By Dr. Don Rose, Writer, Life Alert
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Introduction

Planning a budget involves two activities. The first is tracking how much money is coming in, or inflow (wages, proceeds from sales, interest, loans, gifts and other sources). The second is tracking how much money is being spent, or outflow (monthly bills, any emergency costs, taxes, payments to outstanding loans and more). In tough economic times, making sure the IN is greater than the OUT becomes more challenging.

Below I present the first of a three part article to address the inflow part of the budget equation – that is, sources of money. These three parts cover three of the most popular ways of raising cash: Selling, Renting and Borrowing. Part One deals with Selling.

Selling Services

Working is another title we could have used for this section. Working is a form of selling that involves selling yourself – your skills to perform certain tasks at a negotiated price.

A full-time job for a company is the most traditional way to ensure that money will regularly come in (hence the word “income”). Ideally, the other ideas for generating money should be secondary to having a job. Not only will work usually be your most lucrative money source, but it can also be a source of personal gratification as well – and sometimes a stepping stone to a more rewarding job along a lifelong career arc.

If you have a job you love, keep it, and count yourself lucky. If you have a job you don’t love, keep it anyway -- and still count yourself lucky, since unemployment at the end of 2008 is at its highest level in years. Most economists don’t believe we will have a repeat of the Great Depression, in which roughly 25 percent of the workforce joined the ranks of the unemployed, but all agree we are in a recession likely to be one of the deepest ever.

If you just lost a job, don’t feel alone. Layoffs are increasingly common as we head into 2009. There are places you can go for help – for a start, the employment development department in your area (EDD in California), which can give advice and help with the paperwork necessary to receive unemployment benefits you are entitled to. The amount you will receive depends on various factors, including the salary you had been getting and the amount of time worked at a job. The EDD can also help you find a new job, although a plethora of job-related websites exist that can probably help you even more.

Then there is the category of part-time work, including non-traditional kinds of jobs. One strategy to raise extra cash is to examine your assets and see what knowledge you possess would be of interest to others. For example, tutoring of K-12 school subjects is always in demand, as is teaching music (even more important now that many schools’ music programs have been cut back or eliminated due to budget tightening). Anyone can apply this general principle: examine the skills or knowledge you are most expert at, and find places to teach those skills. If you cannot find an organization to teach for, teach it from your residence. Or, you can provide even more convenience for potential students and offer to go to them. Once you decide what you can teach, use the Web to find out what people charge for such services. As in traditional job hunts, Google is your best friend.

One more idea is to devise unique jobs that are rarely or never advertised. Be creative. For example, personal helper-assistants are now more in demand. Since people are busier than ever, new part-time jobs have sprung up to help those with demanding full-time jobs. Some involve doing errands that busy people don’t have time to do. This can be viewed as a form of outsourcing, a larger trend in today’s work world. Big companies and individuals alike are exploring its benefits. Some companies help stables of part-time workers get jobs. Registering with them or sending them your resume can help you find a new gig quicker than having to do all the job searching and selling yourself by yourself.

Selling Investments

For workers who want to raise even more money, or to keep you afloat when you are not working, you may consider selling investments you own. The main issues to consider are: what potential gains are you giving up by selling, and what the tax consequences will be.  (With commissions now very low on selling stocks and mutual funds, they are not much of a factor in decision making, but for those who buy and sell a great deal, it can add up.)

Some may consider selling retirement savings (like IRA funds) before retirement age. However, there is a definite downside to this. You lose the tax-free compounding gains that those funds will almost certainly enjoy from now until you really do retire. (If the funds ultimately go down, then yes, your decision to sell would have been a good one -- but the longer the gap between today and retirement, the more likely funds will go up.) Also, there is a 10 percent tax penalty in nearly all cases of early withdrawal. Then, you must pay taxes on any gains the funds made since you first invested. For all these reasons most financial pros advise against selling retirement-account funds early to raise cash.

Instead of selling retirement funds, a more practical option is to sell taxable (non-IRA, non-retirement) stocks. If you are thinking of selling when stock prices seem high or even inflated, then the good news is that you may get out near the top; thus, you’d not only get to use the proceeds of the stock sale, but you avoid any price drop that may come after the sale. In general, if you have a healthy gain in a stock and you think the upside is now limited, selling can lock in your gain, avoid potential losses, and give you cash to spend.

If you are thinking of selling losing stocks, there are still advantages. Yes, you would suffer a loss, which is never more desirable than gains, but at tax time you can write off stock losses against any gains you may have on your other investments. In addition, if losses exceed gains, you can offset up to $3000 of ordinary income with those excess losses. If it was a really bad year and your losses beat your gains by more than $3000, you can carry forward the amount over $3000 to the following year. Another benefit to selling losing stocks is that you can, of course, use the proceeds from the sale to fund things you need (like buying a car, paying bills, etc.).

Here is an example to show how selling losing investments can be a plus. Suppose you wanted to buy a used car for $5000 but don’t have the money. If you borrow to buy it, it will cost you $5000 (the principal) plus interest (let’s say at least 6 percent a year, which means at least $1500 over five years), for a total of $6500.  Now let’s say you have a stock worth $5000 but it was $12,000 when you bought it.  If you sell it, you get the $5000 proceeds, plus you can use the $7000 loss to offset $7,000 worth of gains you may have made. If you buy the car with this $5000, you saved $1500 of loan interest and you saved the taxes you would have paid on those $7000 worth of gains. A definite win-win.

But what if you only had $4000 worth of gains to offset in this example? Use the $7000 loss to offset all $4000 of gains plus $3000 of income. Only $1500 worth of gains? Then offset the $1500 plus $3000 of income and carry forward $2500 of losses to next year.

One other factor to consider when selling stocks or mutual funds to raise cash. If you are choosing between two investments to sell, which are equal in all respects except that one pays a dividend while the other doesn’t, consider selling the latter. In tough times, all streams of income are desirable, including interest and dividends. They can really add up.

Selling Products

Don’t have a job? No investments? Have a job, but need more money than you are taking in from wages and investments? Then sell some of your stuff. Benefits include more money and freed up space.

eBay, anyone? How about everyone. This website (started as an online marketplace for the Bay Area, hence its name) has grown beyond everyone’s expectations and in the process has turned millions into salespeople (and many of them into millionaires). But you don’t need the Web to rake in cash for things you don’t want; old fashioned garage sales can often do just as well. Benefit: no need to pay eBay a fee. Craigslist.org and other websites can help you find garage sale addicts online by placing ads. You can also place free ads for your for-sale items on Craigslist, and again you avoid the eBay fee.

Some advice for selling items online: for ads, include as much detail as you can, and photos if possible. Make items look and sound as good as possible, and make sure text in your ads is error-free (spell check!). Professional looking ads tend to get the best results.

Life Settlement

For some people, especially older folks, certain life insurance products can become valuable assets over time. Some can be sold before the normal payoff point (which is typically death). You don’t get as much as the total death-payout would be, but selling a life insurance policy can raise a lot cash fast. Note that the details must be handled very carefully to avoid selling your asset for too little. Plus, selling a life insurance policy to someone means that the buyer will be checking up on your health, which can be creepy.

Coming in Part 2: Renting

If you own something of value, and you do not want to sell it outright, it still may be able to generate cash for you. With certain assets, you can “sell” their use for a limited period time – in other words, you can rent them. In part 2 of this three-part article, I explore how to raise money by renting your home or other valuable assets (like stocks) that you own.

References

Reader’s Digest, December 2008, “How to Get Cold Cash in Tough Times” by Cathie Gandel (for the above section on Life Settlement).

 

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The information provided above is, to the best of our knowledge, reliable and accurate. However, while Life Alert always strives to provide true, precise and consistent information, we cannot guarantee 100 percent accuracy. Readers are encouraged to research any statements made and use any resource links provided to gather more information before drawing conclusions and making decisions.

Dr. Don Rose writes books, papers and articles on computers, the Internet, AI, science and technology, and issues related to seniors.
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