First, the rules:

• The currency can’t resemble a US dollar
• Only paper currency can be printed – no coins allowed
• Any income received in local currency must be taxed as if it were federal dollars

So who’s using these alternate currency systems?  In the United States, there are already alternative currency systems in California, Wisconsin, Oregon, Pennsylvania, Michigan and Massachusetts.

Right about now you’re probably asking, why? Isn’t the green $20 bill in your pocket good enough? The point behind local currencies is to keep the currency within the community – forcing residents to spend the currency on local businesses instead of encroaching “big-box” stores such as Walmart or Target or even online retailers such as Amazon.com. The bills can usually be “bought” for around $.95, essentially giving holders an instant 5% discount on any purchases they make. When the time comes to pay that cable bill, however, the local currency can easily be exchanged back into “real” dollars.

While the purpose behind local currency might be a bit idealistic, running your own mini economy is not as easy as it looks. Just printing the right amount of local currency is a challenge. If you print too much currency, there’s the possibility of inflation. If you print too little, there are no economic advantages.

“They usually don’t hold up too well, or too long,” says Bert Ely, a banking analyst. “It’s something that applies only in simple and closed situations. It lacks the flexibility and geographic breadth that currency has.”

So what do you think? If your community offered a local currency, would you use it? If you were a merchant would you accept it?

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If you wanted to, you could spend almost 24 hours a day worrying about your finances. You could build budgets, track stock movements, read personal finance books, and watch CNBC form the moment you woke up until the moment you slept. The truth is, there’s a lot of advice out there concerning money (including this blog) and there’s no way you can possibly learn everything there is to know. On the other hand, you can’t ignore money – it’s a part of our everyday life. So the question is, how much should you worry about money?

The answer, similar to most of my advice, is somewhere in the middle. And part of it has to do with your own self assessment of how important money is to you. In order to help you figure this out, try ranking the following items from 1 to 10 – 1 being the most important to you and 10 being the least:

• Immediate family
• Extended family
• Friends
• Money
• Shopping
• Sports (watching or playing)
• Working
• TV/Movies
• Video Games

After some internal reflection, look at where money ends up in relation to other items on your list. If money is one of your top 3 choices, then I would assume that you are already faithfully checking your stock portfolio, 401(k) performance, and reading up on the latest and greatest personal finance topics. For those of you not as “obsessed” with your finances I would recommend setting aside at least one day each year to focus on your personal finances.

While your personal finance situation will most likely determine the kind of life you will lead (either now or in the future) don’t you think that dedicating at least 8-10 hours a year is worth it? This day of personal finance mastery is not meant for you to pay bills, but to go above and beyond your normal day-to-day financial activities. Take a day off work… use a holiday such as Labor Day (hint hint)… whatever you do make sure you have time to dedicate to this activity.

Suggestions for things to do include:

• Calling credit card companies to negotiate better rates.
• Updating your list of important financial information in case of emergency or death. Try something like this Financial Life Details (pdf) worksheet from Merrill Lynch.
• Update your will and/or trust documents. This may not seem “financial” in nature, but your will or trust has strong links to your financial portfolio.
• Organize your important financial documents, statements, or information for easy access on a day-to-day basis.
• Review your tax withholding amounts and re-examine whether or not you should change them.
• Consider setting up automatic withdrawals for savings, upcoming vacations, car repair, etc. using one of the popular online banks. (Personally I love the ING “sub-accounts” I can create to sock away money)
• Re-examine your insurance premiums and evaluate whether you are over or under-insured. It may be time to shop around for a new policy as well.
• If you haven’t done so lately, evaluate the returns in your investment portfolio and consider re-adjusting your mix in response to major life events or your current age.
• If appropriate, set up a 529 college savings plan (be sure to let relatives know they can contribute to it in lieu of presents).

The list could go on and on, but the important point is to set aside time to actually think about your current financial situation and evaluate how well you are accomplishing your goals. If you’re falling short, begin to research what you can do to improve. Do you need to ask for a raise? Cut back on spending? Move to a more affordable location? These are all questions you can ask yourself once you’ve taken the time to reflect on your personal finance situation – but are difficult to answer during your monthly bill-paying binge.

“Most debt and credit books on the market today talk about how to cure debt by curbing your spending and ‘cutting out fat’.  They make you think that it is something you did that created the wild debt problem.” (pg. 218)

That’s an interesting perspective.  Never-mind your wild spending habits, because the credit card companies are out to get you.  It’s not your fault at all.  Granted there are people out there who have had some kind of trouble with a job loss or medical problems where their credit soars, but that’s not the majority and people are ultimately responsible for what happens to themselves.  You are the gate keeper to your life and your money.  It is absolutely misleading for Trudeau to say imply that you are not responsible for your debt and all the other books are wrong.

It’s not that I don’t think credit companies haven’t done shady things, but only you can protect your money.  Debt cures should be about learning to manage your assets.  Not everybody is in serious debt (mortgages and cars excepted), so they must have learned to control their spending and consciously chose what they want to buy.  Trudeau also refers to the movie Maxed Out numerous times.  While the movie is rather good, I think he abuses the stories in the film to make his case.

I will write more on the book once I have completed it.  It’s not a total piece of trash, but I certainly wouldn’t recommend it.

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Blumenthal relates her experience with Beanie Babies to several bubbles and a little about how the hype builds.  A lot of things are like that.  One thing that comes to mind for me are sports cards.  I remember collecting baseball and hockey cards thinking that someday my collection would be worth a lot of money.  Unfortunately, cards don’t hold their value very well, speaking generally.  Rookie cards tend to be the prized possession, but those aren’t even a guarantee.  In 1991/2 I purchased an Ed Belfour* rookie card for $8.00.  Apparently If I’d waited almost 20 years, I could get the card for $1.25** at Check Out My Cards.  I can now pay for .5 nano-seconds of my kids college education.  Even if I could sell the card for $8.00 today, I’d still technically be losing money because inflation.***   That’s not the only card that hasn’t turned out to be the gold mine I expected (I’ll touch on some of my other sports card investment fantasies in a future post).  Granted, there are cards that hold their value and are worth the money, but they are rare and generally are at least 40 years old (They tend to have names like Mantle on them).

It all goes back to the quote above that short-term investors are the only ones to make the money.  There’s no way to predict when a bubble will burst.  Even when an expert nails it, it’s still just a guess, educated and informed as it may be and s/he may be wrong the next time around.  I’m not saying you need to avoid the bubble entirely, just know that you need to get in and get out quick.  My problem was I bought the hockey card at it’s peak.  I don’t think the price went up much past $8.00.  That’s why you need to know what you’re in for, because you may be left holding the bag (you’re lucky if that’s all you’re holding).  That being said there may be instances that holding on may be worth it for the extreme long hual, but you still want to get in low.  Once the real hype has already begun, it’s probably too late.  You need to be able to hold on longer than the crash.  Beanie Babies may be valuable again someday, along with my hockey card, but that may not be for another 100 years.  Then there’s always inflation.

The key to not falling victim is to avoid the emotional rush.  It’s not unlike the emotions that gamblers feel in the casino when they think they might just hit the big one.  Honestly, I find it hard to feel completely sorry for people who lost in the housing bubble or a Madoff scheme.  So many went in thinking they would make a killing and they should have known the risks (Those who returned money after making a killing with Madoff honestly deserve the Medal of Freedom).  On top of that, they should have been aware that things were too good to be true.  It’s that rush or emotional signal saying “you’re gonna make a killing” that hijacks the sensible center.  BUYER BEWARE is the single greatest advice for anything.  But I digress.  I’ll close with another Blumenthal quote “If your investing horizon is too short to take the chance, you should avoid taking the risk.”

*At the time Belfour was a standout rookie goaltender for the Chicago Blackhawks.  Many thought he would be the Wayne Gretzky of goal-tending.

**That’s 50% of the regular price even.  The worst is I ended up with the very same card a week or two later in a pack.

***Today I’d have to sell the card for $12.65 to make a profit.

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