I use Quickbooks (QB) religiously; I enter all of my debits, credit card charges and payments, invoices, payments towards invoices, purchase orders from vendors, etc. I don’t even own a paper checkbook register any more, I ditched it years ago and only use my QB register. I also love the income and expense pie charts and bar graphs it creates based on my income and expense categories I’ve set up. It’s all color coded to easily reflect where my money if going.

However, I realized at the end of last year, that my charts and graphs weren’t quite accurate. They were counting income that I hadn’t yet received. For instance, if I had an outstanding invoice in the month of November that was paid the following month, it would reflect that income in November, not when we received it in December. I was much more interested in the cash we had actually received for the month, not the cash we were supposed to receive. This also got a little hairy last year when I had a client pay 3 months late on an invoice. My charts were showing the income received in July, but I really didn’t get that income until October! I knew that there was a way to tell QB to show the amount when we received it, I just couldn’t figure out how.

After some digging around in my QB program, I realized that I could change it in my Preference settings. Changing the reports and graphs to ‘Summary Reports Based on Cash’ instead of accrual now accurately reflects our income. Prior to changing this setting, my January report was showing that we had received over $7,000 worth of income. However, most of our invoices hadn’t been paid yet (and I’m still waiting on payment!). After changing my setting, my graph accurately reflects that we had received almost $5,000 in income (I’m short this month!) This correction will help me refine my budget and look for monthly payment trends, such as January is a slow month, but March and April are usually great months.

Here is a screen shot of how I changed my reporting status: (Edit – Preferences)

Quickbooks Preferences

Do you use Quicken or Quickbooks? Do you utilize their graphs and charts to help refine your budget? What are the pros and cons to choosing ‘cash’ versus ‘accrual’?

Hi – this is Mr Credit Card from www.askmrcreditcard.com. Little House has written about credit on this blog and I’d thought I’d share some thoughts on how the cheap credit that became in the 2000s has led to our current financial situation. If you are looking a for credit card, please check out my best credit cards list.

Little House mentioned in her post about life before credit, how credit became more available to folks after the eighties. I would like to take this opportunity to expand on this phenomenon, especially after 2000, when the real estate market seems to have taken off. And how this easy cheap money has nearly ruined us. At the end of the day, I think there are lessons to be learned when things are cheap and come too easy for us. It almost always ends in tears.

The 90s was a decade best remembered for President Bill Clinton actually balancing the budget and having a budget surplus. It was also a decade of boom in the stock market as low commodity prices allowed big blue chip stocks to outperform earlier in the decade. It was also a decade where then Federal Reserve Chairperson Alan Greenspan made reputation for himself for having the Midas Touch. In reality (and on hindsight), what Greenspan did was simply to lower interest rates and print money wherever the first sign of economic trouble was in sight.

In 1998, after the Asian crisis and the Russian Default, Mr Greenspan lowered interest rates on fear that the US economy will slow down. Well, it slowed down a little, but the effect of low rates was a bubble created in the internet stocks and NASDAQ in particular. He then raised rates when the economy was overheating, and when 9/11 happened, Greenspan slashed rates to unprecedented levels. Rates stayed so low for so long that access to credit became really easy. There were some unintended consequences.

Firstly, it was the beginning of a housing boom that would devastate us years later. Cheap money and easy credit meant even that folks who should never have bought a home could get a mortgage. Everyone knows now that this was really the root cause of today’s financial crisis. But even folks like General Motors began their famous 0% financing. “Buy America” was deemed to be patriotic. That was also the beginning of 0% balance transfer credit cards. “Transfer your balances over because we want to make money of your interest!” – was what the credit card companies were saying. Even college students could get multiple student credit cards even with no income! Even if you had bad credit, there were cards available. Want to buy a furniture but have not saved up, there is always 0% no interest payment for 24 months financing! So rather than saving money, consumers were “encouraged to take credit”. (Note: Thank goodness Little House had very little access to credit!)

Proliferation of real estate related jobs!

One of the most damaging aspects of the easy credit of the 2000s was that the real estate boom led to all sorts of job creation, but in the wrong sectors. We had obviously a proliferation of real estate brokers, mortgage brokers, contractors, construction workers. Do not get me wrong, there is nothing wrong with job creation. But the jobs created by these “easy and cheap money” did not create products. These folks were mere middlemen whose earnings were really a tax on transactions. They did not really add value to the economy.

Next came the proliferation of real estate investment books and seminars, get rich quick schemes. All of a sudden, every one became a real estate “investor”. Everyone wanted to get a “second property” as an investment! As credit became easy, I know folks who took out second mortgages and tried to be like the big boys and invested in “commercial property”.

But almost all the jobs that were created by easy credit conditions were not manufacturing sector. In fact, we are steadily losing our manufacturing capacity to other “cheaper lower cost countries”. Therein lies the problem. We have a trade deficit (we export less than we import). We have a federal budget deficit (and Obama is proposing a budget that has a one trillion deficit this year). Listen again : ONE TRILLION DEFICIT. Can you imagine if you propose a budget to your spouse with a deficit! Put in this context, the jobs that we have created amount to nothing more than “internal wealth transfer” and did not make us richer as a nation.

I think there is a lesson here to be learned. And that is when something comes too easy, there are always unintended consequences. And if you do not understand the root causes, you will get into trouble. Let’s use a few examples.

1. Easy Money In Your Job – Many folks who got to be mortgage brokers or brokers got lucky during boom times and made lots of money. The problem when you “by chance” entered an industry that is booming is that you run the risk thinking that the good times will last forever. I know folks in Silicon Valley that made good six figures in the late 90s and have not been able to find a job that pays anywhere near since!

2. Your kids get good grades too easily – I’ve seen this a few times. Young kid does very well in math in elementary school. It comes easy for the kid. So he never learns to work hard because he or she does not have to. But there comes a time in middle and high school when the subject gets tougher and all of a sudden, they cannot cope because they never to fight through adversity in studies.

3. Large home equity line of credit and credit cards in your wallet – Many folks have gotten into this trap. Back a couple of years ago, getting a home equity line of credit and credit cards came super easy. Hence, many folks assumed that that they could be used for silly purposes without saving money – like renovating their kitchen, taking vacations!

5. Kids who excel in sports early in life – Ever seen a kid who is eight years old and you think will become the next baseball star only to see him fade away. When things come too easy, the kid forgets that to get ahead, you always have to keep improving.

Is your job merely involve a transfer of wealth in the economy?

Perhaps the biggest question we are all asking ourselves if how safe is our jobs. One good insight is to find out if the job you have adds value to the economy or are you simply a toll taker like a real estate agent. Because we as a nation had debt up to our eyeballs, it is very unlikely that consumer spending will recover anytime soon. I think you have to ask yourself if you are working for someone with a unique product that people around the world would want. For example, if you work for Microsoft or Apple or an equipment company that sells products worldwide, then at least you know that you are helping to contribute to the wealth accumulation of this nation. But if you are in any sector that depends on “consumer spending”, I think tough times lie ahead.

If you have been laid off, or are considering a career switch, kindly consider what I have said. Don’t be fooled by easy “network marketing” or any other “easy money makers”. There is no such thing as easy money. If there is, the good times never last. And we should all have learned that by now.