of biscuits and sweets. Bernie's initials were on the front of all the crockery." In London, Madoff liked to stay at the Lanesborough Hotel (up to $11,600 a night). Madoff also refurbished the London office last year for $726,000, including handmade desks and a new IT system, for $116,000.

• Madoff enjoyed Davidoff cigars (around $160 a box). Last year, Fenwick attended a barbecue at Madoff's home in Montauk, a million-dollar party with about 400 guests. "There was an oyster bar. And you'd dine on either lobster or fillet steak," she told the Daily Mail.

• Fenwick also went on a golfing trip to Mexico with Madoff and a dozen of his friends for his 70th birthday this past May. "We were all given hooded sweatshirts to mark the occasion. His initials and the year of his birth — 'BLM 1938' — were stitched on to them."

What are you thankful for?

As I prepared our turkey this morning -- well, technically I made Love prepare it, I can't stand touching raw poultry -- I realized that another year has come full circle. And what a fast year it's been. Although it's hard (at least for me) to concentrate on being all warm, fuzzy and giddy over cranberry jelly, what with what's happening in India right now, it's still important to ruminate on the past year and reflect on what you're thankful for. Perhaps some spiked cider would help.

Ever since the beginning of this summer, most of us have been bruised by the limping economy, by either losing our jobs or seeing friends who've lost jobs (I've seen 4), struggling to pay back debt (whether it be credit cards, student loans or house payments), or perhaps even seeing our homes foreclosed. Those of us who were frugal to begin with now just find our "talent" at finding the best deal or best coupon that much more in demand. All of sudden, a personal finance blog is the trendy must-have accessory in 2008, like a BMW or "it" bag was to 2005. Google searches for such terms as "Bahamas cruise" or "2008 Audi" have tapered like an out-of-fashion 80s jean, now more people Google "how to save my 401(k)," "tips to beat the current recession," and "save money on food." Ah, it's like 1929 all over again. (Cue big band music.)

At least there's solace in the fact that we're going through these damaged financial times together, and (hopefully) learning from them. Like I've said before, we're not alone in the struggle and we're all affected by some degree. Case in point: My love affair with free samples and coupons? Never would have been lit without the kindling of current fiscal malaise.

That's one thing I'm thankful for -- that I've learned the full value of being frugal and routinely using store deals to my benefit. Sure, I've always shopped around before to find the best bargain, but now my searches are more magnified and more well-researched.

Other things I'm thankful for:

• That I'm very healthy, and everyone I care about is also healthy. (Except my grandfather, but I learned he just opened his eyes from his coma-like state yesterday, which is very promising.) No amount of bargain-hunting, coupons or money can buy you good health.
• I'm married to a fabulous guy who wants the same things out of life as me, shares my sense of quirky humor, and balances me out in a way that no other guy could. Where I'm emotionally impulsive, he's solid and rational, where I'm "crazy," he's even-keel and sensible. We bring out the best in each other and feed off one another's energy. It's all so "Barefoot in the Park."
• I have a marvelous job that I love, am paid very well for and allows for somewhat flexible hours. (I get to work from home in the mornings and come in around 10:30 am everyday.) I feel like I have good job security and am rewarded well with solid raises.
• Love and I don't have to worry about money that much. Granted, we are living solely off my salary while he is in law school, and we do watch our spending to a certain degree, but I don't feel like it's a struggle. When I want something I usually buy it without having to save up (lavish trips and cars aside), and I can still buy as much two-ply toilet paper as I want, which I've amusingly gathered is a good gauge as to whether one is "struggling."
• We don't have that much debt to tackle, except for Love's law school tuition, which won't be knocking at our door till after he graduates and gets a litigation job, which should quell any strife over paying it back.
  
• Now is a fabulous, I repeat, fabulous time to get into the stock market if you're a newbie to the investing scene. We have not seen these kind of discounted prices since, well, the good ol' Great Depression, and might not see them again in our lifetime. For someone who wants to retire early (read: me), now couldn't be a better time to carpe diem and plan for a luxe life where I can plant the seeds of early retirement in discounted stocks, take my earnings later and invest in the greatest of investments: real estate in the Bay Area.

What are you thankful for this year?

What we've learned from the economic crisis

In an open letter to two his two daughters published this week, Money Magazine assistant managing editor Pat Regnier recently mused on what the current economic crisis has taught us, and how his children -- and really all of us -- can benefit by learning from the mistakes that were made before it all came crashing down. I love this letter because it's simple, reflective and neatly summarizes how current sentiment came to fruition.

What we're experiencing now is indeed a historical event -- one that we may not see again in our lifetimes, at least to this degree. It's important for us, like Regnier, to pass on any reflective wisdom we've managed to pull from the situation so we can educate future generations to not make the same mistakes. Granted, it's normal for the economy to go through recessions and experience both ups and downs, but this is a "down" moment we can all learn from:


Dear Lucy and Emile,

You are both too young to read this letter now. But in a decade or so, I suspect you'll be hearing about the events of autumn 2008 in your history class. You might wonder what it felt like to live through a global crisis. And when you learn about the years just before the crash -- the houses that magically doubled in value, the no-questions-asked mortgages -- you'll surely ask what all of us crazy old folks could have been thinking. I'd like to take a stab at answering those questions today, while the events are still raw and before we know how this story ends. Your mom and I are learning some big lessons right now, ones we might not recall so well after the good times return.

First let's talk about the hardest question: Why didn't people see this coming? Well, we sort of did. Talk of a real estate bubble was common by 2003. But bubbles do funny things to your head -- you'll see that when your generation's bubble comes along. You may read in your textbooks about the euphoria and optimism of boom times, but what I remember most was the worry.

In 2005, a year when home values in our neighborhood jumped 25%, your mother and I would talk anxiously about not having a giant mortgage. We didn't want to stretch for a loan before we had saved for a big down payment. That conservatism hurt: Our chances of joining what was called the ownership society seemed to become more remote with each uptick in real estate prices. We were worried that our new family would never be financially secure. Or even truly at home.

So this is how you'll know when a strong market has turned into a bubble. If you stick to prudent rules you learned before the market took off, you are bound to feel at least a little bit stupid for a while. Learn to regard that sinking feeling in your gut as a sign that you are doing something right.

Another thing we're discovering is how quickly the rules can change. For years the good jobs were in construction, real estate and, of course, financial services. All those industries are shrinking right now. And for Dad, who has spent most of his adult life either working in or writing about finance, this is...uncomfortable.

I wish I had a few more tricks up my sleeve. Unfortunately, it's hard to fully hedge your career bets -- there are a lot of struggling actor-waiters, but I know only one money manager-neurologist (my magazine's own William Bernstein).

At least educate yourself to be flexible. Try to hone a couple of concrete but transferable skills, such as writing plus some basic science (and not just the "rocks for jocks" courses). Keep learning after 21, and take some career risks -- but stretch for experience, not just money. Do this especially early on, when the cost of failure is low.

Finally, remember that it's not all about you. The next couple of years are going to be bumpy, and one of the odd consolations is that it's happening to everybody. A financial or career setback is slightly less ego-bursting when you can blame it on a bum economy. By the same token, though, that means you ought to be humble about your success when the wind is at your back. The practical lesson is to live a bit below your means in the flush years to give yourself some backup.

But more important, back up others. My deepest regret today isn't how much I saved or what I did at work but how little I've pitched in - with money, with time - in our community. It's obvious to me now, when I'm anxious about what's ahead for my own family, how important it is for people to pull together. Wasn't that just as true a year ago, when plenty of folks were already hurting? I've learned this year that I owe much more. And I'm writing this down so the two of you can hold me to that.

Love, Dad

What we learned (and didn't) from Monopoly

I love playing Monopoly. Not only does it make me feel like I'm filthy rich (I have an excellent imagination), it unearths the raw greed in the best of us and tests the boundaries of our patience (what's more fabulous than a boardgame that can go for days at a time?). Now we can add "symbol of our financial crisis" as part of Monopoly's mystique, or so says The Washington Post in an amusing op-ed today, which touched on why the Depression-era boardgame perfectly encapsulates current hysteria:

Loose money. Monopoly games start swimming in money, which is briefly mopped up as the players buy everything in sight. But then money starts to flood the system again, courtesy of the mysterious Banker who hands out cash to everyone who passes “Go”. The game is one big property boom, funded by an overly generous central banker – a diagnosis many economists would also apply to the sub-prime crisis. Alan Greenspan, the Fed chairman who presided over the boom, was nine when Monopoly was widely published. It is not known whether he played the game as a child, but he seems to have taken inspiration from it somehow.

Vague and constantly-changing rules. Most enterprising kids treat Monopoly the way enterprising investment bankers treat the financial system, quickly making up their own rules and striking side-deals insuring each other against catastrophe. These side-deals now add up to a nerve-wracking $596 trillion, more than forty times the size of the US economy.Monopoly’s rules on buying unwanted assets at auction are disturbingly vague – the Banker is simply empowered to run the auction. Perhaps Treasury Secretary Hank Paulson, who now has $700bn to spend in a similarly vague set of auctions, is also a Monopoly fan.

The endgame. For all Monopoly’s merits, fans complain about the way it tends to end in a slow capitulation, one player after another dropping out as ever greater sums of money slosh around unpredictably between an ever smaller group of people. Remind you of anything?

…and three reasons why a game like Monopoly -- just like our "real" system -- led us all astray:

Instant mortgages. Any Monopoly property can be instantly re-mortgaged to raise cash. The bank never refuses, and never frets about illiquidity or negative equity. The world of 2006 looked much like the world of Monopoly in that respect, but it is no longer quite so easy to persuade banks to hand out mortgages.

Indestructible banker. Monopoly’s rules note that the Banker cannot go bankrupt; they grant him the power to issue as much money as necessary “in the form of IOUs written on ordinary paper”. Sometimes the banks behaved as though that rule applied to them. It didn’t.

Unknown unknowns. Monopoly is a game of risk-taking, but a game in which the risks can be precisely calculated. Monopoly’s dice rolls are known unknowns, and skilled Monopoly players know the risks of landing on any square and take them into account when crafting their strategies (hint: buy the Orange properties). The wizards of Wall Street have to deal in unknown unknowns. As they crafted their credit derivatives, they thought that they understood the risk of a loss in the same way that a Monopoly player knows the risk of throwing three doubles in a row. They didn’t. They never will. [Washington Post]

Learn the lingo: Stagflation

It's been a while since I've done a "Learn the lingo" piece, so what better way to jump back into the mix than with "stagflation?" I know that lately you've all heard the term tossed around with the same frequency that the elusive "Joe the plumber" has been referenced, but do you truly know what stagflation is?

You may not be a whiz at economics or even like the subject very much (I'm the first to admit, the two econ classes I took in college were -- and still may be -- the bane of my existence), but forget any premonitions you have of the subject being too complicated! I know -- it's taught as such a boring, dull and downright tedious thing, but it's actually quite exciting and fabulous once you understand it! Not only that, it's so simple to understand that everyone -- especially us girls -- should have a basic understanding of the broader terms and concepts. Believe me, it doesn't take a finance degree to get any of this!

So what is stagflation, exactly? Simple! When a country experiences high unemployment and slowed economic growth, it's called "stagnation." Growth and jobs essentially become stagnant ... get it? Now toss into that mix a rise in prices (or what many call "inflation"), and you've got a potent cocktail of factors that ultimately create stagflation. I prefer shaken, not stirred.

If you're like me and can't remember what day it is, much less some economic theory, just think of it this way:

Stagnation + Inflation = Stagflation

See? It's as easy as cherry pie! Stagflation is merely when prices are growing but the economy isn't.

But before you cast off the term as one of those monotonous historical things coined a zillion years ago, the word actually hasn't been around forever. In fact, it's a relatively new term, first made up by economists in the 1970s (yes, disco balls, platform shoes and all) to describe the "unprecedented combination of slow economic growth, high unemployment and rising prices" that was occurring at that time, according to Barron's Finance & Investment Handbook.

For some quick background: The 1970s was the last time in U.S. history when a high dose of stagflation was swallowed by the American public. Back then, oil took center stage when the price of it rose globally, which caused extreme inflation in many developed countries, including the United States.

In the 70s, "people began to expect continuous increases in the price of goods, so they bought more. This increased demand, pushed up prices and led to demands for higher wages, which pushed prices higher still in a continuing upward spiral," according to a report by the U.S. Department of State. Then, when unemployment began to occur in higher numbers than usual, the upward spiral descended into what was a terrible recession.

As you're well aware of, consumers (meaning all of you and moi) bear the brunt of the stagflation storm. The price of food, gas and clothing (among other things) goes up, while raises, bonuses and maybe even jobs (for some of us) get harder to come by. Wondering why that burrito bowl at Chipotle is 50 cents more than usual, or why those shoes cost thatmuch more these days? Yup, stagflation is the culprit. On top of the current credit crisis, getting loans in a stagflationary environment is harder because banks may begin to restrict credit to fight the feared "s" word, which is extremely hard to correct due to its contradictory nature.

So now you know exactly what stagflation is and what causes it. No stuffy finance degree required! (Thank God.) For an excellent and very easy-to-read article about potential solutions to stagflation, read Fortune Magazine's piece published in May of this year.

Revenge is a dish best served cold

A compelling article in New York Magazine ponders whether its possible for the general public to ever trust the economy again. Like a newborn lamb suckling at the teet of excess, we charged this and bought that, overreached for our McMansions (or maybe our McCondos), and thought that our debt would somehow fade away, like a fleeting reality show on a D-list cable network. Not only did the debt stick around, though, it sat growing and festering like that lone, hormonal blemish that appears like clockwork, oh, every month or so.

Okay, so we were a smidge irrational with our loot back in the heyday of 2006, but is it irrational to believe that we're rational enough (say that 5 times fast) to trust those at the top to bail us out?

"One of the things I think that is most irrational is to assume that we’re rational,” says MIT behavioral economist Dan Ariely, author of Predictably Irrational: The Hidden Forces That Shape Our Decisions. Today, he thinks that the same groupthink mechanisms that caused our financial catastrophe are keeping us from getting out of it.

He argues that it’s all a case of peer pressure: banks and public policy made it easy—even socially necessary—for people to borrow more than they should, which inflated housing prices. Then banks felt compelled to buy the mortgage-backed securities everyone else was buying. That didn’t turn out too well.

The idea that the crowd is wise, Ariely told NY Mag, only works when everyone in the crowd is making an independent assessment, not when they are copying each other. He says the one thing the crowd is overwhelmingingly feeling is the need for vengance. Ah, that explains why the public roasting of the AIG and Lehman Bros. execs a couple weeks ago seems like aptly staged political theater.

Ariely say that in trust experiments, people are willing to expend their own assets to exact revenge on those who cheated them—even if they will just end up losing more money.

Would you pay to have a the Lehman Bros. ex-CEO hauled out so he could be pelted publicly with rotten tomatoes? That was essentially what happened with the Congressional hearings lambasting these top executives because of their decisions that led to the financial meltdown. And it was this kind of thinking -- the "off with their heads!" mentality -- that made the bailout of Wall Street fatcats proved so politically unsatisfying.

“When you think of $700 billion, the millions they made are not quite a drop in the bucket,” Ariely told the magazine. “But we’re willing to lose money to get these bastards.”

And that’s why the bailout hasn’t worked. “It didn’t answer the basic need of revenge. It could include future revenge—from now on, we’ll treat white-collar crime differently. Without that, I don’t see how trust is coming back.” [New York Magazine]

What do you think of the bailout, and does it buttress any faith you have in the economy, or encourage you to invest in the market?

Put your money where the profit is

Within the last two weeks, we've trounced through financial hell and back: The stock market's down by almost a half -- yes, half -- of what it was one year ago, more people are unemployed and homeless to boot, credit lines are dwindling, the sky is falling, and so on and so forth.

But the question on everyone's minds (besides "How am I going to afford these groceries?") is "Where should I put my money?" And if you're not asking yourself this question, you probably should be. Even in these fearful times, there is money to be made -- or at least fabulous opportunities to position yourself in to profit when things get better economically.

Why? Even the most "recession-proof" stocks -- such as Johnson & Johnson, McDonald's and Procter & Gamble -- are gravely discounted right now, but not necessarily because their business is crippled or they're two steps away from bankruptcy. Usually the bruise of bad earnings or a limping stock price in a company like Wal-Mart is merely a residual effect of the downtrodden market, and not representative (in this market, at least) of the company's operations. Which means that if you can buy into a company that you know will weather the current storm (say General Electric or Amazon.com) while it's down near it's low price, that is the equivalent of finding $850 Manolo Blahniks on clearance for $50 at The Nordstrom Rack. Well, it's even better than that equivalent, actually, because your Manolos will never make you loads of extra cash, but buying up good companies at discount prices will.

Unfortunately I know that most of us don't have ancillary funds that aren't being used to pay off debt and/or create some sort of emergency fund, but for those of you who have the means, I highly suggest getting in when the theoretical gettin's good.

That being said, the Motley Fool spoke with a handful of "all-knowing" analysts on Friday about what they think you should do with your money. The tips include:

• The only reason to cut your losses and sell stock right now is if you have money in the market that you planned to live on in the next five years.
  

Categorize your money -- You need to know (1) what you need for the next three months, (2) what you need for the next year, (3) what you need for the next three years, and (4) what you don't need for a good long while.

• What goes to (1) is your emergency fund. Make sure you have it in a FDIC-insured savings account that you can get at when you need it. For (2) or (3), get a better yield, but still protect the principal, by buying a CD or TIPS. For (4), that's money you should be averaging into the stock market at today's low prices.

One analyst commented that "we're in a 'save-to-buy' environment."

• He says that you'll want to make sure you're saving your pennies as we go into a period of true economic uncertainty. That's not to say you need to turn into Ebenezer Scrooge, but do keep in mind how much you're earning and spending. That way, you can judiciously put some of this money to work in high-quality, cheap stocks, and we're starting to see some serious values out there. Berkshire Hathaway, one of the most stable companies around, is down almost 20% since the beginning of the month. That's incredible, he remarks. (Granted, Berkshire Hathaway is at a current $3,700/share, but its slight flicker into the negative is a testament to its solid footing, especially compared with many other companies. My kingdom for $3,700 to buy in!)

Stick to the plan you had before any of this started happening, says another analyst. "And if you didn't have a plan beforehand? Get one -- get the one you should have had all along (more on that in a minute), and commit to memory, 'I will never spend another day investing (or not investing) my money without a plan.' "

• Money that you'll need to spend in the next year or two for a house, car, in case of losing a job, and so on, that shouldn't have been in the market, shouldn't be in there now. Nothing about that has changed in recent days.
• Money that you're setting aside for retirement, if that retirement is 10 years or more away, I believe, should be fine. If you're closer than 10 years to retirement, and aren't diversified into bonds, Treasury bills, etc., start doing so -- regardless of whether you think the market is going to trade at a higher or lower price next week, next month or next year. If you're properly diversified, you'll be sleeping fine.

And finally, says a fifth analyst, if academic research is a guide, individual investors will pull out of stocks near the bottom (usually due to panic and irrational pessissism). If history is a guide, this will create marvelous buying opportunity in stocks, as I mentioned earlier.

• But now, more than ever, investors need to consider their risk tolerance, wealth and time horizon when investing. Beaten-down banks may be a great investment for someone OK with risk, but someone who wants to play it safer should look at utilities or a maker of cheap consumables, such as Procter & Gamble, Coca-Cola, or PepsiCo.

• In the tech bubble, risk and return was expensive: Investors had to pay for the privilege of investing in risky companies. Now, it's practically being given away. This means that folks selling out of stocks to buy safer investments will pay dearly. They're getting a terrible deal. Those who absolutely need the money soon may need to do that, but for the rest of us, the long-term chart says that we probably want to be in stocks now, not out of them.

I couldn't agree more! [Motley Fool]

A silver lining to the cloud?

Are you a glass-is-half-full kind of gal? For a humorous spin on the imminent gloom surrounding our economy and wallets, Slate Magazine has compiled all the good news they could find within the coming depression. Bad financial news is good news for:

Public schools. Feeling the pinch, the upper-middle class is moving their children from private schools to public schools. This influx of achieving-class families, reporters will find, may improve schools from the inside (better students overall) and the outside (the result of pesky, well-connected parents hounding administrators and teachers).

Climate change. According to a government study, carbon dioxide emissions fall whenever energy consumption declines. Our freezing will be the planet's salvation.

Foreign policy. In the good old days, the United States got in lots of trouble by invading first and asking questions later. Now we couldn't afford to invade Grenada if we had to.

Economic equality. Financial sector employees received the greatest income gains in recent years. Now, the broker your broker gets, the more equal we all become.

Homegrown. Food. Music. Crafts. Education. Solar panels. Suture-yourself kits sold at pharmacies.

Children. The moral fiber of the nation's children went to rot because we gave them everything they asked for. Now that we've got nothing, they get nothing, and they've never been richer.

Churches and community organizations. Trendspotters will detect a massive return to faith and the commonweal.

Air flight. The average Joe won't be able to afford to fly much any more, but when he does, the terminals will be less crowded, the service better, and lost luggage a thing of the past.

Local business. You know, the little mom-and-pop banks that never went subprime and that know you and your family. The return of the neighborhood hardware store, the neighborhood drug store, the neighborhood bakery, the neighborhood fix-it shop, and so on.

The trade deficit. We buy almost nothing from foreigners, we sell almost nothing to them. Finally, we reach a perfect balance.

Cell phone haters. As the cell phone becomes unaffordable, people ditch them. Road rage declines as drivers learn to stay in their own lane and maintain speed because they're no longer texting. Public spaces become more pleasant as the background chatter ceases.

People for the Ethical Treatment of Vegetables. Having won the meat-is-murder debate because beef and chicken are now too expensive to market, animal rights activists move on to protect lima beans, celery, and turnips.

Staycations. More fun than August in France!

Used cars. Cheaper for one thing, and gosh, Detroit stopped making new ones!

"Cheap chic." Washington Monthly founder Charles Peters once imagined that a societal shift from high-status goods, clothing, restaurants jobs, schools, cars, and vacations to the utilitarian, flavorless, gimcrack, and rag-tag of "cheap chic" would remove anxiety and competition from modern life. That the cutthroat competition for status would only resurface in a battle for government power and result in the reinvention of gulag never occurred to Peters. Even so, journalists will fill newspapers with stories about people who regard their new poverty as ennobling. [Slate.com]

Be "in the know" as a girl on the go

The last few days have been hectic at work, but a good hectic ... for me at least. While everyone is freaking out about the state of the economy, I feel some (sick?) pleasure from the tanking. Wait though, before you disregard me as loco, understand that it's only because I feel like we're watching history being made.

Don't get me wrong, I think it's awful what's happened and we will all shoulder the burden as the economy gains its footing in the next few years (yes, I said years), but it's truly history in the making ... something our kids are going to ask us about as they begin weaving their way through the maze of credit cards, car loans and college tuition. It's kind of like if you're an aspiring fashion journalist and you get a big break covering fashion week in Paris, sitting front and center next to Anna Wintour at the Oscar de la Renta show. Okay ... maybe it's not that cool, but I guess in some twisted way the markets plunging makes me feel like there is an urgent importance to my job. The last time stocks headed south to this magnitude was when I was a wee brunette on a budget, striding into my kindergarten class carrying a tin Strawberry Shortcake lunchbox and wearing the season's hottest fashion trend: Punky Brewster sneakers.

So even though I reported the market's happenings last week, that was before Friday's bailout plan was passed, which illustrated a whole other set of problems at hand. I think it's important for everyone to have a solid grasp on what's going on with the U.S. economy and international stock markets, so without further ado, here's all you need to know about the state of the economy, in one minute or less (courtesy of an amalgamation of news sites I read):

• Stocks declined "may-juhly" (as Posh would say) on Monday, starting out the week in much the same fashion as things ended last week. The U.S. walked right into a global storm, with European stocks sinking some 5% into the open, on the heels of steep declines throughout Asia." Sounded like someone had a case of the Mondays ...


• "During the start of trading on Monday, Japan was down 4.9%, Hong Kong off nearly 5%, China down 5.1%, Taiwan down 4.1%, Australia off 3.3%, Singapore down 5.6%, South Korea off 4.2% and India down 5.7%."


• "Stock market trading in Russia was halted three times as their stocks tumbled over 18% during the session. Trading halts were also executed in Brazil, as the world’s sixth-largest country saw stocks sink 15%. In Peru, trading was also stopped as the market slumped 7%. It was the worst one-day carnage in 10 years for Latin American stocks."


• "Many Latin American economies are heavily dependent on commodity exports (such as oil) and it was a brutal day for oil, as fears of a global recession dealt a powerful blow." On Monday crude oil, for example, was down 6% to eight-month lows. Why? Because much of the price of oil is speculation, and not what it's actually worth. When investors get nervous about the state of the economy, they pull their money out of the market (which includes oil) to shield it elsewhere. It plays out much like a domino effect.


• "The Federal Reserve knew it was going to be a difficult day; right off the bat it pumped billions into the market. At the same time, central banks around the world were also busy trying to flood the market with cash to ease clogged credit lines."


• Goldman Sachs said Friday that “The recession we have been forecasting now looks likely to be deeper and longer, taking the unemployment rate to 8% by late 2009 and pushing the Fed to cut interest rates to 1% or lower.”


• Goldman Sachs also noted that real consumer spending is on course to post its first quarterly decline since 1991, that manufacturing activity is in a slump and that a rapid contraction in the labor market is underway — all at the same time that financial market distress has intensified.

• Today's headline news is all about commercial paper (such as certificates of deposit). "The Federal Reserve, invoking Depression-era emergency powers, will buy commercial paper, a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls."


• "In more normal times, about $100 billion of these short-term IOUs were outstanding at any given time, but this market has virtually dried up as investors have become too jittery to buy paper for longer than overnight or a couple days."


• "That has made it increasingly difficult and expensive for companies to raise money to fund their operations and has left them vulnerable. Commercial paper is a way for companies to borrow money for short periods, typically ranging from overnight to less than a week."


• The Fed’s announcement on commercial paper is noteworthy because it could help unclog credit lines. (Clogged credit lines is the overwhelming reason why we're in this mess.) The Fed said that the notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash.


• This action makes the Fed (now along with commercial banks and investment firms) an imperative source of credit for nonfinancial businesses.


• The commercial paper plan could take some of the edge off the calls for an emergency rate cut.

Now you're all caught up in the financial news arena, and it only took 30 seconds, right?

Of bargain hunting and CEO pay

Well, after yesterday's steep decline into the vermilion, stocks fared much better today. Phew! (Wipes slight perspiration from brow.) Both the Dow and the S&P 500 closed up about 5% each today, punctuating the highest close in six years.

But before you hop on to eBay to buy those designer boots with the affirmation that "everything is okay now," the stellar numbers today do not guarantee that we're free and clear of economic trouble.

Uncertainty still lingers. The lift in the market this afternoon mainly hinged on the fact that bargain hunters bought in big time to stocks that are trading at levels far below what they're worth. You know when you peruse a Macy's sale, and end up scoring an adorably gaudy giant lavender cubic zirconia cocktail ring for $20 when it was originally $80? Yeah, today's bargain-hunting investors hopped on that super-saver boat -- except with stocks and not cocktail rings!

Bargain hunters aside (pssst: now may be one of the best times to invest in the market with stock prices so low, or so says Suze Orman), the market also reacted positively today to news that the failed bailout proposal may not be entirely dead. The near-term fate of the market now largely hinges on investor optimism that the $700 billion bailout plan (which was shot down Monday by Congress) is still salvageable. The House reconvenes on Thursday, so it'll be interesting to see whether legislators will come to a timely decision on the bailout proposal and how much more the market might suffer if deliberations drag on.

In the meantime, the giant swings the market has made recently into positive and negative territories illustrates just how volatile and sensitive the economy is right now and how everything can crumble -- big time -- at a moment's notice.

And whether you're for or against the bailout plan (I'll leave that up to you to decide, I am but a financial scribe!), the current economic unease cannot simply be boiled down to CEOs who need their compensation packages reworked. David Forrest and Bill Mann over at the Motley Fool wrote a great post on their blog today that echoed what I wrote about yesterday. I think what they had to say is worth re-posting here:

"While the politicos in D.C. navel gaze and ponder how to win their next election, Rome is burning. You see, the markets don't care about your Senate seat or whether the 'fat cats' are going to get bailed out.

"What matters right now is that the credit markets are at a standstill. People can't borrow and businesses around the globe that rely on the short-term liquidity of the credit markets are being badly hurt. We won't hear about the brilliant entrepreneur denied her small business loan, but how about McDonald's franchises being denied credit to build new coffee bars, or General Motors needing to raise billions just to cover basic operating expenses? Retailers like Home Depot are closing stores, and apparel retailers like Macy's face their toughest holiday season in years. And airlines like Southwest and American Airlines parent AMR are cutting flights.

"Sure, you still see advertisements for mortgage loans, but have you tried to get one? A colleague of mine with an excellent credit rating made the attempt and was quoted 11% for a 30-year fixed mortgage with a 20% down payment. That's the equivalent of the "open" sign being left on, but the doors being locked. A survey conducted by The Association for Financial Professionals of many large-company finance executives found that the locked-up credit market has already caused them to stop hiring and to cease capital spending projects.

"The media isn't focusing on that so much (and shame on them). They'd rather focus the attention on raw-meat issues like limiting CEO compensation. As if that matters right now."

We're all tied to the market's well-being

Unless you live under a rock (no offense to those who do, I hear it's a nice respite from the hot weather), the stock market plummeted today. As in, those little streams of ticker tape skimming across the bottom of the business news channels were all bleeding red today. Yeah, yeah, it seems like the stock market plummets all the time nowadays, so what's the big deal?

First we had Bear Stearns go belly up, then Lehman Bros. followed suit. Bank of America lapped up what was left of Merill Lynch, AIG was "rescued" by the U.S. government (as were lending giants Fannie Mae and Freddie Mac), and most recently, Washington Mutual was acquired by JP Morgan Chase, while Wachovia was bought out by Citibank. The startling frequency that these bankruptcies and buyouts took place within was stunning. Think of what's happened in the last month or two as a giant checkerboard, with one side gobbling up the less powerful side, until finally the board's left with a few winning chips. Too bad, though, that the real thing isn't just a game.

To put things in perspective, the Dow collapsed 400 points in TEN MINUTES today -- something that normally happens in hours, if not days. By the time the market closed, the Dow had fallen 778 points, its largest drop in financial history. The S&P 500 fell 8.75%, the worst drop its seen since black Monday in 1987. Today alone, $1 trillion was vaporized in the stock market, which is almost unprecedented. You may think, "So what ... I don't trade in stocks anyway, so it doesn't affect me." Unfortunately, chickadees, it affects each and every one of us in a breathtaking amount of ways, illustrating how intricately connected each of us are to our government, our economy and, quite frankly, to each other.

How? Well, with the climactic carnage that ensued in the political and economic spheres today, loans will be that much harder to lock in, which means small businesses won't be able to borrow that much money. This leads to less jobs for U.S. citizens, which leads to less spending/saving power, and less bills subsequently paid. "If no one in the financial community trusts each other to lend money, then we're going to have a complete and total financial collapse," White House spokeswoman Dana Perino told ABC News yesterday, just ahead of the bailout proposal vote. "And that's what we're trying to prevent."

An article on Yahoo Finance was spot-on with its analysis of the credit crisis in the face of the failed bailout plan:

"In plain English, banks are extremely reluctant to lend to each other, which means they're not going to lend to you and I as consumers, or businesses either. The Fed is injecting tremendous amounts of liquidity into the financial system to get banks lending again, to little avail so far.

"This isn't just a long-term concern: Corporate America relies on overnight lending and short-term commercial paper markets, and an inability to tap those sources of liquidity could result in mass layoffs in the "real" economy, which is something to fear."

"Markets around the world are under stress and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories," Treasury secretary Hank Paulson argued this afternoon.

I have to admit I've had my fill of the tired "Main Street"/"Wall Street" analogy used by various media pundits, but I do think Art Cashin, UBS director of floor operations, made a fabulous point yesterday when he told Good Morning America that "Main Street is the basis of all of the economy, by which Wall Street trades and prospers. Major failures could occur in a matter of days -- and not just banks and finance, but in brand names known all across the globe."

ABC News reports that in past decades, many industrial companies tapped into the profitable lending industry, but the key players (such as GE and General Motors) have financing divisions that now could be hit by consumers defaulting on loans. Both General Motors and GE have taken a substantial loss from the crisis.

"In towns all across the country, businesses are slowing down -- no new hiring, layoffs are occurring," Cashin told Good Morning America.

Less jobs, of course, mean more mortgages that fail to get paid, more foreclosures, a tougher time securing college loans, more of a struggle to buy necessities (such as groceries), and less of an ability for Americans to save. If you can barely afford to beat back foreclosure or put food on the table without using credit cards, then forget saving for retirement. And in the face of today's shocking decline, having a 401(k) is not the essential padding it once was. I mentioned earlier that $1 trillion was lost in the midst of the turmoil. That money comes out of the 401(k) accounts that most of us have wrapped up in the stock market. Dwindling 401(k) accounts mean we can kiss that retirement (early or otherwise) goodbye for at least the foreseeable future.

Hopefully one positive effect from all this, after the dust has cleared and the market begins to look up once again, is that Americans will "rededicate themselves to saving rather than spending beyond their means," Yahoo Finance says.

Oh Forex, you saucy minx

Well, chickadees, it's been a while since we've gone back to the drawing board with the fundamental terms all of us should know and love, and we all know I'm a firm advocate of having a clear understanding of all options to peruse and park your money with. Think of it as parking your car. If you had a sporty convertible you recently spent your savings on, would you park it just anywhere? Of course not! At least I wouldn't. I'd try to find the parking space with the most air around it so my car can emerge unscathed from any nasty dings or scratches from neighboring vehicles (curse you, Costco parking lot!).

Well, the same sort of thinking should be applied your investments ... after all, your investments are your savings, parading around under the guise of a fancier name. Before you put dump your savings in that new convertible -- er, I mean investment -- you'll need to know what your options are. Do you like to take risks and man the steering wheel? Are you a backseat driver, only giving input when you see fit? Or do you tend to sit back and just enjoy the ride? Regardless of which type of investment is more your style, you have to exhaust the breadth of your knowledge on what's out there. After all, how would you know if you're making the right decision? You could end up screaming "Help!" out the moon roof of a speeding car you never should have started driving in the first place. Which leads us to the word du jour: Forex.

I'm sure many have heard of it, but few truly know what it is. It sounds complicated, so I don't blame you for feeling a little intimidated, but bear with me, it's as easy to understand as fresh strawberry pie (my favorite) .... with a light patina of strawberry glaze .... and perhaps a teensy dollop of whipped cream .... mmmm. Oops, lost in another dessert haze. Le sigh.

Forex is a complex-sounding word for exactly what it is: The foreign exchange market. Get it? FOReign EXchange ... Forex ... there you go. The foreign exchange market, or Forex, is the international exchange market, in which different currencies are exchanged (i.e., bought and sold, much like stocks).

So what's the difference between Forex, and say, the regular stock market, you ask? Simple! First off, buying and selling in Forex isn't consolidated on one hub, such as the Nasdaq or NYSE (New York Stock Exchange). Forex trading happens globally in almost every time zone, in a surfeit of locations all at once via telephone and Internet. Also unlike the stock market, where trading begins promptly at 9:30 a.m. until 4:00 p.m. during weekdays, Forex allows you to trade 24 hours a day from Sunday afternoon to the following Friday afternoon. Normal business hours? Pfff -- not with this saucy minx!

So how does it work? Well, the uber simple explanation is you speculate whether a country's currency will rise or fall, and buy or sell that currency accordingly to try to make a profit. After you've found a currency, like the euro, yen, or pound, that you think will take off (even in the super short term), you contact Forex dealers either by phone or Internet, and they then conduct your transaction for you.

Because Forex is set up this way, Forex traders (like moi, and all of you) essentially determine the price of individual currencies, based upon supply and demand for each. And you thought economics was boring!

Forex is fabulous because:

• While you own a currency you're the recipient of its interest -- and the interest rates vary from country to country. Score!
• It is the largest liquid financial market (if you're not clear on liquidity, click here), meaning that the daily trading volume is so large -- between $1 trillion and $1.5 trillion (yes, we're talking trillions here, ladies!) -- that it's nearly impossible for any one person or fund to affect the worth of a currency by placing one bet on the table for it. Also, because Forex is so liquid, it only takes mere seconds to buy and sell currency because there are always buyers and sellers ready and waiting to snap up currencies. This is much different than the stock market, where some purchases and sells can take hours due to a lack of willing buyers or sellers.
  

If you're wondering whether Forex is the right investment for you, Forex for Dummies makes a valid point: "Americans may not understand that by NOT investing in currency they actually lost 50% since 2002," -- due to the value of the U.S. dollar dropping -- "but they understand that gas is more expensive, along with many other imported products. Therefore an investment in Forex is not a traditional 'investment' with the hope of potential return, it is a hedge against inflation caused by your local currency fluctuations.

Investors who deal in Forex generally use two research methods to make their decisions (these methods, by the way, are also used in the regular stock market, so pay attention!):

• Technical analysis, which is analyzing your potential investment based on, well, its technicals. This means believing that the current price of what you want to buy already reflects anyfactors in the market. If you're on the technical analysis boat, you generally look at the highest and lowest price of the currency you're analyzing, along with the daily volume (or amounts being bought and sold in the marketplace). By taking a historical look back at the numbers, patterns, and trends a currency or stock hasexhibited, you can make at least a short-term guess of how it will perform in the future.
  
• Fundamental analysis. Unlike technical analysis, which is based on cold, hard numbers, fundamental analysis is based on the fundamentals of a country that could affect its currency, such as politics, rate of inflation, geopolitical tensions, etc. (This is why magazines such as The Economist are a great read for both news junkies and savvy money honeys alike!).
  

Unfortunately, it's not as easy as choosing one of the two aforementioned methods and jumping headfirst into Forex. Much of the gains and losses within the foreign exchange market (and stock market, for that matter) is based on people's predictions of how much or when a currency will rise. Therefore the value of any particular type of money can be largely tethered to investors' perceptions of what it should be worth. So, there's a little financial psychology to throw into the mix as well!

Keep in mind that Forex is extremely risky -- it's in no way comparable to investing in a mutual fund or CD, and even if you do know how to play the stock market right, it doesn't mean you'll make out like a bandit in Forex. But I guess that dangerous allure of risk and return is what makes this kind of investment a femme fatale in its own right.

Forex for Dummies does point out, though, that just because there's risk with Forex doesn't mean it should be an automatic "no" on your investment radar. "The stock market can crash, but the currency market cannot. If the Forex market for some reason collapsed, we would be back in the stone age, trading cows for gold, and banks would not exist. Unless you are willing to accept this abstract reality, you can be safe and sound knowing that the Forex market will never crash. Anyhow in a scenario like that, only investments in raw materials will be of value (sugar, coffee, alcohol, gasoline, tobacco)."

Then again, I believe that just because something can't crash doesn't mean it's the smartest vehicle for your money. That all varies, again, with what kind of driver -- I mean, trader -- you are. But do know that if you desire strong, positive results, Forex is a very research-intensive, hands-on means of getting there. If you can't commit the time and patience to teach yourself the subtleties of this complex and risky art, there are still a bevy of alternative investments you can choose to go with, but at least now you can be confident in your primary understanding of all things Forex! It wasn't that complicated after all, was it? Now, where's that slice of strawberry pie ...

Learn the lingo: Liquidity

So you wanna invest in the stock market ... but you still can't speak the language. Well, ladies, if you've been reading the past couple months, I've touched on some essential terms you need to know before you depart on your foray into stock market bliss. Key word being "some," though, meaning there's a whole lot more to learn within this realm.

Which brings us to liquidity. I know, just the sound of it makes you shudder, probably because you're thinking it has some long-winded, snooze-related explanation -- and if you've already gotten this far in life without it, why learn its meaning now? I don't blame you for glazing over these mundane, "liquidity"-related details, but don't hit the snooze button just yet! However dull and boring the terms sound, if you're on the path to becoming financially savvy, you'll need to learn to speak them!

So, back to liquidity, yet another another one of those investment words that sound more complicated than they truly are. Liquidity is basically how quickly you can sell something without taking a loss. Simple, no? To put it in even plainer terms, it's also known as marketability. Say you owned an asset such as a car. How liquid your car (or asset) is depends on how fast you can turn it into cash. So if you buy a car for $8,000 and sell it soon after for the same price or more (if only this happened in reality!), than it would be a liquid asset. If, on the other hand, you had to slash the price to, say, $7,000, and it took longer to sell, it would be considered an illiquid asset.

It's all fine and fabulous when you're talking about personal assets, but how does liquidity come into play in market speak? Easy! To stock market investors, liquidity translates into whether or not a company will experience giant price fluctuations in its stock due to large volumes being traded daily. Stay with me, I promise this gets easier! Let's say you want to invest in a small company who has a low daily volume (or amount of stock bought and sold in the market by investors) of 20,000 shares per day, which is pretty low considering there are many stocks with daily trading volumes of millions!

This smaller, low-volume company (with, for example, five investors buying and selling per day within it) would be considered illiquid and volatile, because any large buy-in by this group of around five could increase its stock price exponentially. This matters to serious investors such as mutual fund managers, who buy millions of stock at a time and don't want their single purchase to artificially inflate a stock's price. This is called market liquidity.

And then there's balance sheet liquidity. (Try dropping that term at your next cocktail party!) A company's balance sheet liquidity is basically any assets a company has (investments, property, bonds, etc.) that can be turned into cash at a moment's notice. Generally a company with high balance sheet liquidity isn't that risky to invest in since they can quicky come up with cash in exchange for their assets if they're ever in a bind. These types of companies usually grow slower than most, though, because assets are kept in storage (so to speak) in case of emergencies, and not outrightly used to generate profits.

Last but not least, liquidity is directly related to a company's overall value (much like the overall value of the car you were going to sell that I mentioned earlier). Take a company that sells scrunchies called Scrunchies, Inc.*

*This is purely for example purposes, it would be highly unprofitable and embarassing in 2008 to A.) sell scrunchies in the first place, and B.) name your company Scrunchies, Inc. Yes, even I used to wear them, but I was an unsuspecting kid in the heyday of the early 90s.

So you're considering investing in Scrunchies, Inc., but you see that it makes most of its profit by, well, selling scrunchies. Being the savvy investor you are, you know that scrunchies may have been popular at one point, but their 15 minutes of fame are up -- they just aren't in demand anymore and people aren't buying them. Would you invest in a company who's products aren't likely to generate that much profit? No, you wouldn't! And that, all you brunettes, redheads, blondes -- or whatever you are -- on a budget, is liquidity. I know, it's a marvelous thing!

Keep it in mind next time you consider investing in a company. Or even if you're just buying a personal item that you hope will hold its value, such as a car or a Louis Vuitton bag. You may think assets such as designer handbags may be good investments, but just how liquid are they? How long would you need to hold on to a bag to sell it used without losing a profit? If you were ever in a pinch and needed to sell it ASAP for cash, would you be able to quickly without losing money? These questions are a good guage of how liquid or illiquid a large purchase will be, and whether or not it fits well within your budget and investment plan.

Learn the lingo: Mutual Funds and Diversification

I was recently asked to do a ditty on mutual funds, or what I call the "sultry vixens" of the saving world. Why would I refer to them as sultry? Well, unlike individual stocks, which I consider "femme fatales" because of the immediate risk associated with investing in them, mutual funds are a more demure and unaggressive bird. They stand in the background and make you money without being too risky because of the diversification they bring to your life. But what is a mutual fund? And what in the heck is diversification?

Ask and you shall receive! Before your eyes glaze over with a patina of unadulterated boredom at the mere sight of the words "mutual" and "fund," you should know that a mutual fund is simply a way for you to invest your savings in an account that is operated and run by a professional investment firm or company.

Pretend you're at a casino. (Hopefully a classy Vegas joint such as the Bellagio, and not some seedy Reno dive inhabited by chain-smoking moustached men in faded trucker hats -- but this is all beside the point.) You sit at a slot machine and start funneling in your money, hoping a river of change will pour into your lap. Well, chickadees, the slot machine is like a mutual fund, and has an endless variety of ways (or investments) it can choose from to make you money. Unlike casino gambling, though, there's no random chance with mutual funds. The managers of these funds are highly skilled to invest your money in the best way possible in investments they think will give you the best returns.

These investments can include stocks, bonds, commodities (such as gold, oil, etc.), or other things depending on the fund. The essential idea is that you, the investor, can make one single investment into the fund, where it is then diversified across many different industries or investment categories by people who are well-versed in finance. If you're a newcomer to the market, you may think you should lap up just oil companies, but putting all your eggs into one basket (or one type of stock) is dangerous. Mutual funds will broaden your horizons, by making sure your money is spread evenly across the whole piece of toast, instead of just dumped on one side. Diversification is important because it protects you from the risk of losing all your money on one bad investment.

Many mutual funds are peppered with more costs than standard commission fees, but that's what you get for majoring in English versus Business, and paying Mr. Harvard-MBA to do the dirty finance work for you (or so said the brunette writing the budget blog). Kidding, kidding; I'd take English Lit. over math any day.

When I turned 18, my grandfather revealed he had set up a Vanguard mutual fund account for me (along with my brother and sister), replete with $8,000 for each of us. Although I was of age for instant access to the dough, I was told to forget it was there and treat it as a nest egg, hopefully adding to it every once in a while. Believe me, at the tender age of 18, when all I could think about was fast cars, fashion and boys, $8,000 sounded like an appealing down-payment on a BMW or an extended vacation on the shores of Baja. But I guess the seeds of frugality had already been sewn in the haunches of my late teenage years, and (heeding my parent's advice) it remained essentially untouched. Of course, that all changed in February of this year, when I got bit by the stock market fairy, pulled all of my money out of the account, and decided I could make better returns by aggressive stock trading. I highly advise you only make this kind of move, though, if you feel confident in your knowledge of the stock market or feel like you have enough time on your hands to at least learn the fundamentals (in casino speak, there is a much higher risk of the house winning in this territory).

But why am I even telling this story? Because a mutual fund, like a 401(k) or IRA, is a great way for you to set up a nest egg of your own. As much as we want to write off our parents' advice as superfluous, there's a kernel of wisdom in the "put it away and pretend it's not there" adage. The only way to accumulate is to not spend, and the only way to spend is to, in essence, "pretend it's not there." If you're lucky and never need to dip into your budding fund investment, it can even be a great thing to pass down to your future children as a seed they can continually add to and use if necessary.

So now you know what mutual funds are and why they can help in your quest for an early, lavish retirement. For ideas on which ones to invest in, read this recent top 25 fund list!