Let me share another way of thinking: using assets, and the cash they can produce to get out of this problem. It's what I call "cash-to-asset-to-cash." I like it because it lets you grow out of your problems. If Gloria were to put this into practice, she wouldn't be left with only receipts and still a lot of problems. Grow. Do More. Be More. In short, put your money to work for you.
LIKE NOTHING YOU’VE EVER HEARD OF BEFORE
Writing Covered Calls can do exactly that. It is a workhorse strategy in the stock market. It gets assets producing income. You can make cash dollars of about 8% to 12% per month on your holdings.
Gloria buys 2,000 shares of a stock on margin, spending $8,900. She keeps some cash on hand. Gloria chooses shares of JCP (JC Penney’s). The options are nice. She pays out the whole $8,900 as the stock is $8.90.
During the same phone call with her broker, she sells the November $9 call options, giving someone the right to buy her stock at $9, or $9,000. Those options were 90¢ to sell. She has 2,000 shares so she can sell 2,000 options (20 contracts), taking in $1,800. (These were real numbers, though a snapshot in time as of this writing.) She now takes out the $1,800—all of it or part of it—and pays the urgent bills. This transaction took about 3 or 4 minutes, and it all happened on the day she received the $10,000 and put it into her account, and then read over the week’s TDT. The option money—that great amount of $1,800—hit her account the next day. She can pick up a check or have it wired to her account, whatever. It's her money to spend.
What about Gloria’s other bills? Well the $1,800 went a long way to paying the emergencies. In fact she has enough to take her husband and the kids out for a nice night out. My advice: Don't spend the principal, spend the profits. She has 20% of her bills paid and she has an asset, this time JCP stock still in her account, ready to go to work next month. This strategy can be done with several stocks, many of which are household names.
Now what happens? She waits until the third Friday of November. She either sells the stock at $9 (gets called out) or not, depending on the price of the stock on the expiration date. Either way she gets to keep the $1,800 and she has the stock in her account or the $10,000. She does it again. Next month, for Christmas, she takes in another $1,600 for selling the option. She pays off another $1,600 in bills and lives to fight another day. At this rate, all of her bills will be paid by April. AND SHE WILL STILL HAVE THE $10,000 (maybe more) IN HER ACCOUNT GENERATING MORE MONTHLY INCOME. *