Sunday, December 28, 2008


OK, so we are getting ready for the new year with great hopes and expectationss. Here is our 2009 Financial Action Plan for those who want to make a real change on their financial outlook. But before we detailed the steps, let us come to some agreements; sort of a reality check.
First we can agree that next year, more companies will probably close their doors, so this means more lay offs bringing unemployment rates to over 6.7 % a 14 year high. Second, we can agree that banks and credit card companies will continue to be skittish in lending and trying to minimize their losses, so this means less available cash flow, lines of credit, higher interest rates on cards and possibly lowering card limits or freezing balances, banks will try to remained positive by still keeping lending rates high as they pay low rates from the Feds. This is called arbitrage and that is how they make their money, and do not pass the saving to consumers. Third, we can agree that the economy will take a least a year to rebound depending on the government decisions, perhaps longer than a year. Four, the Feds do not have a plan to help small business owners so you are on your own, they may bail out big companies even though small businesses account for over 50% of commerce in this country. And lastly, we are procrastinators and spenders, so next year some hard decisions will take place. So let us begin with the action plan you need to weather the storm and sail to a nice warm port for holidays:
  1. Pay off credit cards as soon as possible, do not count on them for cash flow. Allocate enough funds to pay them off during next year. Reserve an free annual fee card with low interest and cash/miles back to use. Store cards belong to the shredder for good. This year is paramount to execute this new year resolution. I hope you paid with cash for your gifts during the holidays. Start paying off the highest interest rate bearing cards and work your way down to the least interest rate card. Refrain from using other cards to pay off balances of other cards, it is a vicious cycle.
  2. Start an emergency fund account, you will need a minimum of 6 months of income and work for the account to be funded for a year of income. The reasoning behind this is to allow you ample time to recover without going into more debt or without borrowing at high interest rates. This fund is only to be used for emergencies such as: being laid off, car maintenance, fixed expenses, mortgage, insurance. Stay away from check cashing places, even though these will be out by 2010 and not soon enough, they have high interest rates on loans. Stay clear of you retirement savings accounts such as your 401Ks or retirements accounts, these are for retirement only and not to fund emergencies, many have already tapped into their accounts, it is a double edge sword, you pay a 10% penalty for taxes if under 59 1/2 years of age, and additionally, so you are selling your shares at the lowest possible value so you are also loosing again by selling low. Remember you always want to sell high and buy low and not the other way around, tapping into your retirement funds are not what to do during a recession. An emergency fund account is a cornerstone to financial stability and wealth accumulation.
  3. Keep investing in your 401k/403b and retirement accounts, if your employer is still matching your contributions, it is free money and will go a long way in the future. During these times, contribute only the matching amount from your company and use the rest to pay off high interest rate credit cards since you are gaining on the interest you are paying down from a possible negative rate of return. Stay the course if you already lost value in your account. Remember, allocation models are design for the long term investment, the market will rebound, just be patient.
  4. Start or revise your financial plan, this is key for next year, by putting figures on paper and using professional help, you will save hundreds if not thousands of dollars. You will be taking charge on your finances by addressing these issues head on, no matter how your finances are, you have to start sometime. We have helped clients map their goals and they are on their way to taking control and feeling safe. A detailed financial plan will help you map out your goals and trouble shoot shortfalls, you will be able to learn during the process and see how it works step by step.
  5. Be frugal on your spending, next year will take some discipline and commitment to make changes. It is not easy as we habitually do not take the time to analyze our expenditures on a daily basis. Yes, I mean daily. One way to start, after you have your plan designed, you take cash only for every week of the month to use for your daily expenses, such as coffee breaks, lunches and incidentals. The amount is determined by you, refrain from using your debit cards or credit card for purchases. This will limit your spending until your allowance is gone. Very simple and it works!. You will be surprise how much you can save by using this strategy, at the end of the month any surplus money will go into your emergency fund, in addition to a predetermined amount from your monthly cash flow. A list of monthly expenses will be detailed in the plan, this will help you track them and make adjustments as needed, remember it is still your own financial plan. The hardest part is the discipline to maintain it, without going back to the routine from past years.

This action plan is basic and should get everyone started on the right direction for next year, more detailed planning concerning family and investments decisions should be left to your advisor who will help you along the way, that is what financial planning is all about, shoulder to shoulder advice. I hope you can feel excited for next year as I am. If you can look back at 2008 and decide to make changes, 2009 is the year for it. You may call me or my associates for any help or advice. Our first consultation is "gratis" and we are here to help.

Happy New Year


Hannibal Chinchilla

Friday, December 26, 2008

The eye of the Storm

It sure feels like the eye of the storm if you ever found yourself in hurricane country like I have. I feel next year we will see the storm passing us by; depending on future government decisions this storm could be a class 2 or 3 to a class 5. The latter being the worst. I remember the old tale of the grasshopper and the ant. The ant saved all summer long for the winter; the grasshopper just sang along and enjoyed the nice weather. I hope you take the ant's sample and save for a rainy weather and the winter to come. Next year's indicators and surprises will come very quickly, with companies reporting records losses, they probably will lay out thousands of workers. I suggest to have a plan b and even c, just in case. At Barca Financial, our first step is to build an emergency fund for our clients who finds themselves with short cash flow. It is amazing how quickly one can accumulate resources; given some discipline and understanding of individuals goals. One may have to choose for a must have product/service or nice to have product/service. We have lived in the nice to have world. The savers will be fine. The spenders will have to make hard choices next year. Start with a financial plan or a simple family budget. It will pay off during this Depression. That's right a Depression. It took almost a year for someone to call it a recession. How long will it take for them to start calling it a Depression. We, as Americans are very resourceful; let us take the first step, one step at the time. Start saving.
Happy New Year

Monday, December 22, 2008

Financial planning "Why it is so important"

Before we leave 2008 behind, there are lessons to learn from. One would be the volatility of the economy and how we view safe investments. One must prepare to emergencies and like this year proved, to surprises. A financial plan is the keystone to prepare and adjust to these eventualities. The economy will not bounce back overnight and it will more lenient for those who plan. Procrastinators and conformists will learn more lessons next year. I have been preaching to the choir on the planning process; for those who have listen I am happy to say are more prepare and have a piece of mind facing next year's woes. I started two years ago looking at the imbalances in the economy. Of course I did not saw the severity of it, but could see the housing market, the credit crunch coming. I do not have a Crystal ball but learn from various sound bites and hear lots of precautions for next year from the experts. I recently read Dr. Swanson's remarks when interviewed by the Tucson Weekly. Dr. Swanson was my teacher at U of A. I always listened to his advice. I feel the need to communicate the coming storm. As I drive through town, I see many citizens still doing what we do every December; they worry about the holidays and go like nothing has happened. I hope everyone is saving for the emergencies and a long recession to come. Companies will continue to lay off workers and gas will go back to record levels as the supply has been cut by the main producers. In a macro level and not so distant future; we will hit the Oil Peak. This peak is when we have produce maximum levels from our natural resources and we will have decreasing oil reserve levels. The way we eat, shop, live will be change forever. One good example was when the Soviet Union ceased aid to Cuba. Cuba experienced a micro oil peak. The main topic remains to individual planning to look ahead at these future issues. The grim outlook will be for our millennials, our children; who without defined benefit plans, trouble 401k's, reduced social security (if any). The only thing for them to do is to start saving for themselves. As parents we should learn from out shortfalls and prevent our future generations to prepare. Time is a commodity we do not have. So for next year a financial plan, education, and an emergency fund should be on the top list on everyone new year resolution.

Hannibal Chinchilla

Saturday, December 6, 2008

Checking your portfolio to minimize losses and gain control

We have been helping our clients and friends with the market woes. Luckily our approach since we started our company has been very moderate and away from Variable products. Recently we have been converting variable policies and contracts into a more safe approach into index products that protect the principal and provide piece of mind. They work better than CDs and Money market accounts since these are relative to the market fluctuations. An Index product helps you protect the principal and during bull markets (positive rate of returns) they gain from a pre-designated index fund such the DJIA, Nasdaq, S&P 500 EuroXX and international funds that spreads the gains. Two years ago we started with this liquidity, leverage and solid rate of return model and have averaged 5 to 7% ROI in the last year. Not impressive in the earlier years but conservative enough to beat all others. Our concerns of late are Variable Life insurance products which have lost over 50% of their principal funds. These brings a liquidity problem and potential lapses in policies. We recommend to check your current portfolios to verify the amounts and protect them from lapsing. Additionally, we have been suggesting trimming down on all expenses and weathering the impact of the current recession. We have always implemented the 12 month emergency fund accounts for times like these. These funds help deal with liquidity and current lay offs and provide ample resources to maintain holdings and future earnings. We have seen plenty of "what not to do's" recently. Like tapping into your 401K and retirement accounts; these actions negates all the earnings and hurt individual retirement plans for the future. We recommend to update your financial plan to address these issues. We often ask the question of having a financial plan; we get a lot of: I do not have any money to save or invest. the point of that it exactly why the financial plan is so important; because with one one can take control and allocated resources to be able to have savings and deal with the current market. Our model concentrates on the fact that everyone is not a planner and they are busy dealing with work, family and do not have time to really take control of their finances. We have built a solid platform that integrates all the financial needs from a simple auto policy to investments and wealth accumulation options. Our services range from all individual needs to business needs with all the products and services possible. We call this "Financial Synergy". Would you rather make one trip to deal with; taxes, investments, insurance, wills, payroll etc etc. This will allow one to concentrate on the important issue: Piece of mind. Visit our website to get quotes and schedule a complementary consultation to take control on your finances. We will be posting more issues relating to the current economic recession and how to deal with it.

Hannibal Chinchilla
Barca Financial Group