Given current events, it might be good idea for the average citizen to better understand our modern banking system. Reader Rick submitted this following video by Paul Grignon which tries to explains things in an accessible way using animation. It is about 45 minutes long, so you need to commit a chunk of time to watch it, but I thought it was worth it.

The first part explains our fractional-reserve banking system very well. One might think that for every $1 we put in a bank account, that is $1 that can be lent as a mortgage loan. In actuality, it is more like $100 that can be lent. (Wonder why banks want our money so bad?) So where is most of the world’s money coming from? In effect, it is created by the act of borrowing itself. Money is created by debt!

However, in the end, it draws some controversial conclusions. The creator contends that this system is unsustainable, and because banks control the credit in our society, they effectively control the society. Thus, it would be better if the government took over such transactions. I have been unable to find a good rebuttal by a financial professional or economist online, so please drop a comment if you have.

(Best viewed in full-screen mode. Takes a while to start.)

High-Yield Bank CD
Washington Mutual has brought back their 5% APY 12-month CD for another week, which had previously dipped to 4.5% APY. If this fits your needs, don’t miss it this time around.

Chest Freezers
Apparently, I was not alone in doing cost/benefit analysis on an extra chest freezer, as this AP article shows:

Once relegated to the dank corners of the basement, freezers are being embraced again by shoppers who are stashing bulk-sized purchases of meats, fruits and vegetables there as they work to combat rising food prices. Across the country, shoppers bought more than 1.1 million freezers during the first six months of the year — up more than 7 percent from the same period last year, according to research firm NPD Group.

That rings up to nearly $400 million in freezer sales — a staggering figure compared to the rest of the home appliance sector, where industry data shows shipments are down nearly 8 percent. And, experts said, it’s a trend that’s expected to continue at least through much of next year as penny-pinching shoppers buy in bulk to take advantage of deals or bundle grocery shopping trips to conserve gas. […]

About half of all U.S. households already have a chest or upright freezer, separate from the refrigerator-freezer combo that’s a kitchen stalwart, according to industry statistics. [Source]

I also had no idea 50% of households already had an extra freezer. We still haven’t bought one yet ourselves; I’ve been in kind of an anti-stuff mode recently.

Here are some recent links from fellow bloggers that made my cursor pause…

Grad Money Matters ponders when to stop chasing money? How do we know at what point when we need to slow down? Good question.

Wisebread offers up some cheap things to do in San Francisco. I always like to see other people’s views of an area I am familiar with; everyone always has different ideas. The comments are good too.

The Consumerist tracks the continuing trail of destruction by the Grocery Shrink Ray. AllFinancialMatters laments the shrinking beer bottles of certain brands. Or are they 1/3 liter bottles? Or are 1/3 liter bottles a convenient metric-system-abusing excuse? Financial Ramblings says we get what the market decides. I believe, with consumer awareness, the balance can be shifted.

Get Rich Slowly talks about the best salesman in the world, whose path to riches lay in selling $5 potato peelers on the streets of New York City. Interesting story.

No Credit Needed offers an illustrated guide to debt reduction. I like pictures.

The Simple Dollar explains why they decided to finally merge their married finances.

Christian PF makes his own toothpaste. I must admit, this is something I’ve never thought of doing myself. I do drive my wife crazy by squeezing the last atom out of our current tubes, though…

Almost Frugal shows us how to cut a little boy’s hair. Amazingly enough, no bowls were involved! As a kid, I was happy with a buzz cut for many years. I’ve never been big on hair…

In an effort at personal development, I am currently reading the long-time bestseller The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change by Stephen R. Covey. I got the book years ago from some sort of corporate team-building workshop but never finished reading it.

I think that many ideas within the book have applications to personal finance. The first habit is to Be Proactive. This is not the same as simply going out and doing many things – that’s being active. Instead, think of proactive as the opposite of reactive. One should consciously choose how they respond to external events. Even being angry is a choice. “Nobody can hurt your feelings unless you let them.”

Circle of Concern vs. Circle of Influence
The Circle of Concern is everything we might be concerned with – from world peace to lunchtime. The Circle of Influence is what we can actually do something about.

Where do you think you should focus your energy? Consider these “if only” thoughts:

• If only I didn’t lose my job due to downsizing.
• If only gas wasn’t so expensive.
• If only my house didn’t plummet in value.
• If only I had a great pension plan like my parents had.
• If only someone could teach me how to invest.

Getting sucked into such thoughts is to dwell on the Circle of Concern; It is a waste of energy and won’t help you at all. The only thing that can help you is to focus on your Circle of Influence. Spend as much time each day on finding a new job as you spent working at your old one. Examine your habits and consume less. Borrow some books on investing. Move forward with a business idea. Then, you might be able to expand your Circle of Influence:

I know, it’s a bit cheesy. But if you listen to yourself carefully, I think you might catch some of these “if only” thoughts popping into your mind. I know I do. There is a very applicable prayer from Alcoholics Anonymous:

God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and the wisdom to know the difference.

Saw Batman today (the free movie tickets worked!). I’m not much of a graphic novel guy, but it turned out to be one of the best movies I’ve seen all year. Side thought: Is it really impressive that a movie broke a box-office revenue record when even a matinee costs $8 now? If the goal is to compare popularity, shouldn’t they just count the number of tickets sold instead? Here are some other personal finance articles from my weekend reading:

The Finance Buff has a guide on buying TIPS directly from the government at auction.

J of BudgetsAreSexy bought himself a frugal Cadillac. Oxymoron? This reminded me that I still want an old Jeep Wrangler. If I view the Jeep as one step closer to being a beach bum, does that mean J secretly wants to be a pimp in his DeVille? 😉

Punny Money asks (using hilarious stick figures) if one should buy or rent a tuxedo. For a long time, a small part of my beach bum dream lifestyle was to die having never worn a tuxedo. I managed to avoid having to wear one at my wedding. Alas, I had to wear one last year while being a groomsman for a friend (all your fault, Joe!). But never shall I buy a tuxedo!

JLP of AllFinancialMatters shares his opinions on brown-bagging lunch as well, and his readers chime in.

As SUVs everywhere are being traded in, The Digerati Life explores the MPG illusion. Saving money on gas by switching cars may not as beneficial as you think.

Lazy Man offers to sell his endorsement at Prosper Lending, and starts a lively debate. Given the losses that many other lenders have been experiencing, I’m quite happy with the estimated 10% ROI on my tiny portfolio.

Boston Gal remarks that you know the economy is bad when the Wall Street Journal pushes libraries. From her commenter Sean of Financial Ramblings – “If CNBC starts running specials on clipping coupons, Colbert will have to raise the threat level.” Ha!

Here are some links from sites in my blogroll, not in the alphabetical order of their blogs, but their names. I tried (very unsuccessfully) to make something clever related to the actual titles when possible. My apologies to the English language.

• 2million decided to open up a bank account in China. How much is $2 million RMB?
• Boston Gal discovers that fake grass is expensive. Yes it is, but could it possible end up more eco-friendly than our current water-thirsty and fertilizer-eating lawns?
• Canadian Capitalist points out that passive investing let you live your life.
• Dong gets Asked: Is the Wii all that? I don’t think so, but I’m never been much of a video game person. It is good for socializing though.
• Emily Brandon interviews folks to find out their stories of unplanned retirements.
• Grant and his Corner Office poses an interesting question about airlines – why are many airlines willing to operate at a loss for so long? All I know is that $15 for the first bag is stupid. If fuel costs are the issue – will we see people being charged by the pound next?
• IndexFundFan shares his May 2008 Portfolio return. So many asset classes!
• J.D. shares another way to Get Rich Slowly by subscribing to Craigslist Search Results to get fast updates on new listings. I still search for cheap Jeep Wranglers and beater Toyota Trucks daily when I take breaks, even though I’m not allowing myself to buy one right now.
• Jim Bargaineered his way into an insurance policy for his engagement ring.
• Michael Muses about Money when he shares a video of a guy trashing his house because it’s in foreclosure. That’ll show the world…
• Patrick asks which shift do you prefer to work for your cash money?
• Single Ma’s Fabulousless shines through when she talks about living life on her terms and doing what she has to do to get what she wants.
• Tricia continues Blogging Away Debt even though sometimes it may feel like a roller coaster.

June 1st is the start of Hurricane season for the East Coast, it’s always Earthquake season on the West Coast, and it’s near peak season for Tornadoes in many states, so in general it’s a good time in general to check up on your disaster plans. While there are several places like FEMA and the Red Cross that will have extensive lists of what you should have, but really, do you keep 3 days worth of food in your house, your car, and at work? Okay, I’m sure some of you do, but I don’t.

Instead, I liked reading about simple and easy things you can do that will still make a big difference if you are out of power and other services for several days. Most of these things are free, or involve slight changes to your buying patterns on stuff you would have bought anyways.

Food: Stockpile and Rotate Your Pantry
I wonder if it is necessary to buy 20 cans of beans or military MREs and stick them in a box somewhere. Chances are that most of us could live off of what we have in our cabinets for a least a few days. To improve on that, just be aware and buy extra of certain staples when they happen to be on sale. Canned soups, vegetables, fruits, peanut butter. Cereal, crackers, pasta, rice. Don’t let them just sit there though, buy more when needed and then eat the items before they get stale. I just put an empty duffel bag in the pantry with a manual can opener inside so I could throw some stuff in there and run if really needed. If the power does go out and you stay at home, remember to eat the perishable food in the refrigerator first, followed by the food in the freezer, so that you can saved the canned goods for last.

Water
If you buy bottled water, keep an extra case, and rotate as needed by the expiration dates so that the water stays fresh. You can also store tap water in old 2-liter soda bottles which are sanitized first with a bit of chlorine bleach. This should cost essentially nothing. During an actual emergency, another trick is to save and use the water held in the tank of your hot water heater.

Cooking and Heating: Keep Your Propane Tank Halfway Full
If you have a propane grill, you can use it for cooking when without power or natural gas. Do not use your grill indoors, though, to avoid carbon monoxide poisoning. If you live in an area where it gets especially cold, there are indoor propane heaters with built-in sensors that will let you heat your house safely. Propane is a lot easier to store safely than gasoline!

Transportation: Keep Your Gas Tank At Least 1/4 Full
So, where is the safest place to store large quantities of gasoline in an emergency? Your car! So stop seeing how close you can get to “E” before filling up. Besides, if you really need to go somewhere in an emergency, you need to go, not stop by at the nearest gas station first. This way you’ll be a good 50-100 miles away before having to stop. Also, having lots of gas means that you can…

Power: Use Your Car Engine For Electricity
I think a great tool to have around is a cheap power inverter (available for $30 including shipping) that will let you plug in lights for your house, a radio/TV/laptop, or just charge your cell phone using your running car. Just plug into your cigarette adapter (lower watts) or connect to your car batter (higher watts). Comes in mighty useful for road trips as well.

Everything Else: Cash
No, it won’t be able to earn any interest, but having a decent amount cash handy can be very helpful. Stores may not take credit cards when there is a blackout due to fraud, which I found when trying to buy some things at my local hardware store during a blackout. Coincidentally, there were having a special on those hand-crank radio/flashlight combos so I picked one up. 🙂 I’m not sure how much is a good amount to have in the house safebox. Between $100-$500?

This list isn’t exhaustive, just what I could think up, so please share your own ideas in the comments.

ISPF of GradMoneyMatters ponders whether parents should influence their children’s college applications. It’s a tough question, even if the parents refuse to pay, it’s not easy for a kid to simply “pay for it themselves” because the current financial aid system assumes the parents will cover a certain amount.

Patrick at CashMoneyLife quits his job and is about to start a new one, but is faced with a counteroffer from his current employer. Tricky situation, but it must be nice to be liked so much.

JD of GetRichSlowly reminds us that college students throw away some sweet crap when the semester ends. I’m sure I threw away some good stuff in my day. When I moved into my first apartment, we bought all the furniture inside from the old tenants for $50. That couch ended up lasting me 10 years…

NCN of No Credit Needed discussed his $100 a day rule to control impulse buying (and the resulting accumulation of junk). $100 a month is more like it for me… unless it involves tasty hole-in-the-wall international food. 🙂

Too late? Got junk? Trent of The Simple Dollar talks about the process of selling everything you don’t want anymore. I think I need to move about three more times, and that will force me to get rid of the last of my idle things.

Finally the New York Times had an article about voluntary simplicity and a family trying to minimize their stuff. Mentioned and via Unclutterer.

It’s wedding season again, and we have a variety of weddings coming up from a mix of close friends, not-so-close friends, relatives, and co-workers. This is probably not polite conversation, but hey, I’m all about discussing otherwise taboo financial topics. So, when deciding on how much to spend on a wedding gift, what factors do you consider?

How Close Are You?
This is simple – do you give more to your closer friends or family? Or are all weddings equally beautiful?

How Fancy Is The Wedding?
This the “at least cover your meal” philosophy. With all this talk about frugal weddings vs. monster weddings, it is clear (after paying for our own wedding) that some weddings have cost about $50 per person, while others will have cost $200 per person. As a guest, do you feel obligated to give a bigger gift when you know the food and setting are more extravagant?

I’m kind of mixed about this philosophy. So if you have two equally close friends, and one decides to throw a mega-bash destination wedding with filet mignon while the other friend has a small gathering in their backyard, you are supposed to give more to the former couple? This also would suggest that if you are not able to attend, then you can give a smaller gift. Hmm.

Your Financial Situation?
Now that we are labeled as a “successful professional couple”, is there more pressure to give a bigger gift? If a person is currently going back to school, are unemployed, or have chosen a career path with a lower assumed salary, do you feel that they should be able to give less?

What factors affect your wedding gift size? (Check all that apply.) Closeness of relationship Cost of wedding How much money you make None of the above View Results  Loading ...